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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
__X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 1997
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________
Commission file number 0-13940
CENTRAL SPRINKLER CORPORATION
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2328106
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
451 North Cannon Avenue, Lansdale, Pennsylvania 19446
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: 215-362-0700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No _____
Indicate 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 voting stock held by non-affiliates
of the Registrant (computed by reference to the closing price of such stock in
the NASDAQ National Market System on December 31, 1997 -- $18.4375) was
approximately $63.4 million.
The number of shares of the Registrant's common stock outstanding as of
December 31, 1997 was 3,845,637 shares.
DOCUMENTS INCORPORATED BY REFERENCE
(Specific pages incorporated are indicated
under applicable Item herein):
Registrant's definitive Proxy Statement for its 1998 Annual Meeting of
Shareholders is incorporated by reference into Part III hereof.
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PART I
Item 1. Business.
(a) General Development of Business
Central Sprinkler Corporation (the "Company"), through its
wholly-owned subsidiaries, Central Sprinkler Company ("Central Sprinkler"),
Spraysafe Automatic Sprinklers Limited ("Spraysafe"), Central Castings
Corporation ("Castings"), Central CPVC Corporation ("CPVC"), and Central
Sprinkler Export Corporation is a leading manufacturer of automatic fire
sprinkler heads, valves, grooved couplings and fittings, CPVC plastic pipe and
fittings, steel pipe, and other sprinkler system components as well as a
distributor of component parts of complete automatic fire sprinkler systems that
are either manufactured by the Company or purchased by the Company for resale to
its customers.
The Company acquired Central Sprinkler in May 1984. Key
executives of Central Sprinkler remained with the business and purchased a
portion of the Company's common stock with the remainder purchased by an outside
investor group. Prior to the acquisition, the Company did not have any
significant assets or liabilities or engage in any activities other than those
related to the acquisition. In May 1985, the Company went public by its sale of
shares of common stock of the Company in an underwritten public offering.
In September 1985, the Company conducted an underwritten public
offering of 8% Convertible Subordinated Debentures due 2010 (the "Debentures")
in an aggregate principal amount of $17.3 million. During 1988, the Company
called for early redemption all of its outstanding Debentures. Holders of $16.8
million face value of such Debentures elected to convert them into 1.6 million
shares of newly issued common stock while $135 thousand face value of such
Debentures were redeemed for cash.
On November 1, 1985, the Company acquired 80% of the outstanding
common stock and 100% of the outstanding preferred stock of Spraysafe, a
sprinkler head manufacturer and distributor in the United Kingdom. During 1989,
the Company increased its ownership in Spraysafe from 80% to 100% by purchasing
all of the remaining common stock from the minority shareholder. The acquisition
resulted in an expansion of the Company's product lines to include Spraysafe's
glass bulb sprinkler heads and provide a further means of distributing the
Company's products in foreign markets.
In July 1994, Central Sprinkler formed a new company, Central
Castings Corporation ("Castings") and acquired substantially all of the
business assets of a foundry in the Southeastern United States engaged in
manufacturing piping system components. The purchase price was approximately
$1.8 million for assets consisting primarily of property, plant and equipment.
The Company has incurred significant capital expenditures for the expansion of
this facility to accommodate production of several
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additional product lines. Castings is also an importer of product purchased for
resale to its customers to supplement manufactured product lines.
In May 1995, Central Sprinkler formed a new company, Central
CPVC Corporation ("CPVC"). Central Sprinkler Company contributed business assets
to CPVC. CPVC is engaged in manufacturing CPVC plastic pipe and fittings.
(b) Financial Information About Industry Segments.
The Company operates in one industry; the
manufacture and sale or purchase and sale of component parts of complete
automatic fire sprinkler systems.
(c) Narrative Description of Business.
General
The Company is a leading designer, manufacturer, and distributor
of automatic fire sprinkler heads, valves, grooved fittings and couplings, CPVC
plastic pipe and fittings, steel pipe, and other sprinkler system components as
well as a distributor of component parts of complete automatic fire sprinkler
systems. Approximately 85% of the Company's fiscal 1997 annual net sales are
derived from product manufactured by the Company and approximately 15% is
purchased by the Company for resale to its customers.
The Company's wide variety of products are marketed for
commercial, industrial, residential and institutional uses throughout the world.
The Company sells its products to more than 3 thousand customers, most of which
are sprinkler installation contractors.
Products
The principal components of a sprinkler system are the sprinkler
heads and the valves, both of which are manufactured and marketed by the Company
and represented approximately 51% of the Company's sales in fiscal 1997 and 56%
in fiscal 1996 and fiscal 1995. The Company also manufactures and distributes
several other components and distributes other sprinkler system component parts.
Other product lines manufactured and sold under the Company's various trade
names are steel pipe, CPVC plastic pipe and fittings and ductile iron grooved
fittings and couplings as well as other piping system components. In fiscal
1997, the Company's sales of sprinkler heads and valves continued to increase at
a double
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digit rate. The success of the Company's diversification efforts in other
components of sprinkler systems has resulted in sprinkler heads and valves
becoming a lower percentage of consolidated sales than in prior years.
Sprinkler Heads
The sprinkler head is the mechanism that is activated by heat
and discharges a water spray. The sprinkler head is composed principally of
copper, brass and other corrosion resistant materials. The Company presently
produces and markets six basic types of sprinkler heads: the standard commercial
sprinkler, the residential/life-safety sprinkler, the Flow Control(TM)
sprinkler, the extended coverage commercial sprinkler, the early suppression
fast response sprinkler and specific application series sprinklers.
The standard commercial sprinkler head is installed near the
ceiling of a structure and consists of a fusable alloy pellet which is sealed
into a bronze center strut by a stainless steel ball. When the alloy melts at
its rated temperature, the ball is forced upward into the center strut,
releasing two ejector springs and activating the sprinkler, which discharges
water in a prescribed flow path. The Company also has standard commercial
sprinklers with glass bulb activating mechanisms. Generally, standard commercial
sprinklers are designed to activate at specified temperatures between 135 and
286 degrees. Standard commercial sprinkler heads are manufactured in a wide
variety of models, sizes, and finishes. The Company also has several adjustable
concealed standard commercial sprinklers. These models have several advantages
over previous models produced by both the Company and its competitors.
The second type of sprinkler head produced and marketed by the
Company are residential/life-safety sprinklers. These sprinklers have quick
response features and are designed to react to a fire before it has a chance to
spread, which effectively minimizes the smoke, fumes and toxic by-products of
the fire. These residential/life-safety sprinklers are recognized today as the
best means to protect a life in the event of a fire. In fiscal 1983, the Company
introduced its first life-safety sprinkler in the form of the Omega(TM)
sprinkler. This patented Omega(TM) sprinkler is equipped with unique design
features which provide two principal advantages over the standard commercial
sprinkler. The Omega(TM) sprinkler operates five to six times faster than a
standard commercial sprinkler and features a spray pattern that has been shown
to be more effective in the control or extinguishment of fire. In late 1989, the
Company introduced new residential/life-safety sprinklers with glass bulb
activating mechanisms. These models featured more traditional sprinkler designs
along with the quick response features previously only available in the
Omega(TM) model. These sprinklers are more
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moderately priced than the Omega(TM) model. The Company introduced several new
models of its Glass Bulb residential sprinklers in fiscal 1995 and fiscal 1994.
Additionally, the Company introduced a new residential series of concealed
sprinklers called ROC (Residential Optima Concealed). These sprinklers offer the
best flows at the greatest area of coverage on the market.
The third type of sprinkler head produced by the Company is the
Flow Control(TM) sprinkler, which the Company has marketed since 1984. Unlike
the standard commercial sprinkler head and the residential/life-safety sprinkler
head, which continue to spray water until manually turned off, the Flow
Control(TM) sprinkler head has a distinct operating feature which allows it to
open and close automatically as heat conditions dictate. It is, therefore,
particularly well suited for areas sensitive to water damage, such as libraries,
museums or computer rooms. The Flow Control(TM) sprinkler operates faster than a
standard commercial sprinkler and is able to react to a fire before it has a
chance to spread, thereby limiting damage to the affected area.
The fourth type of sprinkler head produced by the Company is the
extended coverage commercial sprinkler. This sprinkler line brings about a
dramatic turning point in sprinkler technology by extending ordinary spacing
from 130 sq. ft. to 400 sq. ft. These sprinklers are being marketed under the
trade name of Optima(TM) sprinklers. The Company introduced the Optima(TM)
sprinkler in 1993 and developed new models in both fiscal 1995 and 1994. A
patent has been issued on these sprinklers that provide uniform distribution of
minimum densities at very low start pressures, while achieving superior fire
control when compared to the standard commercial sprinkler line.
The fifth type of sprinkler head produced by the Company
starting in fiscal 1993 is the early suppression fast response ("ESFR")
sprinkler. This sprinkler is designed for use in special hazards situations. It
is used primarily to protect storage areas where there is a need for a high
density of water with a quick responding sprinkler head. The Company has
developed new ESFR sprinklers with a larger orifice. The new K25(TM) ESFR
sprinkler was developed in fiscal 1997. By making the orifice larger, the
pressure required is lowered. The newer models of the ESFR sprinklers will
provide all of the advantages of the traditional ESFR sprinkler and a overall
economic savings to our customers due to the lower pressure.
The sixth type of sprinkler produced and marketed by the Company
is the specific application series. These sprinklers, such as the Window
Sprinklers introduced in fiscal 1995 and the Attic(TM) and the ELO-231 specific
application sprinklers, are
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designed to provide better fire protection for specific occupancies while
providing overall economic savings to our installation contractor customers. The
Company continues to expand the specific application series to include new
sprinklers for storage applications with larger orifices. These sprinklers will
further reduce the pressure required and continue from the very successful
ELO-231 series of sprinklers. The newest sprinklers developed are the
K17-231(TM) Upright and Pendent and Ultra K17(TM) models.
In fiscal 1993, the Company started to manufacture its own line
of glass bulb ampules for use as activating mechanisms in sprinkler heads. The
Company currently manufactures several varieties of these glass bulb ampules for
internal use. Such products are not sold to customers outside the Company. The
Company also supplements its own production with glass bulb ampules purchased
from several outside suppliers.
Valves
The Company markets a wide variety of sprinkler system valves
which are used specifically in fire sprinkler installations. Several of these
valves are manufactured by the Company (alarm valve, butterfly valve, check
valve, deluge valve and dry pipe valve), while certain other valves are
manufactured by others and marketed by the Company. In fiscal 1997 and 1995, the
Company introduced several new manufactured valve models. The Company has
recently introduced a full line of preaction and deluge valve equipment and a
newly designed butterfly valve. A sprinkler system valve is the mechanical
device by which the water supply is controlled. When the sprinkler head is
activated, the valve allows water to flow into and through the system.
The average cost of sprinkler heads and valves used in a complete fire
sprinkler system is generally less than 5% of the total cost of a complete
system.
CPVC Plastic Pipe and Fittings
In addition to its primary product lines of manufactured
sprinkler heads and valve products, the Company also manufactures a line of
Blazemaster(TM) CPVC plastic pipe and fittings for use in residential and light
commercial applications. The Company expanded such CPVC product lines, market
share and manufacturing capacity in fiscal years 1997, 1996 and 1995. The
Company continues its leadership position in the BlazeMaster(TM) CPVC market.
The Company built a new manufacturing facility for Blazemaster(TM) CPVC pipe and
fittings components which commenced production in May 1997. Prior to this date,
the Company manufactured the BlazeMaster(TM) CPVC pipe and fittings
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using principally Company owned machinery and equipment under a production
supply contract whereby the Company used facilities and certain personnel of an
unaffiliated plastic manufacturer.
Steel Pipe
The Company produces its proprietary line of steel sprinkler
pipe through a production supply contract in which the Company procures the
semi-processed steel coils from domestic producers and provides it to the
supplier for processing. The production supply contract allows the Company to
control the majority of production time and produce a full line of electric
resistance welded steel pipe for sprinkler systems. The Company owns all raw
materials, work in process, finished goods, selected tooling and product
approvals and listings. Approximately 80% of the product is delivered directly
to Central Sprinkler's contractor customer base and 20% is sold through the
Company's distribution network to customers.
The product is fabricated for use with various coupling methods.
The steel pipe, which is Underwriters Laboratory Listed and Factory Mutual
Approved, is utilized to fabricate the piping system to carry water to the fire
sprinklers. The pipe ends are fabricated to accept grooved couplings, threaded
fittings or plain end fittings. These product lines install together in order to
provide a completed piping system capable of supplying the necessary water
supply to the fire protection sprinklers or other quick opening devices.
Grooved Fittings and Couplings
The Central Grooved Piping product line was first established
through a 1993 acquisition of an importer of such products. The 1994 acquisition
of a ductile iron foundry by Castings and subsequent expansion of the foundry
resulted in the Company's ability to manufacture grooved fittings and couplings
and other piping system components. The product line was expanded in fiscal 1997
and fiscal 1996 and is principally domestic with some product lines from imports
including threaded fittings. The product line is used in several markets, but is
primarily focused by the Company into the fire protecton and heating,
ventilation, and air conditioning markets. These markets represent the majority
of the Company's business in this product line, and should also provide the
potential growth to maximize capacity. The grooved couplings and fittings are
used to attach to all iron pipe, standard steel pipe, high-density polyethylene
plastic pipe, and other types of piping. The grooved method provides a
cost-effective way to attach pipe ends together, primarily in two inch and above
sizing. The method is readily accepted in the fire protection, mechanical,
industrial, original equipment,
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manufacturing and heating, ventilation and air conditioning markets which
provide the Company with sales growth opportunities.
Other
The Company also distributes a wide variety of other parts used
in sprinkler system installations. The majority of the other components include
fittings, control valves, electric switches, hangers and a variety of other
items. The Company also develops and markets computer aided design ("CAD")
systems to architects, designers, and contractors for use in the design and
installation of sprinkler systems. The Company also provides other CAD related
services through its SprinkCAD division.
Marketing and Customers
The Company's products are marketed by its own sales and
marketing staff. The sales, marketing and distribution staff consists of
approximately 250 people and operates from eighteen regional sales
office/distribution centers located near Boston, Atlanta, Miami, Dallas,
Chicago, Los Angeles, San Francisco, Seattle, Philadelphia, Baltimore, Salt Lake
City, Greensboro, Portland, Cleveland and from one distribution center in the
United Kingdom, one in Singapore, one in China, and one in Hong Kong. Unlike the
majority of the industry which markets its products primarily through wholesale
distributors, the Company sells most of its products directly to sprinkler
installation contractors. This places the Company in direct contact with its
customers and allows it to respond effectively to customer demands and
suggestions.
The Company's sales and marketing efforts are directed primarily
to these sprinkler installation contractors. Additional sales and marketing
efforts are directed to the introduction and promotion of the Company's products
to architects, engineers, builders, end-users, local fire authorities and
insurance underwriters, for purposes of encouraging them to recommend or specify
the Company's sprinklers for use in new construction and retrofit installations.
The Company markets its products to more than 3 thousand
customers, the majority of whom are sprinkler industry contractors, for
commercial, industrial, residential and institutional use throughout the world.
In fiscal 1997, no single customer accounted for more than 4% of
the Company's net sales.
The Company typically manufactures about 90% of its products for
estimated shipping demands and 10% pursuant to
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specific customer orders. The Company does not have any significant order
backlog.
The Company advertises its products through various media
including insurance publications and trade journals. The Company also
participates in trade shows and trade organizations. Approximately $843 thousand
was spent on advertising and sales promotions of the Company's products in 1997.
The Company's products are not marketed pursuant to long-term
purchase agreements, but are sold pursuant to individual purchase orders. Often
the Company's published sales terms sheet is the controlling purchase document.
The Company is affected by seasonal factors and the weather as
well as the level of new construction activity, remodeling and retrofitting of
older properties in the commercial, industrial, residential and institutional
real estate markets. The Company's sales tend to increase the most when there is
a high level of new construction activity in all such real estate markets and
decline when there is a slowdown in new construction activity. In addition, as a
result of relatively higher levels of new construction during warmer spring and
summer months, the demand for sprinkler system components tends to be greater
during the summer and fall than during other seasons.
Competition
The Company competes on the basis of price, service, product
quality, design and performance characteristics. The Company encounters
competition worldwide primarily from approximately six domestic manufacturers of
sprinkler heads and valves and a large number of manufacturers and/or
distributors of other sprinkler system component parts.
The Company is the world's leading manufacturer of fire
sprinklers. The Company also believes its position is due in large part to its
relationships with customers and the innovative technological features of its
products.
Research and Development
Research and development has contributed significantly to the
Company's success over the years and will be a major factor in the Company's
ability to continue its future growth.
The Company maintains a staff of seventeen engineers and
thirty-five support technicians who devote their time to research and
development activities. During the 1997 fiscal year, the
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Company spent $7.4 million on research and development compared to $5.5
million in fiscal 1996 and $5.1 million in fiscal 1995.
The Company's efforts in this area are primarily focused on sprinkler head and
valve design and development, and are directed toward both new product
development and further refinement of the quick response technology designed for
residential/life-safety purposes, extended coverage sprinklers, enhancements to
dry pendent and Optima(TM) sprinklers, and the specific application sprinkler
series. In fiscal 1996, the Company expanded the research and development
facilities in Lansdale, Pennsylvania. The Company's heavy emphasis on the
development of new products across most product lines continued throughout the
year and led to new products in fiscal years 1997, 1996 and 1995.
Patents
The Company holds a number of patents. The Omega(TM) sprinkler
head patent, which expires January 1, 2002, protects a unique operating feature
(relating to increased activating speed and extended water coverage of the spray
pattern) and sets the Omega(TM) head apart from standard commercial sprinklers.
In September 1997, the Company was issued a patent on directional sprinklers for
usage in attics under pitched roofs, hipped roofs, dormers, interior cathedral
ceilings and other pitched overhead interior walls. In September 1997 and
December 1996, the Company was issued patents on various models of the extended
coverage ceiling sprinklers. The Company was issued a patent in fiscal 1995 on
the new extended coverage sprinkler and additional related patent applications
are pending. These patents are very important to the Company based upon the
Company's substantial investment in the development of new products and the
dramatic turning point they provide in fire sprinkler protection and technology.
The Company has also filed for patent protection on a number of other products.
Trademarks
The Company has a number of trademarks on various product names
and selected product components.
Sources of Supply
The Company uses a number of component parts in its manufacture
of sprinkler heads and valves. The principal components of the sprinkler head
include the frame, the deflector and the activating mechanism. The major
component of the valve is the metal casting.
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Materials, parts and components purchased by the Company for the
production of its sprinkler heads, valves, ductile iron and steel pipe products
are generally available from a large number of suppliers. The vast majority of
items are manufactured specifically for the Company's needs from molds, dies and
patterns owned by the Company. The Company has not experienced any shortages or
significant delays in delivery of these materials in the recent past, and
management believes that adequate supplies will continue to be available.
The Company also has a non-exclusive supply contract with the
B.F. Goodrich Company to supply the resin that the Company uses to produce
BlazeMaster(TM) CPVC plastic pipe and fittings. This supply contract, which
expires in December 2002, provides the Company with a source of resin that is
not generally available. Other products manufactured by the Company such as
steel pipe, fittings and couplings and other piping system components use raw
materials that are available from a wide variety of suppliers.
Other component parts purchased by the Company for distribution
purposes are generally available from a number of manufacturers.
Effect of Environmental Protection Regulations
The Company is subject to compliance with various federal, state
and local regulations relating to protection of the environment. The Company has
not made nor does it currently expect to make any material capital expenditures
for environmental protection and control equipment for its current operations.
As more fully discussed in Item 3, "Legal Proceedings" and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Company has been advised by the Environmental Protection Agency of a potential
contamination problem in the vicinity of the Company's primary plant.
Employees
The Company employs approximately 1,575 people, of whom
approximately 1,175 are production or shipping employees, with the remainder
serving in executive, administrative or sales capacities. The Company's
sprinkler and valve production and shipping employees are covered by a
collective bargaining agreement with the International Association of Machinists
& Aerospace Workers that expires in October 2000. All of the
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covered employees are located at the Company's primary manufacturing plant in
Lansdale, Pennsylvania.
(d) Financial Information about Foreign and Domestic
Operations and Export Sales.
The Company operates in one business segment and engages in
business activity outside the United States. During fiscal 1997, 1996 and 1995,
the combined export and foreign sales represented approximately 13.6%, 12.5% and
10.1%, respectively, of the Company's net sales. Included in foreign sales are
the sales of the Company's United Kingdom subsidiary (Spraysafe). Spraysafe
primarily manufactures sprinkler heads and distributes them and other products
in Europe and other foreign countries. Significant financial information about
Spraysafe's operations consists of the following in thousands of dollars:
Year Ended October 31,
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1997 1996 1995
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Sales $17,254 $16,807 $11,210
Operating Income 1,264 1,390 1,202
Net Income 495 789 699
Total Assets 12,382 10,803 7,903
Total Liabilities 7,747 6,799 4,862
Item 2. Properties.
The Company's primary manufacturing plant and executive offices
are located in Lansdale, Pennsylvania. The Lansdale facility is owned by the
Company. It is comprised of several buildings which contain approximately 166
thousand square feet of floor space on a parcel of about 7 acres. This facility
is pledged as security for a mortgage loan. In fiscal 1996, the Company
purchased a building and land for additional offices in Lansdale, Pennsylvania
which contains approximately 14 thousand square feet. The Company also owns a
separate fire sprinkler component manufacturing facility of approximately 15
thousand square feet in Pennsylvania and a piping systems components
manufacturing facility and foundry of approximately 155 thousand square feet on
a 67 acre parcel in Alabama purchased in fiscal 1994. The Company's Central CPVC
Corporation subsidiary owns a manufacturing plant located in Huntsville, Alabama
containing approximately 79 thousand square feet of floor space on a parcel of
approximately 15 acres. The plant houses offices, manufacturing operations and
inventory.
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The Company's fourteen domestic sales office/distribution
centers are located in major cities across the United States listed in Item
1(c), "Marketing and Customers", hereof and range in size from 11 thousand to 66
thousand square feet per building. These facilities are leased by the Company
pursuant to leases which terminate through 2002. The Company has options to
extend certain of its leases for additional periods on similar terms.
The Company's United Kingdom subsidiary owns a manufacturing
plant in the United Kingdom which contains approximately 12 thousand square feet
of floor space on a parcel of about 1 acre. This facility is also pledged as
security for a loan. The United Kingdom subsidiary also leases a distribution
center of approximately 5 thousand square feet in the United Kingdom under a
lease that expires in 2000, leases a distribution center of approximately 3
thousand square feet in Singapore under a lease that expires in 1998, leases
approximately 1 thousand square feet of office space in Hong Kong and leases
approximately 1 thousand square feet in Beijing, China.
The Company's manufacturing and assembly facilities operate on a
two-shift or three-shift per day basis. All of the manufacturing equipment used
in the production process is owned by the Company. At October 31, 1997, the
Company's owned and leased facilities are generally adequate and suitable for
the Company's needs and are virtually fully utilized for their intended use. In
the normal course of business, the Company continually evaluates its properties
and facilities for their adequacy and suitability.
Item 3. Legal Proceedings.
The Company is engaged in discussions with the Environmental
Protection Agency concerning a claim which may develop in connection with the
Company's primary manufacturing plant in Lansdale, Pennsylvania. This potential
claim is more fully discussed in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
In August 1997, a lawsuit was filed against the Company in the
State of California regarding the Omega(TM) sprinkler heads. Although the suit
has been brought by owners of two homes, the plaintiffs seek to represent a
class of building owners who have Omega(TM) sprinkler heads installed in their
buildings. The lawsuit concerns the activation pressures of certain Omega(TM)
sprinkler heads. In December of 1997, a similar lawsuit was filed in California
on behalf of the County of Santa Clara, seeking to represent a class of public
entities and commercial building owners who have installed Omega(TM) sprinkler
heads. The two cases should receive substantially similar treatment from the
courts, and may be formally coordinated by the courts. The courts have not
determined whether they will permit the actions to go forward as class actions
and the complaints do not specify a dollar amount the plaintiffs are seeking.
There can be no assurance that the ultimate outcome of such actions will be
resolved favorably to the Company or that such litigation, or any additional
litigation, will not have an adverse effect on the Company's liquidity,
financial condition or results of operations.
Several governmental authorities, including the United States
Consumer Products Safety Commission (the "Commission"), are investigating
problems regarding the Company's Omega(TM) sprinkler heads. The staff of the
Commission has advised the Company that it is recommending to the Commission
that it take administrative action against the Company which may require the
Company to repair, replace, or refund the purchase price of Omega(TM)
sprinklers. The staff of the Commission has also invited the Company to provide
additional information to refute the staff's recommendation. It is possible that
the Commission or one or more of these other regulatory authorities may require
the Company to take remedial action that would have an adverse effect on the
Company's liquidity, financial condition or results of operations.
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In the fourth quarter of fiscal 1997, the Company recorded a
charge of $13.2 million which the Company believes is adequate to cover the
estimated costs of resolving the Omega(TM) lawsuits, the Commission
investigations and the Company's voluntary Omega(TM) remediation program (see
Footnote #14 of the Notes to the Consolidated Financial Statements) based on
information available at this time. This amount is based on estimates of the
number of Omega(TM) sprinklers, the action plan necessary to remediate the
sprinklers and various other assumptions. In the event additional information
becomes available in the future which changes management's estimates, additional
provisions may be necessary.
The Company, in the normal course of business, is party to
various other claims and lawsuits with regard to its products and other matters.
Management believes that the ultimate resolution of these other matters will not
have a material impact on the Company's financial position, results of
operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders of the
Company, through the solicitation of proxies or otherwise, during the fourth
quarter of fiscal 1997.
Item 4(a). Executive Officers of the Registrant.
The names and ages of the Registrant's executive officers and
key employees, their positions with the Company and with Central Sprinkler, its
primary operating subsidiary, and their principal occupations during the past
five years are as follows:
Position(s) with the Company, and
where indicated, with Central
Name Age Sprinkler
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Winston J. Churchill 57 Chairman of the Board and Director
George G. Meyer 48 President, Chief Executive Officer,
Secretary, Treasurer and Director,
and President and Chief Executive
Officer of Central Sprinkler
Richard P. O'Leary 59 Director and Chief Operating
Officer of Central Sprinkler
James R. Buchanan 48 Executive Vice President, Sales of
Central Sprinkler
Stephen J. Meyer 46 Senior Executive Vice President of
Central Sprinkler and Director
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Position(s) with the Company, and
where indicated, with Central
Name Age Sprinkler
- ---- --- ----------------------------------
William J. Pardue 47 Executive Vice President,
Administration of Central Sprinkler
Albert T. Sabol 45 Executive Vice President, Finance
and Chief Financial Officer of the
Company and Central Sprinkler
James E. Golinveaux 34 Senior Vice President,
Manufacturing and Engineering of
Central Sprinkler
Anthony A. DeGregorio 38 Vice President, SprinkCAD of
Central Sprinkler
Michael J. Graham 47 Vice President, International
Operations of Central Sprinkler
Richard C. Hobbs 38 Vice President, Materials and
Purchasing of Central Sprinkler
George S. Polan 47 Vice President, Research and
Development of Central Sprinkler
Carmine L. Schiavone 31 Vice President, Piping Products of
Central Sprinkler
Leonard E. Schiavone 31 Vice President, Piping Products of
Central Sprinkler
Marilyn M. Thomas 38 Vice President, Distribution
Operations of Central Sprinkler
WINSTON J. CHURCHILL - Mr. Churchill has been Chairman of the
Board and a director of the Company and a director of Central
Sprinkler since 1984. Mr. Churchill has been President of Churchill
Investment Partners, Inc., a private investment firm, since 1989. He
was a partner of Bradford Associates, a private investment firm, from
1984 to 1989. Mr. Churchill is also a director of IBAH, Inc., Geotek
Communications, Inc. and Tescorp, Inc.
WILLIAM J. MEYER - Mr. Meyer was an Executive Officer of the
Company until October 31, 1997 when he resigned his offices and became a Senior
Consultant of Central Sprinkler. He has been a director of the Company since
1984 and a director of Central Sprinkler since 1975. He served as Chairman of
the Board of Central Sprinkler and President of the Company since 1984.
-15-
<PAGE>
GEORGE G. MEYER - Mr. Meyer has been President and Chief
Executive Officer of the Company since November 1997. He was Chief Executive
Officer since 1987 and Secretary and Treasurer of the Company since 1985, and a
director of the Company and President and a director of Central Sprinkler since
1984. He was Executive Vice President of the Company from 1985 to 1987.
RICHARD P. O'LEARY - Mr. O'Leary has been a director of the
Company since 1990 and Chief Operating Officer of Central Sprinkler
since November 1997. He was a consultant, and he was former Vice
President of Betz Laboratories, Inc. from January 1990 through March
1991.
JAMES R. BUCHANAN - Mr. Buchanan has been Executive Vice
President, Sales of Central Sprinkler since 1996. He was Vice
President, Sales of Central Sprinkler since 1984.
STEPHEN J. MEYER - Mr. Meyer has been Senior Executive Vice
President of Central Sprinkler since November 1997. He was a director
of the Company and Executive Vice President of Central Sprinkler since
1986. He has been a director of Central Sprinkler since 1983.
WILLIAM J. PARDUE - Mr. Pardue has been Executive Vice
President of Administration of Central Sprinkler since November 1997.
He was Executive Vice President of Central Sprinkler since 1980.
ALBERT T. SABOL - Mr. Sabol has been Executive Vice
President, Finance and Chief Financial Officer of the Company and
Central Sprinkler since November 1997. He was Executive Vice
President, Finance and Administration of the Company and Central
Sprinkler since 1996. He was Vice President, Finance and Chief
Financial Officer of the Company and Central Sprinkler since 1986.
JAMES E. GOLINVEAUX - Mr. Golinveaux has been Senior Vice
President, Manufacturing and Engineering of Central Sprinkler since November
1997. He was Senior Vice President, Engineering of Central Sprinkler since 1996.
He was Vice President, Technical Service and Engineering of Central Sprinkler
since 1993 and Vice President, Technical Service of Central Sprinkler since
1992. He was Director of Technical Service from 1991 to 1992. From 1986 to 1991
he was the Design Manager for a large fire protection installation contractor.
ANTHONY A. DEGREGORIO - Mr. DeGregorio has been Vice President,
SprinkCAD of Central Sprinkler since 1993 and was manager of SprinkCAD sales and
service from 1990 to 1993. From 1986 to 1990 he was General Manager of a
computer aided design services company.
-16-
<PAGE>
MICHAEL J. GRAHAM - Mr. Graham has been Vice President,
International Operations of Central Sprinkler since 1995 and Managing
Director of Spraysafe Automatic Sprinkler Limited (U.K.) since 1990.
RICHARD C. HOBBS - Mr. Hobbs has been Vice President,
Materials and Purchasing of Central Sprinkler since 1997. He was Vice
President, Materials and Quality Assurance of Central Sprinkler since
1996 and was Director of Purchasing from 1995 to 1996. From 1990 to
1995 he was Engineering Manager.
GEORGE S. POLAN - Mr. Polan has been Vice President, Research
and Development of Central Sprinkler since 1990. He was Vice
President, Engineering of Central Sprinkler from 1986 to 1989.
CARMINE L. SCHIAVONE - Mr. Schiavone has been Vice President of
Piping Products of Central Sprinkler since 1996 and was Director of Piping
Products from 1995 to 1996 and Manager of Piping Products from 1993 to 1995. He
was Manager of Customer Service from 1989 to 1993.
LEONARD E. SCHIAVONE - Mr. Schiavone has been Vice President of
Piping Products of Central Sprinkler since 1996 and was Director of Piping
Products from 1995 to 1996. He was a Marketing Manager from 1989 to 1995.
MARILYN M. THOMAS - Ms. Thomas has been Vice President,
Distribution Operations of Central Sprinkler since 1995 and was
Director of Warehouse Operations from 1984 to 1994.
George G., Stephen J. Meyer, and Marilyn M. Thomas are
brothers and sister and are sons and daughter of William J. Meyer.
William J. Pardue is William J. Meyer's son-in-law.
-17-
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters.
The Company's Common Stock is traded on the NASDAQ National
Market, NASDAQ symbol - CNSP. The following table sets forth, for the fiscal
years indicated, the range of high and low price quotations.
Fiscal 1997:
- ------------
High Low
---- ---
First Quarter............... $28 3/4 $17 1/4
Second Quarter.............. 28 1/2 17 3/4
Third Quarter............... 28 1/4 17 1/2
Fourth Quarter.............. 22 16 1/2
Fiscal 1996:
- ------------
High Low
---- ---
First Quarter............... $38 3/4 $28 3/4
Second Quarter.............. 39 1/4 27 1/4
Third Quarter............... 28 3/4 20
Fourth Quarter.............. 22 1/2 16
As of December 31, 1997, there were approximately 1 thousand
holders of record of Common Stock of the Company. The closing price of such
stock on the NASDAQ National Market on December 31, 1997 was $18.4375.
The Company has not paid dividends on Common Stock since its
inception in 1984. The Company intends to continue its policy of retaining
earnings to finance future growth.
Item 6. Selected Financial Data.
The following summary sets forth selected financial data with
respect to the Company for the last five fiscal years. The selected financial
data has been derived from the consolidated financial statements of the Company.
This data should be read in conjunction with other financial
information of the Company, including the consolidated financial statements of
the Company and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.
-18-
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA
(Amounts in thousands, except per share)
The following fiscal year information should be read in conjunction with the
accompanying consolidated financial statements appearing elsewhere in this
report.
<TABLE>
<CAPTION>
Interest Net
(1) Expense Net Income
Net Gross Operating (Income), Income (Loss)
CONSOLIDATED OPERATIONS Sales Profit Income Net (Loss) Per Share
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended October 31, 1997 $221,990 $53,080(2) $ 745(2) $4,322 $(2,542)(2)$(.78)(2)
Year Ended October 31, 1996 187,220 52,225(2) 8,999(2) 2,939 3,763 (2) 1.13 (2)
Year Ended October 31, 1995 158,849 51,684 15,305 1,902 8,458 2.50
Year Ended October 31, 1994 116,249 35,237 6,428 678 4,018 (3) .80 (3)
Year Ended October 31, 1993 82,481 23,396 2,881 (295) 2,376 .50
- --------------------------------------------------------------------------------------------
Long- Total
CONSOLIDATED FINANCIAL Working Current Total Term Total Shareholders'
POSITION Capital Ratio Assets Debt Debt Equity
- --------------------------------------------------------------------------------------------
As of October 31, 1997 $84,990 2.8:1 $188,027 $79,918 $85,175 $52,898
As of October 31, 1996 35,522 1.5:1 150,918 24,674 62,914 54,392
As of October 31, 1995 47,292 2.2:1 117,360 27,516 45,391 49,550
As of October 31, 1994 53,168 3.0:1 99,061 19,391 30,955 51,101
As of October 31, 1993 38,078 2.4:1 80,303 3,544 19,001 46,563
- --------------------------------------------------------------------------------------------
</TABLE>
SELECTED FINANCIAL DATA FOOTNOTES
(1) Operating income represents income before income taxes and interest expense
(income), net.
(2) After unusual fourth quarter charges of $13,200 ($8,976 net of tax or $2.74
per share) in fiscal 1997 and $3,750 ($2,362 net of tax or $.72 per share)
in fiscal 1996 (See Footnote #14 of the Notes to Consolidated Financial
Statements contained herein).
(3) After favorable cumulative effect of $238 ($.05 per share) due to
accounting change for income taxes.
-19-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
The following table shows, for the years indicated, the percentage
relationships to net sales of the items included in the Consolidated Statements
of Income and the percentage changes in the dollar amounts of such items from
year-to-year.
Percentage of Net Sales
----------------------- Percentage Increase
Year Ended October 31, (Decrease)
----------------------- -------------------
Year 1997 Year 1996
1997 1996 1995 Over 1996 Over 1995
----- ----- ----- --------- ---------
Net sales............ 100.0% 100.0% 100.0% 18.6% 17.9%
Cost of sales........ 76.1 72.1 67.5 25.1 26.0
----- ----- -----
Gross profit......... 23.9 27.9 32.5 1.6 1.0
----- ----- -----
Selling, general and
administrative..... 20.3 20.2 19.7 19.1 20.9
Research and
development........ 3.3 2.9 3.2 34.8 6.3
----- ----- -----
23.6 23.1 22.9 21.1 18.8
----- ----- -----
Operating income..... .3 4.8 9.6 (91.7) (41.2)
----- ----- -----
Interest expense..... 2.2 1.8 1.5 44.0 43.5
Interest income ..... (.3) (.2) (.3) 23.7 (2.2)
----- ----- -----
1.9 1.6 1.2 47.1 54.5
----- ----- -----
Income (loss) before
income taxes (1.6) 3.2 8.4 N/M (54.8)
Income tax provision
(benefit) (.5) 1.2 3.1 N/M (53.5)
----- ----- -----
Net income (loss).... (1.1) 2.0 5.3 N/M (55.5)
===== ===== =====
N/M - Denotes not meaningful
-20-
<PAGE>
Fiscal 1997 was the fifth straight year of record net sales. Fiscal
1997 net sales increased to $222.0 million, $34.8 million or 18.6% from fiscal
1996 net sales of $187.2 million. The sales increases are the result of market
demand for fire sprinkler products, a continued strong market share held by the
Company in such market, unit, sales increases across most fire sprinkler system
products, and new fire sprinkler and fittings products. The new construction
market and the retrofit of existing buildings drive the worldwide demand for the
Company's fire sprinklers and related products. The Company's programs in
developing and expanding production and additional marketing of products
continue to increase sales. The Glass Bulb and Optima(TM) fire sprinkler models,
CPVC pipe and fittings and grooved fittings and couplings lead the Company's
sales gains. Sales increases were realized throughout the U.S. and in
international markets. In fiscal 1997, domestic sales increased 19.3% and sales
outside the U.S. increased 13.6% from fiscal 1996. The Company continues to
experience increased competitive conditions worldwide in the sprinkler market
primarily through stiff price competition which continues to depress sales
prices. The Company announced a September 1, 1997 sales price increase on most
of its sprinkler and valve products in an effort to improve the Company's gross
profit.
Fiscal 1996 net sales increased $28.4 million or 17.9% to $187.2
million from fiscal 1995 net sales of $158.8 million. The sales increase
reflected a continuing strong market demand for fire sprinkler products, the
continued strong market share held by the Company as well as strong sales for
several of the Company's fire sprinkler models. New construction and the
retrofit of existing buildings drove the worldwide market demand for the
Company's fire sprinklers and related products. The Company's programs to
develop and expand production and marketing of products continued to increase
sales. The Company experienced unit sales gains in sales of virtually all major
product groups. The glass bulb fire sprinkler models led the Company's sprinkler
sales gains. Strong market demand helped the Company achieve increased unit
sales in other products sold for use in complete automatic fire sprinkler
systems. The Company also experienced particularly strong unit sales of its
valves and CPVC plastic pipe and fittings products. Sales also benefited from
several new or expanded distribution centers and sales offices in the U.S. and
abroad as well as the expansion of the Company's pipe and fittings product
lines. In fiscal 1996, domestic sales increased 14.7% and sales outside the U.S.
increased 45.8% from fiscal 1995. The Company experienced price competition
which resulted in depressed sales prices. Sales were also unfavorably impacted
early in the fiscal year due to severe weather
-21-
<PAGE>
conditions in many parts of the U.S. which slowed construction activity and
demand as well as construction and expansion delays limiting production at the
Company's grooved fittings facility in Alabama. The significant increase outside
the U.S. is the result of increased marketing efforts worldwide, increased
production capacity in the U.S. and at Spraysafe and new sales offices in Hong
Kong and China. In July 1996, the Company announced sales list price increases
of 8% on most of its sprinkler and valve products in an effort to improve the
Company's gross profit.
Cost of sales for fiscal 1997 increased to $168.9 million, an increase
of $33.9 million or 25.1%. Fiscal year 1997 cost of sales included an unusual
charge in the fourth quarter of $13.2 million and fiscal 1996 cost of sales
included an unusual charge of $3.75 million. The unusual fourth quarter charge
in fiscal 1997 was recorded to reflect the estimated expenses to be incurred
over the next several years for the expansion of a voluntary program which was
initiated by the Company in fiscal 1996 to encourage the testing and possible
replacement of certain Omega(TM) fire sprinklers. Certain Omega(TM) sprinklers
have been found to require higher than normal pressures for activation. (See
Footnote #14 of the Notes to Consolidated Financial Statements). Fiscal 1997
cost of sales increased $24.5 million or 18.6% from fiscal 1996 excluding the
unusual charges from both years. The net increase in cost of sales is due
primarily to increased costs of manufacturing related to the higher sales volume
and increased costs for raw material, labor, and overhead. The Company added
more production equipment and enlarged its production space later in the year to
accommodate the increasing product demand. The rapid growth led to higher than
expected costs to manufacture some products and had a negative impact on the
overall gross profit margin percentage before the unusual Omega(TM) charge. The
Company's cost of sales in fiscal 1997 increased to 76.1% of net sales from
72.1% of net sales in fiscal 1996. This resulted in a gross margin percentage of
23.9% in fiscal 1997 compared to 27.9% in fiscal 1996. The decrease is due to
the unusual charge, which was 6.0% of net sales in fiscal 1997 versus 2.0% of
net sales in fiscal 1996. Excluding the unusual charges, gross margin percentage
would have been 29.9% in both fiscal 1997 and 1996.
Cost of sales for fiscal 1996, in terms of dollars of expense,
increased 26.0% or $27.8 million from fiscal 1995. The increase in cost of sales
was due to higher sales volume, increased costs of manufacturing and an unusual
non-recurring charge in the fourth quarter of fiscal 1996. The Company's cost of
sales increased to 72.1% of net sales from 67.5% of net sales in fiscal 1995.
This resulted in a gross margin percentage of 27.9% in fiscal 1996 compared to
32.5% in fiscal 1995. The decrease in gross margin percentage was due to several
items. In the fourth quarter of fiscal 1996, the Company recorded an unusual
charge of $3.75 million resulting from the program announced by the Company to
encourage customers to test and possibly replace some Omega(TM) sprinklers that
were exposed to
-22-
<PAGE>
harmful substances in certain installations. (See Footnote #14 of the Notes to
Consolidated Financial Statements). Excluding the unusual fourth quarter charge,
cost of sales as a percent of net sales would have been 70.1% in fiscal 1996 and
the gross margin percentage would have been 29.9% in fiscal 1996. Another factor
reducing the gross margin percentage in fiscal 1996 from fiscal 1995 was
increased costs of manufacturing sprinklers, valves and associated products. In
response to increased sales volumes, the Company significantly increased
production levels which resulted in some manufacturing inefficiencies. These
inefficiencies along with higher raw material costs and the delay in the startup
of the grooved fittings facility all contributed to the reduction in gross
margin in fiscal 1996. Late in fiscal 1996 the Company experienced improvement
in sprinkler and valve manufacturing efficiencies as compared to earlier in the
fiscal year. The expansion of the grooved fittings facility which depressed
earnings in the earlier quarters of fiscal 1996 improved in virtually all areas
in the fourth quarter including improved production levels, and lower costs per
unit.
Selling, general and administrative expenses were $45.0 million in
fiscal 1997, an increase of $7.2 million or 19.1% from fiscal 1996. These
expenses were 20.3% of net sales in fiscal 1997 as compared to 20.2% of fiscal
1996 net sales. The selling, general and administrative expense increase was due
primarily to increased selling and distribution expenses resulting from the
increased sales volume and the expansion of distribution operations to better
serve existing and new customers in the U.S. and internationally with expanded
product lines. The Company also opened new sales locations in Hong Kong and
China late in fiscal 1996. The Company continues to develop an improved
distribution requirements planning system to increase distribution efficiencies
and reduce costs. The increase in selling, general and administrative expenses
was also due to a higher number of administrative personnel to support the
Company's growth.
Selling, general and administrative expenses increased $6.5 million or
20.9% to $37.8 million in fiscal 1996 from $31.2 million in fiscal 1995. Such
expenses were 20.2% of net sales in fiscal 1996 as compared to 19.7% of net
sales in fiscal 1995. The principal increases in selling, general and
administrative expenses were due to the increase in sales volume and the
expansion of distribution operations to better serve existing and new customers.
The Company expanded five existing distribution
-23-
<PAGE>
centers to better serve those markets with more space, personnel, expanded
product lines and opened a new distribution center in Cleveland, Ohio in
November 1995. Sparysafe opened a sales location in Singapore in July 1995 and
opened sales locations in Hong Kong and China late in fiscal 1996. The principal
components of the dollar increase included salaries, fringes, freight, building
and vehicle expenses.
Research and development expenses increased to $7.4 million in fiscal
1997, an increase of $1.9 million or 34.8% from fiscal 1996. Research and
development expenses were 3.3% of fiscal 1997 net sales as compared to 2.9% of
fiscal 1996 net sales. The increase in research and development expenses is due
primarily to higher outside expenses and additional Company facilities for
expanded new product development and testing. The Company's research and
development investment continues to result in new, improved and innovative
products and product lines and continues to be a driving factor in the Company's
growth and leadership position.
Research and development expenses for fiscal 1996 was $5.5 million
which was a 6.3% increase of $322 thousand from fiscal 1995. Research and
development expenses were 2.9% of net sales in fiscal 1996 as compared to 3.2%
in fiscal 1995. The research and development expense increase was due to an
increase in the number of personnel for the development and testing of new and
improved products. The decrease in research and development as a percent of
sales was attributable to the significant increase in sales in 1996. The Company
continued its emphasis on research and development to improve existing product
lines and to provide innovative new products. Research and development programs
are a very important part of the long term growth plan of the Company. New
products have helped the Company maintain its leadership position in the fire
sprinkler industry.
Net interest expense in fiscal 1997 was $4.3 million, 1.9% of net
sales, as compared to $2.9 million, 1.6% of net sales, in fiscal 1996. Interest
expense was $4.9 million in fiscal 1997 compared to $3.4 million in fiscal 1996.
In fiscal 1996, the Company capitalized $290 thousand of interest costs related
to the grooved fittings manufacturing facility expansion and construction. No
interest was capitalized in fiscal 1997. The higher interest expense was due to
the overall increase in debt. Total debt was $85.2 million at October 31, 1997
as compared to $62.9 million at October 31, 1996. The additional debt was
required to finance the increased growth in the Company's business, principally
in manufacturing capital expenditures and increased accounts receivable and
inventories. Interest income was $558 thousand in fiscal 1997 as compared to
$451 thousand in fiscal 1996. A higher average investment balance in fiscal 1997
was partially offset by lower interest income rates.
Net interest expense of $2.9 million, or 1.6% of net sales in fiscal
1996, as compared to $1.9 million, or 1.2% of net sales
-24-
<PAGE>
in fiscal 1995. Interest expense was $3.4 million, after capitalizing $290
thousand of interest incurred, in fiscal 1996 as compared to $2.4 million, after
capitalizing $333 thousand in fiscal 1995. Interest expense increased due to
higher levels of debt required to finance the increased growth in the Company's
business, principally in manufacturing capital expenditures and increased
accounts receivable and inventories. At October 31, 1996, total debt was $62.9
million as compared to $45.4 million at October 31, 1995. Interest income was
$451 thousand in fiscal 1996 as compared to $461 thousand in fiscal 1995. A
higher average investment balance in fiscal 1996 was offset by slightly lower
interest income rates.
The Company's effective income tax rate for fiscal 1997 was (28.99%) as
compared to 37.9% in fiscal 1996. The decrease in the overall effective income
tax rate is the result of a decrease in the effective state income tax rate due
to the net loss for the year and an increase in anticipated federal income tax
credits. Such anticipated federal income tax credits were a significantly larger
percentage of pretax amounts due to the reduced pretax balance.
The Company's effective income tax rate for fiscal 1996 was 37.9% as
compared to 36.9% in fiscal 1995. The increase in the overall effective income
tax rate was the result of the unfavorable impact of non-deductible expenses on
the lower level of income in 1996 offset by a reduction in the effective state
income tax rate and higher tax-exempt investment income as a percentage of
pre-tax income as compared to fiscal 1995. The overall effective federal income
tax rate includes the unfavorable effect of the market value adjustment of ESOP
shares.
The Company's sales are affected by seasonal factors and the weather as
well as the level of new construction activity, remodeling and retrofitting of
older properties in the commercial, industrial, residential and institutional
real estate markets. The Company's sales tend to increase the most when there is
a high level of new construction activity in all such real estate markets. In
addition, as a result of relatively higher levels of new construction during
warmer spring and summer months, the demand for sprinkler system components
tends to be greater during the summer and fall than during other seasons.
Liquidity and Capital Resources
The Company's primary sources of long-term and short-term liquidity are
its current financial resources, projected cash from operations and borrowing
capacity. The Company believes that these sources will be sufficient to fund the
programs necessary for future operations, growth and expansion. The Company's
combined cash,
-25-
<PAGE>
cash equivalents and short-term investments were $20.9 million at October 31,
1997 as compared to $15.4 million at October 31, 1996. The increase in cash and
cash equivalents short-term investments is the result of normal fluctuations in
operations. At October 31, 1997, the Company has $4.1 million of available
borrowing capacity under a new Revolver Credit Agreement and lines of credit.
Cash provided by operating activities in fiscal 1997 was $1.2 million
as compared to $4.2 million in fiscal 1996. Net income (loss) plus non-cash
items generated $15.6 million of cash in fiscal 1997 as compared to $11.2
million in fiscal 1996. The increase in fiscal 1997 as compared to fiscal 1996
was due primarily to the unusual Omega(TM) charge and the increase in
depreciation partially offset by lower net income. Net cash used for working
capital purposes was $14.4 million in 1997 as compared to $7.0 million in 1996
primarily as a result of increases in accounts receivable and prepaid expenses
and other assets. The Company continues to produce and stock in inventory new
lines of grooved fittings products. Increases in sales volume will continue to
utilize operating cash flow to support increased levels of inventories and
accounts receivable.
Cash used in investing activities was $20.0 million in fiscal 1997 as
compared to $21.0 million in fiscal 1996. The primary use of cash was for the
acquisition of property, plant and equipment during these periods. The capital
expenditures were primarily to expand manufacturing capabilities for fire
sprinklers and associated components, grooved fittings product lines and the
construction of a Company owned CPVC plastic manufacturing facility in
Huntsville, Alabama. In addition, in fiscal 1997 the Company was required to
deposit $5.0 million as security for a new loan and such amount is included in
other long-term assets as of October 31, 1997.
Cash provided by financing activities in fiscal 1997 was $22.5 million
as compared to $17.7 million in fiscal 1996. The primary source of cash was from
a new Revolver Credit Agreement of $50.0 million. A secured Term Loan was also
obtained in the amount of $7.5 million. Proceeds of the long-term Revolver
Credit Agreement and the Term Loan were used to repay $32.0 million of
short-term borrowings and establish the $5.0 million
-26-
<PAGE>
investment to secure the Term Note. The remaining proceeds were used primarily
to fund the increased growth in the Company's business, including working
capital and capital expenditures. In fiscal 1996, the primary sources of cash
were from the issuance of $11.0 million of Industrial Revenue Bonds and
additional short-term borrowings. In fiscal 1995, the Company utilized $11.8
million for the repurchase of 1.2 million shares of its common stock which are
being held in the treasury for possible future issuance.
The Company purchases property, plant and equipment from time to time
as required to maintain and expand its offices, manufacturing and research
facilities and distribution centers. The Company has expanded and improved its
operations over the years with such purchases and the Company intends to
continue this policy in the future. The Company has commitments in the ordinary
course of business for such expansions of facilities and equipment and for
research and other contracts.
The Company believes its cash, cash equivalents and short-term
investments, along with the Company's future earnings and borrowing capacity,
provide adequate liquidity to meet the Company's obligations and to fund future
growth and expansion.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, which the Company is required to adopt for both
interim and annual periods ending after December 15, 1997. SFAS No. 128
simplifies the earnings per share (EPS) calculation by replacing primary EPS
with basic EPS and replacing fully diluted EPS with diluted EPS. Basic EPS is
computed by dividing reported earnings available to common shareholders by the
weighted average number of shares outstanding. Diluted EPS reflects the
potential dilution from the exercise or conversion of securities into common
stock, such as stock options. Early application is prohibited, although footnote
disclosure of proforma EPS amounts are required and is presented in Footnote No.
2.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130).
SFAS No. 130 established standards for the reporting and display of
comprehensive income in financial statements. Comprehensive income is the change
in net assets during a period from transactions generated from non-owner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. The Company
will adopt SFAS No. 130 in fiscal 1999 and believes that the adoption will not
have a material impact on the financial statements.
-27-
<PAGE>
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131). SFAS No. 131 requires that business segment
financial information be reported in the financial statements utilizing the
management approach. The management approach is the manner in which management
organized the segments within the enterprise for making operating decisions and
assessing performance. The Company will adopt SFAS No. 131 in fiscal 1999 and
believes that the adoption will not have a material impact on the financial
statements.
The Company and approximately thirty other local businesses were
notified by the Environmental Protection Agency ("EPA") in August 1991 that they
may be a potentially responsible party with respect to a groundwater
contamination problem in the vicinity of the Company's primary manufacturing
plant in Lansdale, Pennsylvania. The Company has entered into an Administrative
Order of Consent for Remedial Investigation/Feasibility Study ("AOC") effective
May 19, 1995 with the EPA. Pursuant to the AOC, in 1996 the Company performed
certain tests on the Company's property to determine whether any land owned by
the Company could be a source of any of the contamination at the site. Based
upon such tests management believes that the Company's operations did not
contribute to this contamination problem and the Company has no liability to
clean-up this site. Should the EPA mandate the Company's participation in
cleanup efforts it is estimated that such costs could aggregate up to $2.7
million. The Company has not accrued for such cleanup costs.
In August 1997, a lawsuit was filed against the Company in the State of
California regarding the Omega(TM) sprinkler heads. Although the suit has been
brought by owners of two homes, the plaintiffs seek to represent a class of
building owners who have Omega(TM) sprinkler heads installed in their buildings.
The lawsuit concerns the activation pressures of certain Omega(TM) sprinkler
heads. In December of 1997, a similar lawsuit was filed in California on behalf
of the County of Santa Clara, seeking to represent a class of public entities
and commercial building owners who have installed Omega(TM) sprinkler heads. The
two cases should receive substantially similar treatment from the courts, and
may be formally coordinated by the courts. The courts have not determined
whether they will permit the actions to go forward as class actions and the
complaints do not specify a dollar amount the plaintiffs are seeking. There can
be no assurance that the ultimate outcome of such actions will be resolved
favorably to the Company or that such litigation, or any additional litigation,
will not have an adverse effect on the Company's liquidity, financial condition
or results of operations.
Several governmental authorities, including the United States Consumer
Products Safety Commission (the "Commission"), are investigating problems
regarding the Company's Omega(TM) sprinkler heads. The staff of the Commission
has advised the Company that it is recommending to the Commission that it take
administrative action against the Company which may require the Company to
repair, replace, or refund the purchase price of, Omega(TM) sprinklers. The
staff of the Commission has also invited the Company to privide additional
information to refute the staff's recommendation. It is possible that the
Commission or one or more of these other regulatory authorities may require the
Company to take remedial action that would have an adverse effect on the
Company's liquidity, financial condition or results of operations.
In the fourth quarter of fiscal 1997, the Company recorded a charge of
$13.2 million which the Company believes is adequate to cover the estimated
costs of resolving the Omega(TM) lawsuits, the Commission investigations and the
Company's voluntary Omega(TM) remediation program (see Footnote #14 of the Notes
to the Consolidated Financial Statements) based on information available at this
time. This amount is based on estimates of the number of Omega(TM) sprinklers,
the action plan necessary to remediate the sprinklers and various other
assumptions. In the event additional information becomes available in the future
which changes management's estimates, additional provisions may be necessary.
-28-
<PAGE>
The Company, in the normal course of business, is party to various
other claims and lawsuits with regard to its products and other matters.
Management believes that the ultimate resolution of these other matters will not
have a material impact on the Company's financial position, results of
operations or liquidity.
This document contains certain forward-looking statements that
are subject to risks and uncertainties. Forward-looking statements include
certain information relating to general business strategy, the potential market
and uses for the Company's sprinklers and other products, expansion plans, cost
structure, the effects of competition on the structure of the markets in which
the Company competes, operating performance and liquidity, litigation matters
and the adequacy of the charge recorded to cover such matters, as well as
information contained elsewhere in this document where statements are preceded
by, following by or include the words "believes," "expects," "estimates,"
"anticipates" or similar expressions. For such statements, the Company claims
the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995. Actual events or results
may differ materially from those discussed in forward-looking statements as a
result of various factors, including without limitation, those discussed in this
document and other documents filed by the Company with the Securities and
Exchange Commission.
-29-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Company for the years ended
October 31, 1997, 1996, and 1995, together with the report thereon of Arthur
Andersen LLP dated January 26, 1998, are set forth on pages F-1 through F-18
hereof. The supplementary financial data for the Company is set forth on page
F-19 hereof.
The remainder of the financial information required by this report is set
forth on page S-1 which follows the consolitated financial statements and
supplementary financial data set forth on pages F-1 through F-19 hereof. Such
information is listed in Item 14(a)(2) hereof.
Item 9. Disagreements on Accounting and Financial Disclosure.
There have been no disagreements on any matter of accounting principles or
practices or financial statement disclosure between the Company and its
independent public accountants within the past two fiscal years.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information called for by this Item regarding the executive officers
of the Registrant is incorporated herein by reference to the material under the
caption "Executive Officers of the Registrant" in Part I - Item 4(a) hereof.
The remainder of the information called for by this Item is incorporated
herein by reference to Registrant's definitive Proxy Statement for its 1998
Annual Meeting of Shareholders which Registrant intends to file with the
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K.
Item 11. Executive Compensation.
The information called for by this Item is incorporated herein by
reference to Registrant's definitive Proxy Statement for its 1998 Annual Meeting
of Shareholders which Registrant intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information called for by this Item is incorporated
- 30 -
<PAGE>
herein by reference to Registrant's definitive Proxy Statement for its 1998
Annual Meeting of Shareholders which Registrant intends to file with the
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K.
Item 13. Certain Relationships and Related Transactions.
The information called for by this Item is incorporated herein by
reference to Registrant's definitive Proxy Statement for its 1998 Annual Meeting
of Shareholders which Registrant intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
- 31 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
(1) The financial statements and supplemental financial data required
by Item 8 of this report are filed below:
FINANCIAL STATEMENTS:
Page(s)
-------
Report of Independent Public Accountants................. F-1
Consolidated Balance Sheets as of October 31, 1997 and
1996................................................... F-2-3
Consolidated Statements of Operations for the years ended
October 31, 1997, 1996 and 1995........................ F-4
Consolidated Statements of Cash Flows for the years
ended October 31, 1997, 1996 and 1995.................. F-5-6
Consolidated Statements of Shareholders' Equity for the
years ended October 31, 1997, 1996 and 1995............ F-7
Notes to Consolidated Financial Statements............... F-8-18
Supplementary Financial Data (unaudited):
Page
Quarterly Financial Data................................. F-19
(2) The financial statement schedules required by
Item 8 of this report are listed below:
Page
----
Schedule II - Valuation and Qualifying Accounts.......... S-1
Other Schedules are omitted because of the absence of
conditions under which they are required or because the required information is
given in the financial statements or notes thereto.
- 32 -
<PAGE>
(3) Index of Exhibits
The following is a list of the Exhibits filed as a part of this
report:
Footnote to Exhibits:-
* Indicates this is a management contract which is a compensatory
plan or arrangement which is required to be filed as an exhibit
to this form pursuant to Item 14(c) of this report.
The following Exhibit has previously been filed with the Registrant's
Annual Report on Form 10-K for the year ended October 31, 1990 as Exhibit 3(a)
and is incorporated herein by reference thereto:
3(a) Restated Articles of Incorporation of the Registrant
The following Exhibit has been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1987 as Exhibit 3(b)
and is incorporated herein by reference thereto:
3(b) Restated By-Laws of the Registrant
The following Exhibits 10(a) through 10(b) have been previously filed
with Registrant's Form S-1 Registration Statement No. 2-96850 dated April 3,
1985, to Amendment No. 1 thereto dated May 8, 1985 or to Amendment No. 2 thereto
dated May 17, 1985 as the Exhibit numbers indicated and are incorporated herein
by reference thereto:
10(a) Deferred Compensation Plan (formerly 10(f))*
10(b) Multiemployer Union-Sponsored Pension Plan (formerly 10(i))
The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1986 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:
- 33 -
<PAGE>
10(c) Form of Indemnification Agreement among Central Sprinkler
Corporation, Central Sprinkler Company, CSC Finance Company and
their Executive Officers and Directors dated September 15, 1986
(formerly 10(t))*
10(d) 1986 Incentive Stock Option Plan, as amended to date (formerly
10(v))*
The following Exhibit has been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1988 as the Exhibit
number indicated and is incorporated herein by reference thereto:
10(e) Incentive Compensation Plan, as amended to date (formerly
10(k))*
The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1990 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:
10(f) Employment Agreement with William J. Meyer dated March 19, 1990
(formerly 10(n))*
10(g) Employment Agreement with George G. Meyer dated March 19, 1990
(formerly 10(o))*
10(h) Employment Agreement with Stephen J. Meyer dated March 19, 1990
(formerly 10(p))*
The following Exhibit has been previously filed with Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1992 as
the Exhibit 19 and is incorporated herein by reference thereto:
10(i) 1988 Non-Qualified Stock Option Plan, as amended
The following Exhibits have been previously filed with Registrant's
Annual Report or Form 10-K for the year ended October 31, 1992 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:
10(j) Form of Employment Agreement, Schedule of Compensation and
Amendment thereto dated September 22, 1992 for certain officers
(formerly 10(m))*
10(k) Employment Agreement with George S. Polan dated October 1, 1992
(formerly 10(n))*
- 34 -
<PAGE>
10(l) Central Sprinkler Company Term Loan Agreement dated November 20,
1992 (formerly 10(n))
The following Exhibit has been previously filed with Registrant's Form
8-K dated August 17, 1993 as the Exhibit number indicated and is incorporated
herein by reference thereto:
10(m) Agreement to Purchase Assets dated August 12, 1993 among Sprink
Inc., James Hardie Irrigation, Inc., J.H. Industries (U.S.A.)
Inc., Central Sprink Inc., Central Sprinkler Company and Central
Sprinkler Corporation (formerly Exhibit 2.1 and 10(o))
The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1993 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:
10(n) 1993 Non-Employee Director Stock Option Plan (formerly (10(r))
The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1994 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:
10(o) Central Sprinkler 401(k) Profit Sharing Plan and Trust, as
amended to date (formerly 10(s))
10(p) Term Loan Agreement between Central Sprinkler Company and First
Fidelity Bank, including exhibits and amendments thereto
(formerly 10(t))
10(q) Term Loan Agreement between Central Sprinkler Company and
CoreStates Bank, N.A., including exhibits and amendments thereto
(formerly 10(u))
- 35 -
<PAGE>
The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1995 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:
10(r) Amendment of Employment Agreement with William J. Meyer dated
January 5, 1996 (formerly 10(v))*
10(s) Amendment of Employment Agreement with George G. Meyer dated
January 5, 1996 (formerly 10(w))*
10(t) Amendment of Employment Agreement with Stephen J. Meyer dated
January 5, 1996 (formerly 10(x))*
10(u) Employment Agreement with James E. Golinveaux dated November 30,
1995 (fomerly 10(y))*
10(v) Amendments to Term Loan Agreement between Central Sprinkler
Company and First Fidelity Bank (formerly 10(z))
10(w) Amendments to Term Loan Agreement between Central Sprinkler
Company and CoreStates Bank, N.A. (formerly 10(aa))
10(x) Loan Agreement between Alabama State Industrial Development
Authority and Central Castings Corporation dated as of November
1, 1995 (formerly 10(ab))
10(y) Lease Agreement between Calhoun County Economic Development
Council and Central Castings Corporation dated as of November 1,
1995 (formerly 10(ac))
10(z) Letter of Credit and Reimbursement Agreement by and between
First Fidelity Bank, National Association and Central Castings
Corporation dated as of November 1, 1995 (formerly 10(ad))
The following Exhibits have been previously filed with the
Registrant's Annual Report on Form 10-K for the year ended October 31, 1996 as
the Exhibit Numbers indicated and are incorporated herein by reference thereto:
10(aa) Central Sprinkler Corporation Employee Stock Ownership Plan, as
amended to date (formerly 10 (ad))
10(ab) Central Sprinkler Corporation 1996 Equity Compensation Plan
(formerly 10(ae))*
- 36 -
<PAGE>
10(ac) Interest Rate and Currency Exchange Agreement between Central
Castings Corporation and CoreStates Bank, N.A.
(formerly 10 (af)
10(ad) Construction Loan Agreement between Central CPVC Corporation
and CoreStates Bank, N.A. including exhibits and amendments
thereto. (formerly 10 (ag))
The following Exhibits have been previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31,
1997 as the Exhibit Numbers indicated and are incorporated herein by reference
thereto:
10(ae) Amendments to Term Loan Agreement between Central Sprinkler
Company and First Union National Bank, including exhibits and
amendments thereto (formerly 10(a))
10(af) Amendments to Term Loan Agreement between Central Sprinkler
Company and CoreStates Bank, N.A. including exhibits and
amendments thereto (formerly 10(b))
10(ag) Amendments to Letter of Credit and Reimbursement Agreement
between Central Sprinkler Company and First Union National
Bank, including exhibits and amendments thereto
(formerly 10(c))
The following Exhibits have been previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 1997
as the Exhibit Numbers indicated and are incorporated herein by reference
thereto:
10(ah) Loan Agreement between Brown Brothers Harriman & Co. and
Central CPVC Corporation dated as of May 30, 1997 (formerly
10(a).
The following Exhibits are filed herewith:
10(ai) Central Castings Corporation 401(K) Profit Sharing Plan (pages
66-115 in the sequential numbering system)
10(aj) Central CPVC Company 401(K) Profit Sharing Plan (pages 116-165
in the sequential numbering system)
-37-
<PAGE>
10(ak) Revolving Credit Facility Agreement (pages 166-283 in the
sequential numbering system)
10(al) Revolving Credit Note (pages 284-291 in the sequential
numbering system)
10(am) Revolving Credit Security Agreemment (pages 292-300 in the
sequential numbering system)
10(an) Term Loan Agreement between Central CPVC Corporation and Brown
Brothers Harriman & Co. (pages 301-337 in the sequential
numbering system)
10(ao) Modificaton to Brown Brothers Term Loan Agreement dated October
28, 1997 (pages 338-348 in the sequential numbering system)
10(ap) Escrow Agreement among Central CPVC Corporation and Brown
Brothers Harriman & Co. as of October 28, 1997 (pages 349-354
in the sequential numbering system)
10(aq) Security Agreement between Central Sprinkler Company and First
Union National Bank (pages 355-368 in the sequential numbering
system)
10(ar) Second Amendment to Letter of Credit and Reimbursement
Agreement between Central Sprinkler Company and First Union
National Bank (pages 369-376 in the sequential numbering
system)
10(as) Fifth Amendment to Loan Agreement between Central Sprinkler
Company and First Union National Bank (pages 377-384 in the
sequential numbering system)
10(at) Employment Agreement with William J. Meyer dated November 1,
1997 (pages 385-388 in the sequential numbering system)*
10(au) Consulting agreement between the Company and Churchill
Investment Partners, Inc. dated August 1, 1996 (pages 389-392
in the sequential numbering system)
10(av) Consulting agreement between the Company and Bradford Ventures
Ltd. dated August 1, 1996 (pages 393-396 in the sequential
numbering system)
10(aw) Modification to Revolving Credit Agreement dated January 26,
1998 (pages 397-413 in the sequential numbering system)
11 Statement of Computation of Earnings per Common Share (page 414
in the sequential numbering system)
21 Subsidiaries of Registrant (page 415 in the sequential
numbering system)
23 Consent of Independent Public Accountants (page 416 in the
sequential numbering system)
(b) No reports on Form 8-K were filed during the quarter ended October 31, 1997.
-38-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CENTRAL SPRINKLER CORPORATION
By: /s/George G. Meyer
---------------------------------------
George G. Meyer
President and Chief Executive
Officer
Date: January 27, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and as of the date indicated.
Signature Title Date
--------- ----- ----
/s/Winston J. Churchill Chairman of the January 27, 1998
- ----------------------- Board and Director
Winston J. Churchill
/s/George G. Meyer President, Chief January 27, 1998
- ----------------------- Executive Officer,
George G. Meyer Treasurer, Secretary
and Director
/s/Richard P. O'Leary Chief Operating January 27, 1998
- ----------------------- Officer and Director
Richard P. O'Leary
/s/Stephen J. Meyer Senior Executive January 27, 1998
- ----------------------- Vice President and
Stephen J. Meyer Director
/s/Albert T. Sabol Executive Vice January 27, 1998
- ----------------------- President Finance
Albert T. Sabol (Principal Financial
and Accounting Officer)
-39-
<PAGE>
Signature Title Date
--------- ----- ----
/s/William J. Meyer Director and Senior January 27, 1998
- ------------------- Consultant
William J. Meyer
/s/Joseph L. Jackson Director January 27, 1998
- -------------------
Joseph L. Jackson
/s/Barbara M. Henagan Director January 27, 1998
- -------------------
Barbara M. Henagan
/s/Thomas J. Sharbaugh Director January 27, 1998
- -------------------
Thomas J. Sharbaugh
/s/Timothy J. Wagg Director January 27, 1998
- -------------------
Timothy J. Wagg
- 40 -
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Central Sprinkler Corporation:
We have audited the accompanying consolidated balance sheets of Central
Sprinkler Corporation (a Pennsylvania corporation) and subsidiaries as of
October 31, 1997 and 1996, and the related consolidated statements of
operations, cash flows and shareholders' equity for the years ended October 31,
1997, 1996 and 1995. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Central Sprinkler Corporation
and subsidiaries as of October 31, 1997 and 1996, and the results of their
operations and their cash flows for the years ended October 31, 1997, 1996, and
1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. The schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Philadelphia, Pa.,
January 26, 1998
<PAGE>
Central Sprinkler Corporation and Subsidiaries
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share)
October 31,
-------------------
ASSETS 1997 1996
- -----------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 6,568 $ 2,884
Short-term investments 14,288 12,466
Accounts receivable, less allowance
for doubtful receivables of
$5,949 in 1997 and $4,622
in 1996, respectively 48,048 38,518
Inventories 50,450 43,414
Deferred income taxes 8,227 7,245
Prepaid expenses and other assets 3,414 610
--------- ---------
Total current assets 130,995 105,137
--------- ---------
Property, Plant and Equipment:
Land 811 810
Buildings and improvements 14,464 10,246
Machinery and equipment 55,567 47,122
Furniture and fixtures 2,570 1,988
--------- ---------
73,412 60,166
Less - Accumulated depreciation (25,480) (18,807)
--------- ---------
47,932 41,359
--------- ---------
Goodwill, less accumulated
amortization of $3,514 in 1997
and $3,263 in 1996, respectively 2,508 2,759
--------- ---------
Other Assets 6,592 1,663
--------- ---------
$ 188,027 $ 150,918
========= =========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
statements.
<PAGE>
October 31,
-----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
- --------------------------------------------------------------------
Current Liabilities:
Short-term borrowings $ 2,403 $ 34,390
Current portion of long-term debt 2,854 3,850
Accounts payable 27,626 19,993
Accrued expenses 12,713 10,388
Accrued income taxes 409 994
--------- ---------
Total current liabilities 46,005 69,615
--------- ---------
Long-Term Debt 79,918 24,674
--------- ---------
Other Noncurrent Liabilities 9,010 448
--------- ---------
Deferred Income Taxes 196 1,789
--------- ---------
Commitments and Contingent
Liabilities (Note 14)
Shareholders' Equity:
Common stock, $.01 par value;
shares authorized - 15,000;
issued - 5,568 in 1997 and
5,474 in 1996, respectively 56 55
Additional paid-in capital 31,059 29,763
Retained earnings 44,160 46,702
Cumulative translation
adjustments 184 (7)
Deferred cost-Employee Stock
Ownership Plan (ESOP) (5,652) (6,018)
--------- ---------
69,807 70,495
Less - Common stock in treasury,
at cost - 1,722 shares in 1997
and 1,680 shares in 1996, respectively (16,909) (16,103)
--------- ---------
Total shareholders' equity 52,898 54,392
--------- ---------
$ 188,027 $ 150,918
========= =========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share)
Year Ended October 31,
-----------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Net Sales $ 221,990 $ 187,220 $ 158,849
Cost of Sales 168,910 134,995 107,165
--------- --------- ---------
Gross profit 53,080 52,225 51,684
--------- --------- ---------
Operating Expenses:
Selling, general and
administrative 44,984 37,771 31,246
Research and development 7,351 5,455 5,133
--------- --------- ---------
52,335 43,226 36,379
--------- --------- ---------
Operating income 745 8,999 15,305
--------- --------- ---------
Interest Expense (Income):
Interest expense 4,880 3,390 2,363
Interest (income) (558) (451) (461)
--------- --------- ---------
4,322 2,939 1,902
--------- --------- ---------
Income (loss) before income taxes (3,577) 6,060 13,403
Income Tax Provision (Benefit) (1,035) 2,297 4,945
--------- --------- ---------
Net Income (Loss) $ (2,542) $ 3,763 $ 8,458
========= ========= =========
Net Income (Loss) per Common Share $ (.78) $ 1.13 $ 2.50
========= ========= =========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year Ended October 31,
-----------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Operating activities:
Net income (loss) $ (2,542) $ 3,763 $ 8,458
Noncash items included in net income (loss):
Depreciation and amortization 6,924 4,731 3,520
Deferred income taxes (2,711) (1,878) (144)
Deferred costs 713 818 529
Unusual Omega charge 13,200 3,750 --
Decrease (increase) in -
Accounts receivable, net (9,530) (6,832) (6,779)
Inventories (7,036) (7,459) (7,302)
Prepaid expenses and other assets (2,804) 40 252
Increase (decrease) in -
Accounts payable 7,633 7,269 4,993
Accrued expenses (2,175) (258) 1,595
Accrued income taxes (449) 232 (1,260)
-------- -------- --------
Cash provided by
operating activities 1,223 4,176 3,862
-------- -------- --------
Investing activities:
Acquisition of property, plant
and equipment (13,246) (17,813) (16,047)
Sale of short-term investments 5,450 5,716 22,069
Purchase of short-term investments (7,272) (8,103) (13,814)
Other long-term assets (4,929) (722) (9)
-------- -------- --------
Cash used for investing
activities (19,997) (20,972) (7,801)
-------- -------- --------
Financing activities:
Short-term (repayments) borrowings, net (31,987) 9,328 16,576
Purchase of treasury stock -- -- (11,750)
Proceeds from long-term debt 57,575 12,018 948
Repayments of long-term debt (3,327) (3,823) (3,088)
Proceeds from exercised
stock options 6 31 745
Tax benefits from exercised
stock options -- 9 368
Other - net 191 92 (23)
-------- -------- --------
Cash provided by financing
activities 22,458 17,655 3,776
-------- -------- --------
Increase (decrease) in cash and
cash equivalents 3,684 859 (163)
Cash and cash equivalents
at beginning of year 2,884 2,025 2,188
-------- -------- --------
Cash and cash equivalents
at end of year $ 6,568 $ 2,884 $ 2,025
======== ======== ========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Amounts in thousands)
Year Ended October 31,
--------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Supplemental disclosures of
cash flow information:
Cash paid (received)
during the year for:
Interest expense $ 4,946 $ 3,466 $ 2,638
======== ======== ========
Income taxes $ 4,431 $ 3,943 $ 6,061
======== ======== ========
Interest income $ (554) $ (485) $ (854)
======== ======== ========
Supplemental schedule of
non-cash investing and
financing activities:
Refinancing of short-term
borrowings with long-term
debt $ -- $ -- $ 11,000
======== ======== ========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Unrealized
Additional Cumulative Deferred Investment Treasury
Common Stock Paid-in Retained Translation Cost- Holding Stock,
Shares Amount Capital Earnings Adjustments ESOP Gains, Net Common
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1994 5,398 $ 54 $ 27,674 $ 34,481 $ (76) $ (6,679) $ -- $ (4,353)
Purchase of 1,237 shares
of common stock for treasury -- -- -- -- -- -- -- (11,750)
Unrealized investment
holding gains, net -- -- -- -- -- -- 10 --
Exercise of stock options 74 1 1,112 -- -- -- -- --
Annual ESOP costs -- -- 332 -- -- 319 -- --
Translation adjustments -- -- -- -- (33) -- -- --
Net income -- -- -- 8,458 -- -- -- --
------ -------- -------- -------- -------- -------- -------- --------
Balance, October 31, 1995 5,472 55 29,118 42,939 (109) (6,360) 10 (16,103)
Unrealized investment
holding losses, net -- -- -- -- -- -- (10) --
Exercise of stock options 2 -- 40 -- -- -- -- --
Annual ESOP costs -- -- 605 -- -- 342 -- --
Translation adjustments -- -- -- -- 102 -- -- --
Net income -- -- -- 3,763 -- -- -- --
------ -------- -------- -------- -------- -------- -------- --------
Balance, October 31, 1996 5,474 55 29,763 46,702 (7) (6,018) -- (16,103)
Exercise of stock options 94 1 811 -- -- -- -- (806)
Annual ESOP costs -- -- 485 -- -- 366 -- --
Translation adjustments -- -- -- -- 191 -- -- --
Net loss -- -- -- (2,542) -- -- -- --
------ -------- -------- -------- -------- -------- -------- --------
Balance, October 31, 1997 5,568 $ 56 $ 31,059 $ 44,160 $ 184 $ (5,652) $ -- $(16,909)
====== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Central Sprinkler Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share)
1. Summary of Significant Accounting Policies:
The Company-The Company's operations are conducted in one business
segment as a manufacturer and distributor of components used in automatic fire
sprinkler systems. These fire sprinkler system components are used in
commercial, industrial, residential and institutional properties and are sold to
over 3 thousand customers, most of which are sprinkler installation contractors.
Principles of Consolidation-The consolidated financial statements
include the accounts of Central Sprinkler Corporation and its subsidiaries (the
"Company"). All significant intercompany transactions and accounts have been
eliminated.
Cash Equivalents-The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents for the purpose of determining cash flows.
Short-Term Investments-The Company accounts for short-term investments
in accordance with Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS No.
115). The Company's short-term investments have been categorized as available
for sale and as a result are stated at fair value. Unrealized holding gains and
losses are included as a separate component of shareholders' equity until
realized. All of the Company's investment holdings have been classified in the
consolidated balance sheet as current assets.
Inventories-Inventories are stated at the lower of cost (first-in,
first-out) or market.
Property, Plant and Equipment-Property, plant and equipment are stated
at cost. Depreciation and amortization are being recorded on a straight-line
basis over the estimated lives of the assets which range from 3 to 20 years. The
Company adopted Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" (SFAS No. 121) effective November 1, 1996. SFAS No. 121 did not have a
material impact on the Company's financial position or results of operations.
Goodwill-Goodwill represents the excess of the purchase cost of net
assets acquired over their fair market value and is amortized primarily on a
straight-line basis over 25 years. The Company considers goodwill to be fully
realizable through future operations.
Fair Value of Financial Instruments-The Company's financial instruments
consist primarily of cash and cash equivalents, short-term investments, accounts
receivable, accounts payable, accrued expenses and debt instruments. The book
values of cash and cash equivalents, short-term investments, accounts
receivable, account payable and accrued expenses are considered to be
representative of their respective fair values. Based on the terms of the
Company's debt instruments that are outstanding as of October 31, 1997 the
carrying values are considered to approximate their respective fair values. See
Note 7 for the terms and carrying values of the Company's various debt
instruments.
Foreign Currency Translation-Assets and liabilities of a foreign
subsidiary are translated into U.S. dollars at the rate of exchange prevailing
at the end of the year. Income statement accounts are translated at the average
exchange rate prevailing during the year. Translation adjustments resulting from
this process are recorded directly in shareholders' equity.
Research and Development Costs-Costs of research, new product
development and product redesign are expensed as incurred.
Income Taxes-The Company accounts for income taxes under
<PAGE>
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS No. 109). SFAS No. 109 requires the liability method of accounting
for deferred income taxes. Deferred tax liabilities and assets are recognized
for the tax effects of difference between the financial reporting and tax bases
of assets and liabilities. Deferred tax assets and liabilities at the end of
each period are determined using the tax rate expected to be in effect when
taxes are actualy paid or recovered.
Net Income (Loss) Per Common Share-Net income per common share is
computed using the weighted average number of shares of common stock and common
stock equivalents outstanding (dilutive stock options). Net loss per share is
computed using the weighted average number of shares of common stock
outstanding.
Use of Estimates-The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the fiscal year. Actual amounts could differ from those estimates.
New Accounting Pronouncements-The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS No. 128), which the Company is required to adopt for both interim and
annual periods ending after December 15, 1997. SFAS No. 128 simplifies the
earnings per share (EPS) calculation by replacing primary EPS with basic EPS and
replacing fully diluted EPS with diluted EPS. Basic EPS is computed by dividing
reported earnings available to common shareholders by the weighted average
number of shares outstanding. Diluted EPS reflects the potential dilution from
the exercise or conversion of securities into common stock, such as stock
options. Early application is prohibited, although footnote disclosure of
pro forma EPS amounts are required and is presented in Footnote No. 2.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130).
SFAS No. 130 established standards for the reporting and display of
comprehensive income in financial statements. Comprehensive income is the change
in net assets during a period from transactions generated from non-owner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. The Company
will adopt SFAS No. 130 in fiscal 1999 and believes that the adoption will not
have a material impact on the financial statements.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131). SFAS No. 131 requires that business segment
financial information be reported in the financial statements utilizing the
management approach. The management approach is the manner in which management
organized the segments within the enterprise for making operating decisions and
assessing performance. The Company will adopt SFAS No. 131 in fiscal 1999 and
believes that this adoption will not have a material impact on the financial
statements.
Reclassifications-Certain reclassifications of previously reported balances
have been made to conform with the current year classification of such balances.
2. Net Income (Loss) Per Common Share:
The shares used in computing net income (loss) per common share were
3,239, 3,330,and 3,382 for the years ended October 31, 1997, 1996 and 1995,
respectively. Statement of Position No. 93-6, "Employers' Accounting for
Employee Stock Ownership Plans"
<PAGE>
(SOP) requires that unreleased shares of the Company's stock in the Employee
Stock Ownership Plan ("ESOP") are excluded from the average number of common
shares outstanding when computing net income (loss) per common share. In
accordance with this SOP, 604, 640 and 672 unreleased ESOP shares were excluded
from the shares used in computing net income (loss) per common share in fiscal
year 1997, 1996 and 1995, respectively.
Proforma basic EPS and diluted EPS, in accordance with SFAS No. 128,
would have been as follows:
Year ended October 31,
----------------------
1997 1996 1995
------ ----- -----
Pro forma basic net
income (loss) per
common share $(.78) $1.19 $2.62
===== ===== =====
Pro forma diluted net
income (loss) per
common share $(.78) $1.13 $2.50
===== ===== =====
Weighted average common
shares outstanding used
for proforma basic net
income (loss) per
common share 3,239 3,153 3,230
Dilutive effect of common
stock options
outstanding -- 177 152
----- ----- -----
Weighted average common and
common equivalent shares
outstanding used for
proforma diluted net income
(loss) per common share 3,239 3,330 3,382
===== ===== =====
3. Foreign Operations:
The Company owns Spraysafe Automatic Sprinklers Limited ("Spraysafe"),
a Company in the United Kingdom. Spraysafe manufactures sprinkler heads and
distributes these and other products in Europe and other foreign countries.
Significant financial information about Spraysafe's operations consist
of the following -
Year Ended October 31,
----------------------
1997 1996 1995
---- ---- ----
Sales $17,254 $16,807 $11,210
Operating
income 1,264 1,390 1,202
Net income 495 789 699
Total
assets 12,382 10,803 7,903
Total
liabilities 7,747 6,799 4,862
- -------------------------------------------
<PAGE>
Foreign and export net sales for the Company are comprised of the following -
Year Ended October 31,
----------------------
1997 1996 1995
---- ---- ----
Pacific and
Far East $10,485 $10,127 $ 6,679
Europe 6,426 7,038 4,901
Canada 6,151 4,847 3,987
Other 3,519 1,379 478
------- ------- -------
$26,581 $23,391 $16,045
======= ======= =======
4. Short-Term Investments:
The following is a summary of the estimated fair value of available for
sale securities by balance sheet classification -
October 31,
-----------
1997 1996
---- ----
Cash Equivalents:
U.S. Money Market
Funds and Time
Deposits $ 4,978 $ 872
======= =======
Short-Term Investments:
Tax-Exempt
Securities $14,288 $12,466
======= =======
Gross unrealized holding gains and losses for the years ended October
31, 1997, 1996 and 1995 were not material.The net unrealized holding gains for
the years ended October 31, 1997, 1996, and 1995 have been recorded as a
separate component of shareholders' equity. The gross proceeds from sales and
maturities of investments were $5,450, $5,716, and $22,069 for the years ended
October 31, 1997, 1996 and 1995, respectively. Gross realized gains and losses
for the years ended October 31, 1997, 1996 and 1995 were not material. For the
purpose of determining gross realized gains and losses, the cost of securities
sold is based upon specific identification.
Short-term investments are generally comprised of variable rate securities
that provide for optional or early redemption within twelve months and the
contractual maturities are generally greater than twelve months.
<PAGE>
5. Inventories:
Inventories consist of the following-
October 31,
-----------
1997 1996
---- ----
Raw materials
and work in
process $16,053 $12,957
Finished goods 34,397 30,457
------- -------
$50,450 $43,414
======= =======
6. Shareholders' Equity:
Redeemable Preferred Stock-The Company has authorized 2,000 shares of
Redeemable Preferred Stock, $.01 par value. At October 31, 1997, 1996 and 1995,
there were no shares issued and outstanding.
Treasury Stock-The Company repurchased 1,237 shares of its common stock
on December 21, 1994 at a cost of $11,750. Treasury stock increased by 42 shares
in fiscal 1997 through the surrendering to the Company of such shares as payment
for the exercise of stock options. There were no repurchases in fiscal 1996. All
shares are being held in the treasury for possible future issuance.
Stock Options-The Company has stock option plans ("option plans") which
cover a maximum of 1,573 shares of common stock which may be granted. The option
plans provide for the granting of 713 nonqualified or incentive stock options
under a plan adopted in 1988 and amended in fiscal 1991 and 800 nonqualified
stock options under a plan adopted in 1996. Under a plan adopted in 1993, the
Company can issue up to 60 nonqualified options under a non-employee director
stock option plan. Options have been granted to officers, other key employees
and non-employee
<PAGE>
directors at exercise prices not less than 100% of the fair market value of the
Company's common stock on the date of the grant. The options become exercisable
after the date of the grant and expire ten years from the date of grant.
The following table presents data related to the Option Plans-
Weighted
Stock Option Average
Options Price Price
------- ----- -----
October 31, 1994 529 $8.60-$13.80 $11.53
Granted 12 15.60 15.60
Exercised (73) 8.60- 13.80 9.99
----
October 31, 1995 468 8.60- 15.60 11.86
Granted 112 29.95 29.95
Exercised (2) 13.00 13.00
----
October 31, 1996 578 8.60- 29.95 15.34
Granted 459 24.05- 50.00 39.80
Cancelled (5) 8.60 8.60
Exercised (94) 8.60 8.60
----
October 31, 1997 938 $10.52-$50.00 $27.95
====
Exercisable Options:
October 31, 1995 468 $8.60-$15.60 $11.86
October 31, 1996 502 8.60- 29.95 13.18
October 31, 1997 856 8.60- 50.00 27.99
At October 31, 1997, 213 stock options were available for grant under
the 1988 plan, 12 stock options were available for grant under the 1993 plan and
398 stock options were available for grant under the 1996 plan.
Information with respect to the options outstanding under the option
plans are summarized as follows-
Range of
Exercise Prices
---------------
$8.60-$15 $15-$30 $30-$50
--------- ------- -------
October 31, 1997:
Options
outstanding 359 213 366
Weighted average
remaining life 2.2 8.7 9.1
Weighted average
exercise price $12.59 $22.74 $43.11
Options
exercisable 359 131 366
Weighted average
exercise prices $12.59 $27.89 $43.11
<PAGE>
The Company applies Accounting Principles Board Option No. 25,
"Accounting for Stock Issued to Employees" and the related interpretations in
accounting for its stock option plans. The Company has adopted the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS No. 123). Accordingly, no compensation cost
has been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value of the
options at the grant date, as prescribed by SFAS No. 123, the Company's net
income (loss) and net income (loss) per share would have been as follows-
October 31,
------------
1997 1996
---- ----
Net income (loss) -
as reported $(2,542) $3,763
Net income (loss) -
pro forma (7,568) 3,458
Net income (loss)
per share-as reported (.78) 1.13
Net income (loss)
per share-pro forma (2.37) 1.04
The weighted average fair value of each stock option granted during the
fiscal years ended October 31, 1997 and 1996 was $15.81 and $18.09,
respectively. As of October 31, 1997, the weighted average remaining contractual
life of each stock option outstanding was 6.4 years. The weighted average
remaining contracutal life of each stock option awarded during the years ended
October 31, 1997 and 1996 was 9.1 and 9.0 years, respectively. The fair value of
each grant is estimated on the date of grant using the Black-Sholes option
pricing model with the following weighted average assumptions for both fiscal
1997 and 1996: no expected dividend yield; expected volatility-50%; risk-free
interest rate of 6% and an expected life of 8.8 and 7.0 years. As the result of
additional option grants that may be made in future years, the pro forma
disclosures may not be representative of pro forma effects of reported net
income for future years.
<PAGE>
7. Debt:
The Company's long-term debt consists of the following-
October 31,
-------------------
1997 1996
-------- -------
Revolver Credit
Agreement $50,000 $ -
Term Loan 7,500 -
Industrial Revenue
Bonds 10,450 10,450
Term Loan 6,417 7,417
Term Loan 6,500 7,500
Mortgage Loans 925 1,067
Foreign Term Loan 980 1,090
Term Note -- 1,000
------- -------
82,772 28,524
Less-Current portion (2,854) (3,850)
------- -------
$79,918 $24,674
======= =======
The Company obtained a three year Revolver Credit Agreement loan in the
amount of $55 million in October 1997. The Company used $50,000 of the revolver
to repay short-term borrowings which were demand loans under lines of credit and
to establish a $5,000 investment escrow account as additional security for a
Term Loan and to fund operations. The Revolver is secured by a percentage of
accounts receivable, inventories and certain property, plant and equipment of
the Company. The maximum borrowing is limited by a borrowing base percentage of
eligible amounts of the aforementioned security. At October 31, 1997, the
variable interest rate on the Revolver was 6.5%. Approximately $2,800 of the
Revolver was unused and available for use at October 31, 1997 based on the
borrowing base formula.
The Company obtained a $7,500 Term Loan on May 30, 1997. The Term Loan
maturity was the earlier of May 31, 2000 or the conversion of the Term Loan into
an Industrial Revenue Bond. The Term Loan bears interest at a variable rate,
which was 6.375% at October 31, 1997, with interest payable quarterly. In
December 1997, the Term Loan was refinanced through the issuance of First
Mortgage Industrial Development
<PAGE>
Revenue Bonds Series 1997,principal amount $7,500 issued by the Industrial
Development Board of the City of Huntsville, Alabama ("IDB's"). The IDB's are
secured by substantially all of the assets of the CPVC plastic pipe and fittings
subsidiary and $5,000 of pledged investments which have been classified in other
long-term assets. The IDB's have a 15 year term and is payable in annual
installments of $500 and bears interest at a variable rate which was 6.375% at
date of issuance.
The Company's Industrial Revenue Bonds consist of principal amount of
$8,000 State of Alabama Industrial Development Authority Adjustable Convertible
Taxable Industrial Revenue Bonds and principal amount of $3,000 Calhoun County
(Alabama) Economic Development Council Adjustable Convertible Taxable Industrial
Revenue Bonds ("IRB's")which were issued in November 1995. The IRB's have a 20
year term and are payable in annual installments of $550 and bear interest at a
variable rate which was 5.6% at October 31, 1997. The IRB's are collateralized
by a letter of credit and are subject to early redemption under certain
circumstances. In January 1996, the Company entered into an interest rate swap
agreement which fixes the interest rate on the IRB's in order to reduce the
impact of changes in interest rates. The interest rate is fixed at 6.13% for the
remainder of the 20 year term. Interest expense is recorded monthly at the fixed
rate plus related fees. The difference between the variable rate paid to IRB
bondholders and the fixed rate costs are settled monthly between the Company and
a bank which is party to the swap agreement. As of October 31, 1997, the swap
agreement has a notional principal balance of $10,450 and the swap agreement
matures at the time the related IRB's mature. The swap agreement is with a large
national bank and the Company does not anticipate nonperformance by the
counterparty.
In January 1996, the Company converted the two long-term loans and the
mortgage loan secured by the Company's primary manufacturing facility from a
variable interest rate option to a fixed interest rate option under the terms of
the respective loan agreements.
The Company obtained two $10,000 ten-year term loans from banks in
fiscal 1994. These term loans were unsecured and the proceeds of such loans were
used to refinance borrowings under unsecured lines of credit from such banks.
The additional loan proceeds were used primarily for working capital purposes
and the acquisition and expansion of facilities to accommodate the growth in the
Company's business. One term loan is payable through 2004 in monthly principal
installments of $84 and bears interest at a fixed rate which was 6.67% at
October 31, 1997. The other term loan is payable through 2004 in quarterly
principal installments of $250 and bears interest at a fixed rate which was
6.48% at October 31, 1997.
In October 1997 the two Term Loans were converted from unsecured loans
to secured loans pursuant to provisions connected with the new Revolver Credit
Agreement loan. The Company's accounts receivable, inventories and certain
property, plant, and equipment are shared collateral among the banks holding the
Term Loans and the Revolver Credit Agreement loan.
For both the Term Loans and the Revolver, the Company must maintain
certain tangible net worth, certain financial ratios and other requirements
under the provisions of these loan agreements. As of October 31, 1997, the
Company is in compliance with these loan agreements, as amended.
The Company's mortgage loans consist of two mortgages. One mortgage is
secured by the Company's primary manufacturing facility and is payable through
2002 in monthly installments of $6 and bears interest at a fixed rate which was
6.20% at October 31, 1997. The second mortgage note was obtained in August 1996
for land and buildings for expanded corporate offices and is payable through
2006 in monthly installments of $6 and bears interest at a variable rate which
was 8.25% at October 31, 1997.
<PAGE>
In fiscal 1996, Spraysafe refinanced a five-year unsecured term loan
obtained in 1995 with a seven-year term loan in the amount of $1,065. This loan
is secured by machinery and equipment and is payable through 2003 in monthly
installments of $10 and bears interest at a variable rate which was 8.125% at
October 31, 1997. The loan proceeds were used primarily for machinery and
equipment and the expansion of Spraysafe's manufacturing facility. Spraysafe has
short-term borrowings in the form of a demand loan which is payable in British
pounds in the amount of $2,403 at October 31, 1997. This loan bears interest at
a variable interest rate which was 8.25% and 7.125% at October 31, 1997 and
1996, respectively.
Approximately $1,280 of the Company's lines of credit were unused and
available for use at October 31, 1997.
Annual principal payments required under long-term debt obligations
are as follows-
Fiscal Year
-----------
1998 $ 2,854
1999 3,354
2000 53,354
2001 3,354
2002 3,305
Thereafter 16,551
-------
$82,772
=======
8. Capitalized Interest:
The interest cost incurred by the Company for fiscal year 1997, 1996
and 1995 amounted to $4,880, $3,680,and $2,696, respectively. No interest was
capitalized in fiscal 1997. The Company capitalized $290 and $333 of interest
cost in fiscal years 1996 and 1995, respectively, in connection with the
expansion of the foundry and manufacturing facility for piping system
components.
<PAGE>
9. Income Taxes:
The following table summarizes the source of income loss before income
taxes and information concerning the income tax provision (benefit)-
Year Ended October 31,
------------------------------
1997 1996 1995
---- ---- ----
Income (loss) before
income taxes-
Domestic $(4,372) $ 4,876 $12,284
Foreign 795 1,184 1,119
------- ------ -------
Total $(3,577) $6,060 $13,403
======= ====== =======
Income tax provision (benefit):
Current-
Federal $ 1,287 $3,040 $ 3,674
State 89 740 1,067
Foreign 300 395 348
------- ------ -------
Total 1,676 4,175 5,089
------- ------ -------
Deferred-
Federal (2,622) (1,386) 54
State (89) (492) (270)
Foreign - - 72
------- ------ -------
Total (2,711) (1,878) (144)
------- ------ -------
Total tax provision
(benefit) $(1,035) $2,297 $ 4,945
======= ====== =======
Income tax provision (benefit) differs from the amount currently
payable or receivable because certain revenues and expenses are reported in the
statement of operations in periods which differ from those in which they are
subject to taxation. The principle differences in timing between the statement
of operations and taxable income involve certain accrued expenses and reserves
not currently deductible for tax purposes,tax regulations which limit deductions
for bad debt expense, the uniform cost capitalization rules and different
methods used in computing tax and book depreciation. Such differences are
recorded as deferred income taxes in the accompanying balance sheets under the
liability method.
The components of the deferred income tax assets and liabilities,
measured under SFAS No. 109 at the beginning and end of the fiscal year,
<PAGE>
are listed below. There is no valuation reserve for deferred tax assets.
10/31/97 11/1/96
------- --------
Deferred Tax Assets-
- -------------------
Accounts receivable $2,654 $2,129
Inventories 2,950 2,672
Pensions 124 179
Patents 690 613
ESOP 429 362
Omega costs 3,721 1,009
Other non-deductible
liabilities 1,446 1,015
------ -----
Deferred tax assets 12,014 7,979
------ -----
Deferred Tax Liabilities-
Depreciation (2,570) (1,762)
Other (1,413) (761)
------ -----
Deferred tax
liabilities (3,983) (2,523)
------ -----
Net Deferred Tax Asset $8,031 $5,456
====== ======
The effective tax rate is reconciled to the statutory U.S. Federal
income tax rate as follows-
Year Ended
October 31,
-------------------
1997 1996 1995
---- ---- ----
U.S. Federal
statutory rate (34.0)% 34.0% 34.0%
Amortization of
goodwill (2.2) 1.3 .6
State income taxes,
net of U.S.
Federal benefit - 3.3 3.9
Income tax credits
utilized 10.5 (1.3) (1.6)
Tax-exempt
interest 4.9 (2.3) (1.0)
Market value
adjustment of
ESOP shares (4.4) 3.1 .8
Other (3.7) (.2) .2
---- ----- ---
(28.9%) 37.9% 36.9%
===== ==== ====
<PAGE>
10. Related-Party Transactions:
The Company has financial consulting agreements with companies
affiliated with certain of its directors/shareholders. These agreements provide
for annual fees of $200 per year plus out-of-pocket expenses. One of these
agreements extends through October 1998 and automatically renews for an
additional year unless notice of cancellation is given.
The Company leases an aircraft from a business in which a director and
executive officer of the Company is the sole proprietor. For the years ended
October 31, 1997, 1996, and 1995, the Company recorded lease expense of $439,
$395, and $322, respectively.
The Company expensed $361, $346, and $594 in the years ended October
31, 1997, 1996, and 1995, respectively, for legal fees to a firm having a member
who is also a director of the Company.
11. Leases:
The Company has operating leases for its warehousing facilities and
certain transportation and office equipment. The total rental expense for the
years ended October 31, 1997, 1996 and 1995 was $1,949, $1,325, and $1,118
respectively. The future minimum rental payments required under operating leases
that have initial or remaining lease terms in excess of one year as of October
31, 1997 are as follows-
Fiscal Year
-----------
1998 $ 1,926
1999 1,294
2000 770
2001 589
2002 222
<PAGE>
12. Incentive Compensation Plans:
The Company has an Incentive Compensation Plan which provides awards to
officers and other employees of the Company. Amounts credited to the incentive
compensation fund are 8% of monthly operating income, as defined in the Plan, if
monthly operating income meets specified levels. Another plan provides three
executive officers with a bonus based on annual net income in excess of the 1985
base income level at a combined rate of 2 1/2% of the increase.
The total amounts charged to expense for all such plans were $1,088,
$1,013 and $1,553 for the years ended October 31, 1997, 1996 and 1995,
respectively. Awards from the Incentive Compensation Plan are made to officers
and other employees based on both specified percentage participation in the Plan
as well as special awards determined at the discretion of the Company's
Chairman.
13. Employee Benefit Plans:
Certain of the Company's manufacturing employees are covered by a
union-sponsored, collectively bargained, Multiemployer Pension Plan. The Company
contributed and charged to expense $359, $277 and $248 for the years ended
October 31, 1997, 1996 and 1995, respectively. These contributions are
determined in accordance with the provisions of negotiated labor contracts and
generally are based on the number of hours worked. At October 31, 1997, the
Company had no liability for unfunded vested benefits of this plan.
The Company sponsors 401(K) Profit Sharing Plans which cover certain
employees not covered by collective bargaining agreements and maintains Deferred
Compensation Plans which provide retirement benefits for certain officers. The
expense under these plans was $275, $222 and $189 for the years ended October
31, 1997, 1996 and 1995, respectively.
The Company has an Employee Stock Ownership Plan ("ESOP") which covers
certain employees not covered by collective bargaining agreements. At October
31, 1997, the ESOP holds 777 shares of the Company's common stock. On April 28,
1993, the ESOP purchased 750 shares of the Company's common stock in a leveraged
transaction at a market value of $9.70 per share for a total cost of $7,275. The
total cost of the plan for this transaction is being amortized over 15 years.
The unamortized cost is reported as Deferred Cost-ESOP in the equity section of
the accompanying balance sheets. The ESOP issued a note payable to the Company
which will be repaid over 15 years with interest at a variable rate. This note
will be repaid from cash contributed to the plan by the Company. The stock will
be committed to be released to the eligible employees over 15 years based upon
the annual principal and interest payments made by the ESOP on the note payable
to the Company. As required under SOP 93-6, compensation expense is recorded for
shares committed to be released to employees based on the fair market value of
those shares in the period in which they are committed to be released. The
difference between cost and fair market value of committed to be released common
shares, which was $485, $605 and $332 for the years ended October 31, 1997,
1996, and 1995, respectively is recorded in additional paid-in capital.
The ESOP shares are summarized as follows-
October 31,
-----------
1997 1996
---- ----
Committed to be
released shares 194 157
Unreleased shares 583 621
------- -------
Total ESOP shares 777 778
======= =======
Fair value of
unreleased share $10,861 $11,023
======= =======
The ESOP expense for the years ended October 31, 1997, 1996 and 1995 was
$851, $947 and $651, respectively.
<PAGE>
14. Commitments and Contingent Liabilities:
Unusual Omega(TM) Charge
The Company recorded an unusual fourth quarter fiscal 1997 charge of
$13,200 ($8,976 net of tax) which the Company believes is adequate to cover the
estimated future costs associated with the expansion of a voluntary program over
the next several years which was initiated by the Company to encourage the
testing and possible replacement of certain Omega(TM) fire sprinklers. This
amount is based on estimates of the number of Omega(TM) sprinklers, the action
plan necessary to remediate these sprinklers and various other assumptions. As
of October 31, 1997, $8,700 of such amount has been classified as an noncurrent
liability and $4,500 has been included in accrued expenses. Some Omega(TM)
sprinklers have been found to require higher than normal pressure for
activation. The Company initiated this program in the fourth quarter of fiscal
1996 and recorded an unusual charge of $3,750 ($2,362 net of tax) at that time.
In fiscal 1996, the Company became aware of potential problems in certain steel
pipe systems utilizing Omega(TM) sprinklers. The addition of stop-leak products
or the presence of excessive hydrocarbons has been found in certain
circumstances to affect the operation of such sprinklers. In order to assess the
extent of the problems, the Company in 1996 strongly recommended that a sampling
of Omega(TM) sprinklers from each such installed system be returned to the
Company for testing. Based on the results of the tests, the Company reviews each
situation with the building owner and develops an appropriate action plan, if
needed. The Company did not install such sprinklers and installation of the
sprinklers is the responsibility of the building owner. However, the Company's
primary concern is to offer the finest possible fire protection to building
owners and to maintain customer goodwill. The Company continues to be an active
participant with building owners in testing sprinklers and remediating the
problem. The Company provides kits to test installed sprinklers and continues to
monitor the results of the tests and costs incurred.
In August 1997, a lawsuit was filed against the Company in the
State of California regarding the Omega(TM) sprinkler heads. Although the suit
has been brought by owners of two homes, the plaintiffs seek to represent a
class of building owners who have Omega(TM) sprinkler heads installed in their
buildings. The lawsuit concerns the activation pressures of certain Omega(TM)
sprinkler heads In December of 1997, a similar lawsuit was filed in California
on behalf of the County of Santa Clara, seeking to represent a class of public
entities and commercial building owners who have installed Omega(TM) sprinkler
heads. The two cases should receive substantially similar treatment from the
courts, and may be formally coordinated by the courts. The courts have not
determined whether they will permit the actions to go forward as class actions
and the complaints do not specify a dollar amount the plaintiffs are seeking.
There can be no assurance that the ultimate outcome of such actions will be
resolved favorably to the Company or that such litigation, or any additional
litigation, will not have an adverse effect on the Company's liquidity,
financial condition or results of operations.
Several governmental authorities, including the United States
Consumer Products Safety Commission (the "Commission"), are investigating
problems regarding the Company's Omega(TM) sprinkler heads. The staff of the
Commission has advised the Company that it is recommending to the Commission
that it take administrative action against the Company which may require the
Company to repair, replace, or refund the purchase price, of Omega(TM)
sprinklers. The staff of the Commission has also invited the Company to provide
additional information to refute the staff's recommendation. It is possible that
the Commission or one or more of these other regulatory authorities may require
the Company to take remedial action that would have an adverse effect on the
Company's liquidity, financial condition or results of operations.
The $13,200 charge is believed to be adequate to cover the
estimated costs of resolving the Omega(TM) lawsuits, the Commission
investigations and the voluntary Omega(TM) remediation program based on
information available at this time. In the event additional information becomes
available in the future which changes management's estimates, additional
provisions may be necessary.
Agreements and Contracts
The Company is a party to patent licensing agreements to manufacture and
sell certain types of sprinkler devices. Under the terms of the agreements, the
Company is required to pay a royalty on net commissioned sales (as defined in
the agreements) of the licensed product during the terms of the patents. The
expense under these agreements was $76, $323 and $417 for the years ended
October 31, 1997, 1996 and 1995, respectively.
The Company has employment contracts with certain officers under which
their employment could not be terminated without five years prior notice. In
addition, the Company has entered into an employment agreement with an employee
director for consulting services under which the monthly consulting fee of
$30 is payable for the ten year term unless the agreement is terminated by the
Company for cause, as defined. The Company also has various purchase commitments
for materials,
<PAGE>
supplies, machinery and equipment incident to the ordinary conduct of business.
Such commitments are not at prices in excess of current market.
Environmental Matters
The Company and approximately thirty other local businesses were
notified by the Environmental Protection Agency ("EPA") in August 1991 that they
may be a potentially responsible party with respect to a groundwater
contamination problem in the vicinity of the Company's primary manufacturing
plant in Lansdale, Pennsylvania. The Company has entered into an Administrative
Order of Consent for Remedial Investigation/Feasibility Study ("AOC") effective
May 19, 1995 with the EPA. Pursuant to the AOC, in 1996 the Company performed
certain tests on the Company's property to determine whether any land owned by
the Company could be a source of any of the contamination at the site. Based
upon such tests management believes that the Company's operations did not
contribute to this contamination problem and the Company has no liability to
clean-up this site. Should the EPA mandate the Company's participation in
cleanup efforts it is estimated that such costs could aggregate $2,700. The
Company has not accrued for such cleanup costs.
Summary
The Company, in the normal course of business, is party to various
other claims and lawsuits with regard to its products and other matters.
Management believes that the ultimate resolution of these other matters will not
have a material impact on the Company's financial position, results of
operations or liquidity.
<PAGE>
SUPPLEMENTARY FINANCIAL DATA
Quarterly Financial Data (Unaudited)
(Amounts in thousands, except per share)
-----------------------------------------
First Second Third Fourth
-----------------------------------------
1997
Net sales $48,180 $53,873 $58,918 $61,019
Gross profit 15,085 17,152 15,978 4,865 *
Net income (loss) 1,299 2,158 868 (6,867)*
Net income (loss) per
share .39 .64 .26 (2.11)*
1996
Net sales $40,750 $44,801 $49,491 $52,178
Gross profit 12,281 13,281 14,251 12,412 *
Net income 1,041 1,265 1,304 153 *
Net income per share .31 .38 .39 .05 *
1995
Net sales $33,714 $37,990 $42,758 $44,387
Gross profit 10,612 12,258 14,006 14,808
Net income 1,448 1,923 2,389 2,698
Net income per share .39 .60 .73 .82
*After unusual fourth quarter charge of $13,200 ($8,976 net of
tax and $2.74 per share) in fiscal 1997 and $3,750 ($2,362 net of
tax and $.72 per share) in fiscal 1996.
Note: The total of the individual quarterly net income (loss) per share amounts
may not equal the net income (loss) per share amount for the year due to
rounding or changes in the number of shares outstanding during the year.
<PAGE>
SCHEDULE II
CENTRAL SPRINKLER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
RESERVE FOR DOUBTFUL RECEIVABLES
(Amounts in thousands)
Balance Charges Balance
Beginning to End of
Year Ended of Period Expense Recoveries Writeoffs Period
---------- --------- ------- ---------- --------- ------
October 31, 1997 $4,622 $1,701 $133 $507 $5,949
====== ====== ==== ==== ======
October 31, 1996 $3,813 $1,330 $ 90 $611 $4,622
====== ====== ==== ==== ======
October 31, 1995 $3,737 $ 975 $ 64 $963 $3,813
====== ====== ==== ==== ======
S-1
<PAGE>
Non-Standardized Profit Sharing/Thrift Plan With 401(k) Feature
Adoption Agreement Number 001-03
This Adoption Agreement, when executed by the Employer and accepted by the Plan
Administrator, and the Trustee, if applicable, and accepted by Connecticut
General Life Insurance Company, establishes the Employer's Plan and Trust, if
applicable, for the benefit of its eligible Employees and their Beneficiaries.
The terms of the Connecticut General Life Insurance Company Defined Contribution
Plan are expressly incorporated therein and shall form a part hereof as fully as
if set forth herein except that if more than one election is provided, only that
election made by the Employer shall be so incorporated. The terms of the Plan so
incorporated together with the terms of this Adoption Agreement shall constitute
the sole terms of the Employer's Plan and Trust, if applicable, and no further
trust instrument or other instrument of any nature whatsoever shall be required.
The Employer's participation under the Plan shall be subject to all the terms
set forth therein and in this Adoption Agreement.
- -+ Note: Section 414(d) governmental plans and section 414(e) nonelecting church
plans that do not wish to provide ERISA-required benefits should not adopt this
document.
- ------------------------------------------------------------------------------
Plan Document GENERAL INFORMATION
Section
- ------------------------------------------------------------------------------
Legal Name of Employer: Central Castings Corporation
----------------------------
- ------------------------------------------------------------------------------
Address: 2660 Old Gadsen Highway
-----------------------
City: Anniston State: AL Zip: 36206
-------- -- -----
- ------------------------------------------------------------------------------
Plan Name: Central Castings Corporation
401(k) Profit Sharing Plan
---------------------------
- ------------------------------------------------------------------------------
Plan Number: 001
---
-+ To be assigned by the Employer. For example: 001, 002, and
so on.
- ------------------------------------------------------------------------------
Employer's EIN: 63-1121596
------------
- ------------------------------------------------------------------------------
Classification of Business:
[X] C Corporation [ ] S Corporation [ ] Partnership
[ ] Sole Proprietorship [ ] Tax-Exempt/Nonprofit Organization
[ ] Other:___________________
- ------------------------------------------------------------------------------
-1-
<PAGE>
- ------------------------------------------------------------------------------
Plan Document
Section GENERAL INFORMATION
- ------------------------------------------------------------------------------
Employer Tax Status:
Tax Year Ends (MM/DD): 10/31
------
Tax Basis: [ ] Cash [X] Accrual
- --------------------------------------------------------------------------------
1.20 Effective Date
The adoption of the CONNECTICUT GENERAL LIFE
INSURANCE COMPANY Non-Standardized Profit
Sharing/Thrift Plan with 401(k) Feature shall:
[X] A. Establish a new Plan effective as of
(MM/DD/YY): 11/01/96
--------
[ ] B. Constitute an amendment and restatement in its
entirety of a previously established Qualified
Plan of the Employer which was effective _____
(hereinafter called the "Effective Date"). The
effective date of this amendment and
restatement is _______________
- --------------------------------------------------------------------------------
Merger Data
This Plan includes funds from a prior or coincidental
merger of a:
[ ] A. Money Purchase Plan
[ ] B. Target Benefit Plan
[X] C. Not AppLicable
- --------------------------------------------------------------------------------
Sponsoring Organization:
Connecticut General Life Insurance Company
P.O. Box 2975
Hartford, CT 06104
(860) 725-2274
- --------------------------------------------------------------------------------
-2-
<PAGE>
Article Page
I. Nontrusteed, Trust, and Trustee ............................... 4
II. Plan Administrator ............................................ 4
III. Plan Year ..................................................... 5
IV. Compensation .................................................. 6
V. Highly Compensated Employee ................................... 7
VI. Service ....................................................... 8
VII. Eligibility Requirements ...................................... 10
VIII. Entry Date .................................................... 13
IX. Vesting ....................................................... 15
X. Contributions ................................................. 18
XI. Contribution Period ........................................... 28
XII. A11ocation of Contributions ................................... 29
XIII. Limitations on Allocations .................................... 31
XIV. Investment of Participant's Account ........................... 32
XV. Life Insurance ................................................ 32
XVI. Employer Stock ................................................ 33
XVII. Withdrawals Preceding Termination ............................. 34
XVIII. Loans to Participants, Beneficiaries And Parties-in-Interest .. 38
XIX. Retirement and Disability ..................................... 39
XX. Distribution of Benefits ...................................... 40
XXI. Qualified Preretirement Survivor Annuity ...................... 41
XXII. Amendment of the Plan ......................................... 41
XXIII. Top-Heavy Provisions .......................................... 42
XXIV. Other Adopting Employer ....................................... 44
-3-
<PAGE>
- ------------------------------------------------------------------------------
Plan Document I. NONTRUSTEED, TRUST, AND TRUSTEE
Section
- ------------------------------------------------------------------------------
- -+ The Plan must have a Trustee if the Employer has elected Employer Stock,
Loans, investment in Life Insurance, and or any investment other than through a
contract with Connecticut General Life Insurance Company.
- -+ If the plan is trusteed, the Employer must apply for a Trust Tax
Identification Number, unless the Trust already has obtained one, even if CG
Trust Company has been appointed as the Plan's Trustee.
- --------------------------------------------------------------------------------
The Plan is:
1.39 [ ] A. Nontrusteed.
- --------------------------------------------------------------------------------
1.73, 1.74 [X] B. Trusteed and Trustees are:
Trustee(s)
Name(s):George G. Meyer, William J. Pardue
-----------------------------------
Albert T. Sabol
---------------
Address: Central Sprinkler Corporation
-----------------------------
451 North Cannon Avenue
-----------------------
City: Lansdale St: PA Zip: 19446
-------- -- -----
Trust EIN:_______________________________________
- --------------------------------------------------------------------------------
1.73, 1.74 [ ] C. Trusteed and CG Trust Company has been appointed as the
Plan's Trustee.
Trust
Name: CG Trust Company
Address: 525 West Monroe St., Suite 1800
Chicago, IL 60661-3629
Employer's Trust EIN:
- --------------------------------------------------------------------------------
Plan Document II. PLAN ADMINISTRATOR
Section
- ------------------------------------------------------------------------------
1.50 The Plan Administrator is:
Name: Central Castings Corporation
----------------------------
c/o Central Sprinkler Company
-----------------------------
Address:451 North Cannon Avenue
-----------------------
City: Lansdale State: PA Zip: 19446
-------- -- -----
- --------------------------------------------------------------------------------
-4-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document III. PLAN YEAR
Section
- ------------------------------------------------------------------------------
1.51 A. The Plan Year will mean:
[ ] 1. The 12-consecutive-month period commencing on
(MM/DD/YY)____________ and each anniversary
thereof except that the first plan year will
commence on (MM/DD/YY)____________.
This election may be made only for new plans.
[X] 2. The 12-consecutive-month period commencing on
(MM/DD/YY) 11/01/96 and each anniversary
thereof.
- --------------------------------------------------------------------------------
-5-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document IV. COMPENSATION
Section
- ------------------------------------------------------------------------------
-+(i) Election of options 1-6 below does not require a
separate nondiscrimination test.
-+(ii) If option 1, 2, or 3 is elected, you must elect the
same definition of Compensation in Section XIII,
Limitations on Allocations.
-+(iii) Options 1-6 include lump sum amounts and/or cash
bonuses. These amounts are included in compensation in
the year in which paid.
-+(iv) Options 4-9 may not be elected by a plan that uses an
integrated allocation formula.
-+(v) This compensation definition is for purposes of
allocating contributions under the Plan. For
nondiscrimination testing, the Employer may use any
definition of compensation that is based upon Code
section 4l4(s) or 4l5(c)(3). Use of options 7, 8, or 9
for nondiscrimination testing requires that the
employer satisfy a separate compensation
nondiscrimination test.
- --------------------------------------------------------------------------------
A. Indicate the number of the Compensation definition that will
be used for allocating each type of contribution.
Elective Deferral Contributions: 2
Matching Contributions: 2
Nonelective Contributions: 2
Employee Contributions:__________
1.12 For purposes of allocating contributions, Compensation
means:
1.12(a) 1. Wages, Tips and Other Compensation Box on Form W-2.
1.12(b) 2. Section 3401(a) wages.
1.12(c) 3. 415 safe-harbor compensation.
1.12(d) 4. Modified Wages, Tips, and Other Compensation Box on
Form W-2.
1.12(e) 5. Modified section 3401(a) wages.
1.12(f) 6. Modified 415 safe-harbor compensation.
1.12(g) 7. Regular or base salary or wages.
1.12(h) 8. Regular or base salary or wages plus / / overtime and/or
/ / bonuses.
1.12(i) 9. A "reasonable alternative definition of Compensation,"
as that term is used under Code section 414(s)(3) and
the regulations thereunder.
The definition of Compensation is: _______________________
__________________________________________________________
__________________________________________________________
-+ Lump sum amounts and/or cash bonuses may be excluded only
if specified in this definition. Also see note (v) above.
- --------------------------------------------------------------------------------
-6-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document IV. COMPENSATION
Section
- ------------------------------------------------------------------------------
1.12 B. Compensation shall be determined over the following
determination period:
[ ] 1. The Plan Year.
[ ] 2. A 12-consecutive-month period beginning on
(MM/DD)___________ and ending with or within
the Plan Year. For Employees whose date of hire
is less than 12 months before the end of the
designated 12-month period, Compensation will
be determined over the Plan Year.
[X] 3. The Plan Year. However, for the Plan Year in
which an Employee's participation begins, the
applicable period is the portion of the Plan
Year during which the Employee is eligible to
participate in the Plan.
- --------------------------------------------------------------------------------
1.12 C. Compensation shall/shall not include Employer
contributions made pursuant to a salary reduction
agreement, which are not includable in the gross income
of the Employee under Code section 125, 402(e)(3),
402(h)(1)(B) or 403(b).
[X] Shall [ ] Shall Not
- --------------------------------------------------------------------------------
1.12 D. The highest annual Compensation to be used in
determining allocations to a Participant's Account shall
be:
$__________________
-+ Enter an amount if less than the $150,000 (as indexed)
limitation on compensation.
- --------------------------------------------------------------------------------
Plan Document V. HIGHLY COMPENSATED EMPLOYEE
Section
- ------------------------------------------------------------------------------
1.29 A. Highly Compensated Employees shall be determined using:
1.29(a) [X] 1. The Traditional Method.
1.29(b) [ ] 2. The Simplified Method for Employers in more
than one geographical area.
1.29(c) [ ] 3. The alternative Simplified Method.
1.29(d) [ ] 4. The alternative Simplified Method with Snapshot
Day basis.
The Snapshot Day is ___________ (fill in).
- --------------------------------------------------------------------------------
-7-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document V. HIGHLY COMPENSATED EMPLOYEE
Section
- ------------------------------------------------------------------------------
1.29(a) B. If A.1. or A.2. is chosen above, the Look-Back Year
shall be:
[X] 1. The 12-month period immediately preceding
the Determination Year.
[ ] 2. The calendar year ending with or within the
Determination Year.
-+ If B.2. is selected and the Determination Year (Plan
Year) is the calendar year, then the Look-Back Year is
the same 12-month period as the Determination Year. This
avoids having to look back at data from a prior year.
-+ However, if the Determination Year is not the
calendar year, the Determination Year calculation must
be made on the basis of a lag period (the period running
from the end of the Look-Back Year to the end of the
Determination Year), with the applicable dollar amounts
adjusted on a pro rata basis for the number of months in
the lag period.
- --------------------------------------------------------------------------------
Plan Document VI. SERVICE
Section
- ------------------------------------------------------------------------------
Check off appropriate basis for determining service.
- --------------------------------------------------------------------------------
2A.3, 2A.9 A. Hours of Service or Elapsed Time
- --------------------------------------------------------------------------------
1. Years of Service shall be determined on the following
basis:
a. Eligibility: [X] Hours of Service [ ] Elapsed Time
b. Vesting: [X] Hours of Service [ ] Elapsed Time
c. Allocation of [X] Hours of Service [ ] Elapsed Time
Contributions:
2. If service is based on Hours of Service, Hours shall be
determined on the basis of:
[X] a. Actual hours for which paid or entitled to
payment.
[ ] b. Days Worked (10 Hours of Service).
[ ] c. Weeks Worked (45 Hours of Service).
[ ] d. Semimonthly payroll periods (95 Hours of Service).
[ ] e. Months Worked (190 Hours of Service).
-+ For options b, c, d, and e: If the Employee
would be credited with 1 Hour of Service during the
period, the Employee shall be credited with the
number of Hours of Service indicated in parentheses.
- --------------------------------------------------------------------------------
-8-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document VI. SERVICE
Section
- ------------------------------------------------------------------------------
B. Service with other employers.
1.24
1. Service with members of the Employer's controlled group of
corporations, affiliated service group, or group of business
under common control ("controlled group").
-+ Service for an employer while the employer is part of the
controlled group must be taken into account.
a. Service with a member of the controlled group prior to it
becoming part of the controlled group will be included for
all purposes.
[ ] Yes [X] No
A.5 2. Service with a predecessor organization.
-+ Service with a predecessor organization of the Employer must
be taken into account if the Employer maintains the Plan of the
predecessor organization.
a. Service with a predecessor organization will be included for
all purposes even if the Employer does not maintain the plan
of the predecessor organization.
[ ] Yes [ ] No
2A.5 3. Service with the following subsidiary(ies) or affiliated
organization, not related to the Employer under the rules of Code
sections 414(b), (c) or (m), shall be considered Service for all
purposes of this plan:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
-+ Service credited under 1.a, 2.a and 3 must apply to all
similarly situated Employees, must be credited for a legitimate
business reason, and must not by design or operation discriminate
significantly in favor of Highly Compensated Employees.
- --------------------------------------------------------------------------------
-9-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document VII. ELIGIBILITY REQUIREMENTS
Section
- ------------------------------------------------------------------------------
- -+Check or fill out appropriate requirements for each type of contribution in
the Plan.
- --------------------------------------------------------------------------------
2A.5(a), 2B.1 A. Eligibility Requirements
1. If Employer is a Partnership or Sole Proprietorship:
Self-Employed Individuals are eligible to participate
in the Plan.
[ ] Yes [ ] No
2. Immediate Participation.
-+ No age or service requirement.
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
3. Service Requirement.
-+ Not to exceed 1 year if graded vesting; not to
exceed 2 years if 100% immediate vesting. Not to exceed
1/2 year if graded vesting or 1 1/2 years if 100%
immediate vesting if annual Entry Date is chosen in
Section VIII "Entry Date." Not to exceed 1 year for
Elective Deferral Contributions.
[X] Elective Deferral Contributions: 1 (indicate number
of years)
[X] Matching Contributions: 1 (indicate number of
years)
[X] Nonelective Contributions: 1 (indicate number of
years)
[ ] Employee Contributions: (indicate number of years)
-+ Fill in the blank(s) above with the amount of
service required. Any service requirement not in units
of whole years requires service for eligibility to be
determined based on elapsed time (see Section
VI.A.1.a).
4. Age Requirement.
-+ Not greater than 21 years. If annual entry date is
chosen in Section VIII "Entry Date," not greater than
20 1/2 years.
[X] Elective Deferral Contributions: 21 (indicate
minimum age)
[X] Matching Contributions: 21 (indicate minimum age)
[X] Nonelective Contributions: 21 (indicate minimum
age)
[ ] Employee Contributions: (indicate minimum age)
5. Employees who were employed on or before the initial
Effective Date of the Plan or the Effective Date of the
amendment and restatement of the Plan, as indicated on
page 2, shall/shall not be immediately eligible without
regard to any Age and/or Service requirements specified
in 2 or 3 above.
[X] Shall [ ] Shall Not
- --------------------------------------------------------------------------------
-10-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document VII. ELIGIBILITY REQUIREMENTS
Section
- ------------------------------------------------------------------------------
2B.1 B. Job Class Requirements
An Employee must be a member of one or more of the following
selected classifications:
1. No Job Class Requirements:
[X] Elective Deferral Contributions
[X] Matching Contributions
[X] Nonelective Contributions
[X] Employee Contributions
2. Salaried:
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
3. Hourly:
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
4. Clerical:
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
5. Employees whose employment is governed by a collective
bargaining agreement represented by the following
union:_________________
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
6. Other (fill in): _____________
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
-+ "Part-time" Employees may not be excluded.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
Plan Document VII. ELIGIBILITY REQUIREMENTS
Section
- --------------------------------------------------------------------------------
2B.1 C. Additional Requirements
An Employee must be in the following designated
division(s) of the Employer:
_____________________________________________________
_____________________________________________________
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
2B.1 D. An Employee must not be a member of any one of the
following groups:
1. Union.
-+ Employees who are members of a union are defined as:
Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer
and employee representatives, if retirement benefits
were the subject of good faith bargaining and if two
percent or less of the employees of the Employer who
are covered pursuant to that agreement are professional
employees as defined in section 1.410(b)-9 of the
regulations. For this purpose, the term "employee
representatives" does not include any organization more
than half of whose members are Employees who are
owners, officers, or executives of the Employer, unless
the collective bargaining agreement provides for
coverage under the Plan.
[X] Elective Deferral Contributions
[X] Matching Contributions
[X] Nonelective Contributions
[ ] Employee Contributions
2. Nonresident aliens (within the meaning of Code section
7701(b)(1)(B)) who receive no earned income (within the
meaning of Code section 911(d)(2)) from the Employer
that constitutes income from sources within the United
States (within the meaning of Code section 861(a)(3)).
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
-12-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document VII. ELIGIBILITY REQUIREMENTS
Section
- ------------------------------------------------------------------------------
3. Employees covered by the following designated qualified
employee benefit plans:
_____________________________________________________
_____________________________________________________
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
1.15 E. The Plan covers Employees whose conditions of
employment are mandated under the Davis-Bacon Act.
[ ] Yes [ ] No
- --------------------------------------------------------------------------------
Plan Document VIII. ENTRY DATE
Section
- ------------------------------------------------------------------------------
- -+ Check the appropriate requirement for Entry Date.
- --------------------------------------------------------------------------------
1.25 A. Immediately.
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
1.25 B. The first day of any month.
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
1.25 C. Quarterly (that is, three months apart) on each:
(MM/DD) 02/01, or (MM/DD) 05/0l, or
(MM/DD) 08/01, or (MM/DD) 11/01.
-+ Fill in dates.
[X] Elective Deferral Contributions
[X] Matching Contributions
[X] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
-13-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document VIII. ENTRY DATE
Section
- ------------------------------------------------------------------------------
1.25 D. Semiannually (that is, six months apart) on each:
(MM/DD)______, or (MM/DD) ________.
-+ Fill in dates.
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
1.25 E. Annually, on each (MM/DD) ____________.
-+ Fill in date.
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
1.25 F. The first day nearest to the date(s) selected in B, C,
D or E above, whether before or after that date, that
the Participant meets the Eligibility Requirements.
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
-+ Allows retroactive entry into the Plan. This may have an
effect on various nondiscrimination tests for the Plan.
- --------------------------------------------------------------------------------
-14-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document IX. VESTING
Section
- ------------------------------------------------------------------------------
1.76 A. Vesting Percentage.
The Vesting Schedule, based on number of Years or Periods of
Service, shall be as indicated below. Indicate the number of
the vesting schedule that applies to any Nonelective
Contributions, Matching Contributions, and Prior Employer
Contributions. The vesting schedules are depicted in 1
through 8, below.
Nonelective Contributions are subject to vesting
schedule: 8
-
Matching Contributions are subject to vesting
schedule: 8
-
Prior Employer Contributions are subject to
vesting schedule: __________
1. Immediately = 100%
2. 0-3 Years = 0%
3 Years = 100%
3. 1 Year = 20%
2 Years = 40%
3 Years = 60%
4 Years = 80%
5 Years = 100%
4. 0-3 Years = 0%
3 Years = 20%
4 Years = 40%
5 Years = 60%
6 Years = 80%
7 Years = 100%
S. 0-2 Years = 0%
2 Years = 20%
3 Years = 40%
4 Years = 60%
5 Years = 80%
6 Years = 100%
6. 0-5 Years = 0%
5 Years = 100%
7. 1 Year = 25%
2 Years = 50%
3 Years = 75%
4 Years = 100%
<PAGE>
- --------------------------------------------------------------------------------
Plan Document IX. VESTING
Section
- ------------------------------------------------------------------------------
8. Other. Must be at least as liberal as #4 or #6 above.
Less than 3 = 0%
3 but greater than 4 = 25%
4 but greater than 5 = 50%
5 but greater than 6 = 75%
6 or more = 100%
- --------------------------------------------------------------------------------
2A.5(b) B. The vesting computation period shall be based on the
Employee's service in the:
[x] Plan Year [ ] Employment year
- --------------------------------------------------------------------------------
2A.7, 2A.10 C. Excluded Years or Periods of Service.
The vesting percentage shall be based on all Years of
Service (i.e., completing 1000 Hours of Service) or
Periods of Service (i.e., Elapsed Time), EXCEPT that
the following shall be excluded:
Years or Periods of Service:
[ ] 1. Prior to the time the Participant attained
age 18.
[X] 2. During which the Employer did not maintain the
plan or predecessor plan.
[ ] 3. During which the Participant elected not to
contribute to a plan which required Employee
Contributions.
[ ] 4. Rule of Parity (Elapsed Time).
-+ Rule of Parity (Elapsed Time): In the event
a reemployed Employee has no vested interest in
Employer Contributions at the time the break
occurred, and has since incurred 5 consecutive
1-year Breaks-in-Service, and has a Period of
Severance which equals or exceeds his prior
Period of Service, such prior Service may be
disregarded.
[ ] 5. Rule of Parity (Hours of Service).
-+ Rule of Parity (Hours of Service): Years
of Service prior to a Break-in-Service may
be disregarded if the participant had no
vested interest in Employer Contributions at
the time the break occurred, and the
Participant has since incurred 5 consecutive
1-year Breaks-in-Service, and the number of
consecutive 1-year Breaks-in-Service is at
least as great as the Years of Service before
the break occurred.
[ ] 6. Prior to any 1-Year Break-in-Service until
the Employee completes a Year of Service
following reemployment.
[ ] 7. None of the above.
- --------------------------------------------------------------------------------
-16-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document IX. VESTING
Section
- ------------------------------------------------------------------------------
3D.1, 3D.2, D. Forfeitures.
2A.7, 2A.10
1. Forfeitures will occur:
[ ] a. Immediately.
[ ] (1) Optional Payback Method.
[ ] (2) Required Payback Method.
[ ] b. Upon a 1-Year Break-in-Service.
[X] (1) Optional Payback Method.
[ ] (2) Required Payback Method.
[ ] c. Upon 5 consecutive 1-Year Breaks-in-Service.
2. Forfeitures will be:
[ ] a. Used as an Employer Credit.
[X] b. Reallocated to Participants' Accounts.
[ ] c. Used as an Employer Credit and then, to the
extent any Forfeitures remain, reallocated
to Participants' Accounts.
-+ If choice IX.D.2.b or c Ls selected and the Plan
provides Matching Contributions, the Actual
Contribution Percentage (ACP) Test will be affected.
-17-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
2C.1(k) (1) A. Elective Deferral Contributions
1. Availability/Amount
[ ] Not Available under the Plan.
[X] Available under the Plan (complete the following).
Each Participant MAY elect to have his Compensation
actually paid during the Plan Year reduced by:
[ ] a. _______%.
[ ] b. up to _________%.
[ ] c. from _______% to ________%.
[X] d. up to the maximum percentage
allowable, not to exceed the limits
of Code sections 402(g) and 415.
-+ Lump sum amounts and/or cash bonuses must be
subject to the salary deferral election unless the
definition of compensation in Section IV.A.9 has
been elected and these amounts have been
specifically excluded from that compensation
definition. Lump sum amounts and cash bonuses are
deferred upon and tested in the Plan Year in which
paid.
2. Modification
A Participant may change the amount of Elective
Deferral Contributions the Participant makes to the
Plan (complete a and b):
[ ] a. _____ per calendar year (may not be less
frequent than once).
[X] b. As of the following date(s) (MM/DD):
02/01
------------------------------------
05/01
------------------------------------
08 /01
------------------------------------
11/01
------------------------------------
------------------------------------
------------------------------------
-18-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
B. Required Employee Contributions
2C.1(b) 1. Availability/Amount
[ ] Not Available under the Plan.
[ ] Available under the Plan and must be made as a
condition of receiving an Employer
Contribution.
-+ Required Employee Contributions are NOT AVAILABLE
unless Elective Deferral Contributions are
available.
Required Contributions shall be in the amount of:
[ ] a. ___ % of Compensation actually paid during the
Contribution Period.
2C.1(k)(1) [ ] b. Not less than ____ % nor more than ____ % of
Compensation actually paid during the Contribution
Period.
2. Modification
A Participant may suspend Required Employee
Contributions for a minimum period of:
[ ] a. 1 month
[ ] b. 2 months
[ ] c. 3 months
-+ The suspension period may be of indefinite duration.
A Participant's reentry into the Plan shall be as of
the first Entry Date following the end of the
suspension period.
- --------------------------------------------------------------------------------
-19-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
2C.1 C. Matching Contributions
Availability/Amount
[ ] Not Available under the Plan.
[X] Available under the Plan (elect one from
option 1 and, if applicable, elect one from
option 2).
1. [X] a. Matching Contributions SHALL be based upon a
percentage of Considered Net Profits.
[ ] b. Matching Contributions SHALL NOT be based
upon a percentage of Considered Net Profits.
2. Partnership Plans.
[ ] a. The Employer SHALL make Matching
Contributions to Partners.
-+ Matching Contributions to Partners are
treated in all respects as Elective Deferral
Contributions.
[ ] b. The Employer SHALL NOT make Matching
Contributions to Partners.
For each $1.00 of either Elective Deferral
Contributions or Required Employee Contributions, as
selected above, the Employer will contribute and
allocate to each Participant's Matching Contribution
Account an amount equal to:
[X] 1. $1.00 (e.g., $.50).
[ ] 2. A discretionary percentage, to be determined by
the Employer.
-+ If option 2 is elected, the amount of the
discretionary percentage should be determined by
an annual Board of Directors resolution setting
the percentage.
[ ] 3. Graded Match.
-+ If a or b is elected, the minimum and maximum
percentages must be within the parameters of the
Elective Deferral election in Section X.A or the
Required Employee Contribution election in
Section X.B of this Adoption Agreement.
-+ Percentages for higher amounts must be lower
than the percentages for lower amounts. For
example: 100% of the first $500, plus 75% of the
next $500, plus 50% of the next $500.
[ ] a. Graded based upon the dollar amount of
each Participant's Elective Deferral
Contributions or Required Employee
Contributions as follows:
_____% of the first $_____ plus
_____% of the next $_____ plus
_____% of the next $_____ plus
_____% of the next $_____.
- --------------------------------------------------------------------------------
-20-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
[ ] b. Graded based upon the percentage of Compensation
of each Participant's Elective Deferral
Contribution or Required Employee Contribution
as follows:
_____% of the first _____% plus
_____% of the next _____% plus
_____% of the next _____% plus
_____% of the next _____%.
-+ If 3.a or b is elected, additional testing will be
required to prove that the different contributions are
available on a nondiscriminatory basis.
[ ] 4. Separate specific dollar amounts for different
employees (e.g., employees in different job
classifications):
-+ This option is available only for Plans covering
Employees whose conditions of employment are mandated
under the Davis-Bacon Act.
$____ (e.g., $.50) to employees in ______ (fill in)
$____ (e.g., $.50) to employees in ______ (fill in)
$____ (e.g., $.50) to employees in ______ (fill in)
$____ (e.g., $.50) to employees in ______ (fill in)
$____ (e.g., $.50) to employees in ______ (fill in)
Additional Formulas (fill in below):
-+ Formulas must be the same type as above.
_______
_______
_______
_______
-+ If 4 is selected, additional testing will be
required to prove that the different contributions are
available on a nondiscriminatory basis.
- --------------------------------------------------------------------------------
-21-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
[ ] 5. Different graded matches for different employees
(e.g., employees in different job classifications,
divisions, organizations, members of a controlled group
of corporations, etc.):
-+ This option is available only for Plans covering
Employees whose conditions of employment are mandated
under the Davis-Bacon Act
-+ Percentages for higher amounts must be lower than
the percentages for lower amounts. For example: 100% of
the first $500, plus 75% of the next $500, plus 50% of
the next $500.
[ ] a. Graded based upon the dollar amount of Elective
Deferral Contributions or Required Contributions
of each Participant as follows:
Employees in _____ (fill in)
_____% of the first $_____ plus
_____% of the next $______ plus
_____% of the next $_____ plus
_____% of the next $_____.
Employees in _____ (fill in)
_____% of the first $_____ plus
_____% of the next $______ plus
_____% of the next $_____ plus
_____% of the next $_____.
Employees in _____ (fill in)
_____% of the first $_____ plus
_____% of the next $______ plus
_____% of the next $_____ plus
_____% of the next $_____.
Additional Formulas (fill in below):
-+ Formulas must be the same type as above.
_______
_______
_______
_______
_______
- --------------------------------------------------------------------------------
-22-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
[ ] b. Graded based upon the percentage of compensation
of the Elective Deferral Contributions or Required
Contributions of each Participant as follows:
-+ This option is available only for Plans covering
Employees whose conditions of employment are mandated
under the Davis-Bacon Act.
-+ Matching percentages for higher compensation
percentages must be lower than matching percentages for
lower compensation percentages. For example: 100% of
the first 3%, plus 75% of the next 2%, plus 50% of the
next 2%.
Employees in _____ (fill in)
_____% of the first _____% plus
_____% of the next _____% plus
_____% of the next _____% plus
_____% of the next _____%.
Employees in _____ (fill in)
_____% of the first _____% plus
_____% of the next _____% plus
_____% of the next _____% plus
_____% of the next _____%.
Employees in _____ (fill in)
_____% of the first _____% plus
_____% of the next _____% plus
_____% of the next _____% plus
_____% of the next _____%.
Additional Formulas (fill in below):
-+ Formulas must be the same type as above.
_______
_______
_______
_______
_______
-+ If 5.a or b is selected, additional testing will be
required to prove that the different contributions are
available on a nondiscriminatory basis.
- --------------------------------------------------------------------------------
-23-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
The Elective Deferral or Required Employee
Contributions, upon which Matching Contributions are
made by the Employer, shall not exceed:
[ ] 1. $_______ for the Plan Year.
[X] 2. 2% of Participant's Compensation for the
Contribution Period.
[ ] 3. N/A.
True-Up Contributions:
The Employer may/may not contribute a True-Up
Contribution for each Participant at the end of the
Plan Year so that the total Matching Contribution for
each Participant is calculated on an annual basis.
[ ] May [X] May not
Additional Matching Contributions:
In addition, at the end of the Plan Year, the Employer
may contribute Additional Matching Contributions to be
allocated in the same proportion that the Matching
Contribution made on behalf of each Participant during
the Plan Year bears to the Matching Contribution made
on behalf of all Participants during the Plan Year.
[ ] Yes [X] No
- --------------------------------------------------------------------------------
-24-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
2C.1 D. Nonelective Contributions
-+ If you choose to make a Nonelective Contribution,
each Employee eligible to participate in the Plan and
who satisfies the Annual Allocation Requirement of
Section XII.A or XII.B MUST be given an allocation,
regardless of whether they make Elective Deferral
Contributions.
Availability/Amount
[ ] Not Available under the Plan.
[X] Available under the Plan (complete the
following).
The Contribution for each Contribution Period shall be:
[ ] 1. _____% of Considered Net Profits.
[ ] 2. _____% of Compensation of each Participant.
[ ] 3. The Employer will contribute an amount equal to
$______ for each Participant.
[X] 4. Discretionary.
-+ If option 4 is elected, the amount of the
discretionary contribution should be determined by an
annual Board of Directors resolution setting a fixed
amount of contribution or a formula by which a fixed
amount can be determined.
[ ] 5. The Employer will contribute an amount equal to
$____ /hour or unit of each Participant
(indicate dollar or cents amount).
-+ Option 5 may be chosen ONLY for Employees who are
subject to a Collective Bargaining Agreement.
[ ] 6. ___% of Considered Net Profits to ____(fill in)
___% of Considered Net Profits to ____(fill in)
___% of Considered Net Profits to ____(fill in)
___% of Considered Net Profits to ____(fill in)
___% of Considered Net Profits to ____(fill in)
-+ Fill in job classification.
- --------------------------------------------------------------------------------
-25-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
Additional Formulas (fill in below):
-+ Formulas must be the same type as above.
______________________________________________________
______________________________________________________
______________________________________________________
[ ] 7. ___% of Compensation to each Participant in ____
(fill in)
___% of Compensation to each Participant in ____
(fill in)
___% of Compensation to each Participant in ____
(fill in)
___% of Compensation to each Participant in ____
(fill in)
___% of Compensation to each Participant in ____
(fill in)
-+ Fill in job classiflcation.
Additional Formulas (fill In below):
-+ Formulas must be the same type as above.
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
-+ Options 6 and 7 may be selected ONLY when a Plan
covers Employees whose conditions of employment are
mandated under the Davis-Bacon Act.
-+ If option 6 or 7 is selected, subsection A.1
(Compensation to Compensation allocation) MUST be
chosen in Section XIII, "Allocation of Contributions."
-+ If options 6 or 7 is selected, additional testing
will be required to prove that the different
contributions are available on a nondiscriminatory
basis.
Nonelective Contributions shall/shall not be based on
Considered Net Profits.
-+ "Shall" must be chosen if option 1 is selected.
[X] Shall [ ] Shall not
- --------------------------------------------------------------------------------
-26-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
2C.1(b) E. Voluntary Employee Contributions
Availability/Amount
[X] Not Available under the Plan.
[ ] Available under the Plan (complete the following).
[ ] Voluntary Employee Contributions SHALL be permitted
up to ____% of Compensation actually paid during
the Plan Year.
[ ] Voluntary Employee Contributions made in a Lump Sum
SHALL be permitted.
-+ Voluntary Employee Contributions are NOT AVAILABLE unless
Elective Deferral Contributions are available.
- --------------------------------------------------------------------------------
2C.3 F. Rollover Contributions
Availability
[X] 1. Rollover Contributions out of the Plan are always
available.
[X] Cash only.
[ ] Cash and Loan Notes from this and/or a prior
plan.
[X] 2. Rollover Contributions into the Plan:
[ ] Not Available under the Plan.
[X] Available under the Plan (complete the
following).
Cash Only or Cash and Loan Notes:
[X] Cash only.
[ ] Cash and Loan Notes from prior plan.
Rollover contributions into the Plan may be
made by:
[ ] Both eligible Employees and Employees who
would be eligible except they do not yet
meet the Plan's age and/or service
requirement.
[X] Eligible Employees only.
- --------------------------------------------------------------------------------
-27-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
7B.8, 7B.9 G. Transfers of Account Balances
Availability
[X] 1. Transfers of account balances out of the Plan are
always available.
[X] 2. Transfers of Account Balances into the Plan:
[ ] Not Available under the Plan.
[X] Available under the Plan.
- --------------------------------------------------------------------------------
Plan Document XI. CONTRIBUTION PERIOD
Section
- ------------------------------------------------------------------------------
1.14 A. The regular Contribution Period (by contribution type) shall
be:
-+ For 1 and 2 below, "Other" Contribution Period may not be
longer than annual, but may be shorter than 4-weekly.
-+ For 3 below, "Other" Contribution Period may not be longer
than monthly, but may be shorter than 4-weekly.
1. Matching Contributions:
[ ] Annual [ ] 4-Weekly
[ ] Monthly [X] Other (specify) weekly.
2. Nonelective Contributions:
[X] Annual [ ] 4-Weekly
[ ] Monthly [ ] Other (specify) ______.
3. Elective Deferral Contributions, Required Employee
Contributions, and/or Voluntary Employee Contributions:
-+ Annual contribution period is not available for
contributions in #3.
[ ] Monthly [ ] 4-Weekly
[X] Other (specify) weekly.
-28-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XII. ALLOCATION OR CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
2C.1 (f) A. Allocation Formula for Nonelective Contribution
Complete the following ONLY if Section X.D is 1, 4, 6 or 7.
-+ If Section X.D is 6 or 7, the Compensation to
Compensation allocation formula (1 below) must be chosen.
The Nonelective Contribution will be allocated to
Participants who meet the requirements of Section XII.B or C
as follows:
[X] 1. Compensation to Compensation:
In the same ratio as each Participant's Compensation
bears to the total Compensation of all Participants.
[ ] 2. Integrated with Social Security:
a. Choose one of the following methods:
[ ] Step-Rate Method
For each Plan Year, the Employer will
contribute an amount equal to ___% of each
Participant's Compensation up to the Social
Security Integration Level, plus _______% of
each Participant's Compensation in excess of
the Social Security Integration Level.
However, in no event will the Excess
Contribution percentage exceed the amount
specified in Section 2C.1(f)(2)(B) of the
Plan.
[ ] Maximum Disparity Method
For each Plan Year, the Employer's Nonelective
Contribution shall be allocated in the manner
stated in Section 2C.1(f)(3) of the Plan in
order to maximize permitted disparity.
b. Social Security Integration Level:
[ ] i. $___ (not to exceed the Social Security
Taxable Wage Base).
[ ] ii. The Social Security Taxable Wage Base
in effect on the first day of the Plan
Year.
[ ] iii. ___% of the Social Security Taxable Wage
Base (not to exceed 100%).
- --------------------------------------------------------------------------------
-29-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XII. ALLOCATION OF CONTRIBUTIONS
Section
- ------------------------------------------------------------------------------
2C.1(g) B. Annual Allocation Requirements
An allocation of the annual Nonelective Contribution, annual
Matching Contribution, and/or Additional Matching
Contribution made by the Employer will be made to each
Participant who:
[ ] 1. Is a Participant on ANY day during the Plan Year
regardless of Service credited during the Plan Year.
[ ] 2. Is credited with a Year of Service in the Plan Year
for which the contribution is made.
[ ] 3. Is a Participant on the last day of the Plan Year.
[X] 4. Is credited with a Year of Service in the Plan Year
for which the contribution is made and is a
Participant on the last day of the Plan Year.
In addition, an allocation will be made by the Employer on
behalf of any Participant who retires, dies or becomes
disabled during the Plan Year, regardless of the number of
Hours of Service credited to such Participant and regardless
of whether such Participant is a participant on the last day
of the Plan Year.
Annual Nonelective Contribution [ ] Yes [ ] No
Annual Matching Contribution [ ] Yes [ ] No
Additional Matching Contribution [ ] Yes [ ] No
- --------------------------------------------------------------------------------
2C.1(g) C. Nonannual Allocation Requirement
An allocation of the nonannual Matching Contribution or
nonannual Nonelective Contribution made by the Employer will
be made to each Participant who:
[X] 1. Is a Participant on any day of the Contribution
Period.
[ ] 2. Is a Participant as of the last day of the
Contribution Period.
In addition, an allocation will be made by the Employer on
behalf of any Participant who retires, dies, or becomes
disabled during the Contribution Period, regardless of
whether such Participant is a Participant as of the last day
of the Contribution Period.
Nonannual Nonelective Contribution [ ] Yes [ ] No
Nonannual Matching Contribution [ ] Yes [ ] No
- --------------------------------------------------------------------------------
-30-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XIII. LIMITATIONS ON ALLOCATIONS
Section
- ------------------------------------------------------------------------------
4B A. If any Participant is covered by another qualified defined
contribution plan maintained by the Employer, other than a
Master or Prototype plan:
-+ Complete part A if you: (1) maintain, or at any time
maintained, another qualified retirement plan in which any
Participant in this Plan is, was, or could be, a
participant; or (2) maintain a Code section 415(l)(2)
individual medical account, for which amounts are treated as
Annual Additions for any Participant in this Plan.
[X] 1. N/A. The Employer has no other defined
contribution plan(s).
[ ] 2. The provisions of Section 4B.5 of the Plan will
apply, as if the other plan were a Master or
Prototype plan.
__________
__________
- --------------------------------------------------------------------------------
4B B. If any Participant is or ever has been a Participant in a
qualified defined benefit plan maintained by the Employer:
-+ Complete part B if you maintain, or at any time
maintained, another qualified retirement plan in which any
Participant in this Plan is, was, or could be a participant.
[X] 1. N/A. The Employer has no defined benefit plan(s).
[ ] 2. In any Limitation Year, the Annual Additions credited
to the Participant under this Plan may not cause the
sum of the Defined Benefit Plan Fraction and the
Defined Contribution Fraction to exceed 1.0. If the
Employer contributions that would otherwise be
allocated to the Participant's account during such
year would cause the 1.0 limitation to be exceeded,
the allocation will be reduced so that the sum of the
fraction equals 1.0. Any contributions not allocated
because of the preceding sentence will be allocated
to the remaining Participants according to the Plan's
allocation formula. If the 1.0 limitation is exceeded
because of an Excess Amount, such Excess Amount will
be reduced in accordance with Section 4B.4 of the
Plan.
[ ] 3. Provide the method under which the Plan
involved will satisfy the 1.0 limitation in a manner
that precludes Employer discretion.
__________
__________
-31-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XIII. LIMITATIONS ON ALLOCATIONS
Section
- ------------------------------------------------------------------------------
C. Compensation will mean all of each Participant's:
-+ Everyone must complete Section C. If option 1, 2, or 3
was selected in Section IV.A., you must make the same
selection here.
4B.1(b)(1) [ ] 1. Wages, Tips, and Other Compensation Box on Form W-2.
4B.1(b)(2) [X] 2. Section 3401(a) wages.
4B.1(b)(3) [ ] 3. 415 safe-harbor compensation.
- --------------------------------------------------------------------------------
4B.1(h) D. The Limitation Year shall be:
-+ Everyone must complete Section D.
[ ] 1. The Calendar Year.
[X] 2. The 12-month period coinciding with the Plan Year.
[ ] 3. The 12-month period beginning on (MM/DD): ________
- --------------------------------------------------------------------------------
Plan Document XIV. INVESTMENT OF PARTICIPANTS ACCOUNTS
Section
- ------------------------------------------------------------------------------
5A.1 A. The Participant shall/shall not have the authority to direct the
Investment of Contributions made by the Employer.
[X] Shall [ ] Shall Not
- --------------------------------------------------------------------------------
5A.1 B. If SHALL is elected above, complete the following.
Those having authority to direct the investment of the
Participant's Account are (choose all that apply):
[X] 1. Participants who are active Employees.
[X] 2. Participants who are former employees and continue to
maintain an account in the Plan or Trust.
[X] 3. Beneficiaries.
[X] 4. Alternate Payees.
- --------------------------------------------------------------------------------
Plan Document XV. LIFE INSURANCE
Section
- ------------------------------------------------------------------------------
5B.1 A. Available as a Participant investment:
[ ] Yes [X] No
- --------------------------------------------------------------------------------
-32-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XV. LIFE INSURANCE
Section
- ------------------------------------------------------------------------------
B. If yes is elected above, Life Insurance shall be available to:
[ ] 1. All Participants.
[ ] 2. Only to the specified group of Participants (fill in
below):
_______________________________________________________
_______________________________________________________
_______________________________________________________
-+ If subsection 2 is checked, separate nondiscrimination testing
will be required.
- --------------------------------------------------------------------------------
Plan Document XVI. EMPLOYER STOCK
Section
- ------------------------------------------------------------------------------
- -+ Before electing Employer Stock as an investment option, you should consult
your legal counsel on any federal or state securities law requirements arising
from offering Employer Stock as an investment option under your Plan and whether
use of this document Ls appropriate for you under those laws. Neither
Connecticut General Life Insurance Company nor any of its employees can advise
you on these matters.
- --------------------------------------------------------------------------------
1.45 A. Investment in Employer Stock is:
[ ] Permitted.
[ ] Not Permitted.
-+ You must complete the following subsections B and C if
investment in Employer Stock is permitted and Participants have
the authority to direct the investment of Employer Contributions.
- --------------------------------------------------------------------------------
1.45 B. Investment in Employer Stock within the Plan by officers or
directors of the Employer or by an individual who owns more than
10% of the Employer's Stock is:
[ ] Permitted.
[ ] Not Permitted.
- --------------------------------------------------------------------------------
1.45 C. The Trustee:
[ ] 1. Will vote the shares of the Employer Stock.
[ ] 2. Will vote the shares of the Employer Stock in
accordance with any instructions received by the Trustee
from the Participant.
-+ Option 2 must be selected if CG Trust Company is the Trustee.
[ ] 3. May request voting instructions from the Participants.
- --------------------------------------------------------------------------------
-33-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XVII. WITHDRAWALS PRECEDING TERMINATION
Section
- ------------------------------------------------------------------------------
- -+ Complete only the sections for the type of contributions in your plan.
3E.1(a) A. Withdrawal of Required Employee Contributions.
-+ Withdrawal may be for any reason.
[ ] Not Available under the Plan.
[ ] Available under the Plan.
If available, Required Employee Contributions may be
withdrawn:
[ ] Once each 6 months.
[ ] Once each 12 months.
[ ] Other (specify) ______.
The Contribution suspension period following a
withdrawal of Required Employee Contributions shall
be:
-+ You must choose one of the suspension periods
shown. Related Employer Contributions will be
suspended for the same period.
[ ] 6 Months.
[ ] 12 Months.
[ ] 24 Months.
- --------------------------------------------------------------------------------
3E.1(b) B. Withdrawal of Voluntary Employee Contributions.
-+ Withdrawal may be for any reason.
[ ] Not Available under the Plan.
[ ] Available under the Plan.
If available, Voluntary Employee Contributions may be
withdrawn:
[ ] Once each 6 months.
[ ] Once each 12 months.
[ ] Other (specify) ______________.
- --------------------------------------------------------------------------------
-34-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XVII. WITHDRAWALS PRECEDING TERMINATION
Section
- ------------------------------------------------------------------------------
C. Withdrawal of Elective Deferral Contributions.
[ ] Not Available under the Plan.
[X] Available under the Plan.
If available, select the conditions for withdrawal:
3E.2 [X] Withdrawal upon Participant's attainment of
age 59 1/2.
3E.5 [X] Withdrawal for Serious Financial Hardship.
-+ If a Participant makes a withdrawal of Elective
Deferral Contributions due to a Serious Financial
Hardship, the Participant must be suspended from
making any additional Elective Deferral Contributions
for a period of 12 months.
- --------------------------------------------------------------------------------
D. Withdrawal of Employer Contributions (Matching, Nonelective
and/or Prior Employer Contributions).
[ ] Not Available under the Plan.
[X] Available under the Plan.
-+ If Prior Employer Contributions are money purchase plan
contributions, they may not be withdrawn.
If available, select the conditions for withdrawal:
3E.3
[X] 1. Withdrawal upon Participant's attainment of
age 59 1/2.
Available from:
[X] a. Matching Contributions.
[X] b. Nonelective Contributions.
[ ] c. Prior Employer Contributions.
- --------------------------------------------------------------------------------
-35-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XVII. WITHDRAWALS PRECEDING TERMINATION
Section
- ------------------------------------------------------------------------------
3E.3 [ ] 2. Withdrawals to active Participants who have been
Participants for a minimum of 60 consecutive months.
Available from:
[ ] a. Matching Contributions.
[ ] b. Nonelective Contributions
[ ] c. Prior Employer Contributions.
Frequency of withdrawal:
[ ] Once each 6 months.
[ ] Once each 12 months.
[ ] Other (specify) ________.
Suspension Period following withdrawal:
[ ] N/A.
[ ] 6 months.
[ ] 12 months.
[ ] 24 months
3E.4 [ ] 3. Withdrawal for Serious Financial Hardship.
Available from:
[X] a. Matching Contributions.
[X] b. Nonelective Contributions.
[ ] c. Prior Employer Contributions.
Prior Employer Contributions:
Prior Employer Contributions are contributions made to the
Plan by the Employer prior to the Plan's original conversion
and/or restatement on (fill in date).
-36-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XVII. WITHDRAWALS PRECEDING TERMINATION
Section
- ------------------------------------------------------------------------------
3E.6 E. Withdrawal of Rollover Contributions:
[ ] Not Available under the Plan.
[X] Available under the Plan.
If available, Rollover Contributions may be
withdrawn:
[ ] Once per Plan Year.
[ ] Every 6 Months.
[ ] Every 3 Months.
[ ] Every Month.
[X] Anytime.
- --------------------------------------------------------------------------------
3E.6 F. Withdrawal of Qualified Voluntary Employee Contributions
(QVEC Contributions)
-+ Applicable only if this is a readoption of an existing plan.
If selected, Contributions may be withdrawn for any reason.
[ ] Not Available under the Plan.
[ ] Available under the Plan.
If available, Qualified Voluntary Employee
Contributions may be withdrawn:
[ ] Once per Plan Year.
[ ] Every 6 Months.
[ ] Every 3 Months.
[ ] Every Month.
[ ] Anytime.
- --------------------------------------------------------------------------------
-37-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XVII. WITHDRAWALS PRECEDING TERMINATION
Section
- ------------------------------------------------------------------------------
3E.1(c) G. Withdrawal of Prior Required Employee Contributions.
-+ Withdrawal may be for any reason.
[ ] Not Available under the Plan.
[ ] Available under the Plan.
If available, Prior Required Employee Contributions
may be withdrawn:
[ ] Once each 6 months.
[ ] Once each 12 months.
[ ] Other (specify)________.
Prior Required Employee Contributions are posttax contributions
made by Employees in order to receive an Employer contribution
and which were made before the Plan's original conversion and/or
restatement on _____________ (fill in date).
- --------------------------------------------------------------------------------
3E.1(d) H. Withdrawal of Prior Voluntary Employee Contributions.
-+ Withdrawal may be for any reason and may be taken at any time.
[ ] Not Available under the Plan.
[ ] Available under the Plan.
Prior Voluntary Employee Contributions are voluntary
contributions made by Employees prior to these types of
contribution being eliminated as a plan option on ____________
(fill in date).
- --------------------------------------------------------------------------------
Plan Document XVIII. LOANS TO PARTICIPANTS,
Section BENEFICIARIES AND PARTIES-IN-INTEREST
- ------------------------------------------------------------------------------
5C A. Loans are permitted.
[X] Yes
-+ If yes, Plan must be trusteed
[ ] No
- --------------------------------------------------------------------------------
-38-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XVIII. LOANS TO PARTICIPANTS,
Section BENEFICIARIES AND PARTIES-IN-INTEREST
- ------------------------------------------------------------------------------
5C B. Loans are available only from the following sources:
-+ Qualified Voluntary Employee Contributions (QVEC Contributions)
may not be taken in a loan.
[X] All Sources.
[ ] List Sources:
____________________________________________________
____________________________________________________
____________________________________________________
- --------------------------------------------------------------------------------
Plan Document XIX. RETIREMENT AND DISABILILTY
Section
- ------------------------------------------------------------------------------
1.40 A. Normal Retirement Age is:
[X] 1. The date the Participant attains age 65 (not to
exceed 65).
[ ] 2. The later of:
a. The date the Participant attains age ___ (not to exceed
65), or
b. The ____________ (not to exceed 5th) anniversary of the
Participation Commencement Date.
-+ Note regarding 2.b above: If, for Plan Years beginning
before January 1, 1988, Normal Retirement Age was determined
with reference to the anniversary of the Participation
Commencement Date (more than 5 but not to exceed 10 years),
the anniversary date for Participants who first commenced
participation under the Plan before the first Plan Year
beginning on or after January 1, 1988 shall be the earlier
of (A) the tenth anniversary of the date the Participant
commenced participation in the Plan (or such anniversary as
had been elected by the Employer, if less than 10) or (B)
the fifth anniversary of the first day of the first Plan
Year beginning on or after January 1, 1988. The
Participation Commencement Date is the first day of the
first Plan Year in which the Participant commenced
participation in the Plan.
- --------------------------------------------------------------------------------
-39-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XIX. RETIREMENT AND DISABILILTY
Section
- ------------------------------------------------------------------------------
1.18 B. Early Retirement by Participants
1. Early Retirement by Participants is:
[X] a. Not Permitted.
[ ] b. Permitted. Subject to the following
conditions:
[ ] i. Age ___ (not to exceed 65).
[ ] ii. Years of Service _____.
[ ] iii. Age ___ (not to exceed 65) and
____ Years of Service.
[ ] iv. Age ___ (not to exceed 65) and ___Years
of Participation.
- --------------------------------------------------------------------------------
1.16 C. Disability
1. The Employer shall/shall not make contributions on behalf of
disabled Participants who are Nonhighly Compensated
Employees on the basis of the Compensation each such
Participant would have received for the Limitation Year if
the Participant had been paid at the rate of Compensation
paid immediately before becoming permanently and totally
disabled.
[ ] Shall [X] Shall Not
-+ All such contributions are 100% vested and nonforfeitable when
made.
- --------------------------------------------------------------------------------
Plan Document XX. DISTRIBUTION OF BENEFITS
Section
- ------------------------------------------------------------------------------
3A.1 A. Distribution of benefits should be in the form of (check all
that apply):
[X] 1. Single Sum.
[X] 2. Life Annuity.
[ ] 3. Installment Payments.
[ ] 4. Installment Refund Annuity.
[ ] 5. Employer Stock, to the extent the Participant
is invested therein.
- --------------------------------------------------------------------------------
B. Distribution Timing
[ ] 1. All Participants may elect to defer their
distributions.
[X] 2. Participants who terminate employment and whose
account balances never exceeded $3,500 shall receive
an immediate, lump sum cash distribution.
- --------------------------------------------------------------------------------
-40-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XX. DISTRIBUTION OF BENEFITS
Section
- --------------------------------------------------------------------------------
C. Expenses - Deferred Participants.
1. Participants who elect to defer distribution of their
benefits shall/shall not pay for all fees associated with
administration of their deferral payment.
[X] Shall [ ] Shall Not
- --------------------------------------------------------------------------------
Plan Document XXI. QUALIFIED PRERETIREMENT SURVIVOR ANNUITY
Section
- --------------------------------------------------------------------------------
3C.4 The Qualified Preretirement Survivor Annuity shall be:
-+ 100% is required for Plans allowing only single sum distributions.
[X] 100% to the surviving spouse.
[ ] 50% to the surviving spouse.
- --------------------------------------------------------------------------------
Plan Document XXII. AMENDMENT TO THE PLAN
Section
- ------------------------------------------------------------------------------
7B A. The party having the authority to amend the Adoption Agreement
is the:
[ ] 1. Trustee(s).
-+ Trustee(s) cannot be chosen if the Trustee is CG Trust
[X] 2. Plan Administrator.
[ ] 3. Plan Committee.
[ ] 4. Designated Representative of the Employer.
-41-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XXIII. TOP-HEAVY PROVISIONS
Section
- ------------------------------------------------------------------------------
7A.1(i) A. Method to be used to avoid duplication of Top-Heavy Minimum
benefits when a non-Key Employee is a Participant in both
this Plan and a defined benefit plan maintained by the
Employer (select one response):
[X] 1. N/A. The Employer has no other plan(s).
[ ] 2. Single Plan Minimum Top-Heavy Allocation. A
minimum Top-Heavy contribution will be allocated to
each non-Key Employee's Participant Account in an
amount equal to:
[ ] a. The lesser of 3% of Compensation or the
highest percentage allocated to any Key
Employee.
[ ] b. _____% of Compensation (must be at least 3%).
[ ] 3. Multiple Plans Top-Heavy Allocation. In
order to satisfy Code sections 415 and 416, and
because of the required aggregation of multiple
plans, a minimum Top-Heavy contribution will be
allocated to each non-Key Employee in an amount
equal to:
[ ] a. Not Applicable. No other plan was in existence
prior to the Effective Date of this Adoption
Agreement.
[ ] b. 5% of Compensation, to be provided in a
defined contribution plan of the Employer.
[ ] c. 7 1/2% of Compensation, to be nonintegrated,
and provided in this Plan.
-+ If c is chosen, for all Plan Years in which this
Plan is Top-Heavy (but not Super Top-Heavy), the
Defined Benefit and Defined Contribution fractions
shall be computed using 125%.
[ ] 4. Enter the name of the plan(s) and specify the
method under which the plan(s) will provide Top-Heavy
Minimum Benefits to non-Key Employees [include any
adjustments required under Code section 415(e)]:
____________________________________________________
____________________________________________________
-+ If 4 is selected, the method specifled must preclude
Employer discretion and inadvertent omissions.
-42-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XXIII. TOP-HEAVY PROVISIONS
Section
- ------------------------------------------------------------------------------
7A.1 B. Present Value: In order to establish the present value to
compute the Top-Heavy Ratio, any benefit shall be discounted
only for mortality and interest, based on:
-+ Complete B only if response to A is 2, 3, or 4. Fill in all
blanks.
[ ] 1. Interest Rate ______%
[ ] 2. Mortality Table ______.
[ ] 3. Valuation Date ______.
- --------------------------------------------------------------------------------
7A.2 C. Where a non-Key Employee is a Participant in this and
another defined contribution plan(s) of the Employer, choose
which plan will provide the minimum Top-Heavy contribution:
[X] 1. N/A. The Employer has no other plan.
[ ] 2. The minimum allocation will be met in this Plan.
[ ] 3. The minimum allocation will be met in the
other defined contribution plan. Enter the name
of the plan:
________________________________________________
- --------------------------------------------------------------------------------
7A.3 D. Top-Heavy Vesting Schedule. In the event the plan becomes
Top-Heavy, the vesting schedule shall be:
-+ Must meet one of the schedules below and must be at least as
liberal as the vesting schedule elected in Section IX.A.
[ ] 1. 100% vesting after ___ (not to exceed 3) years of
Service.
[X] 2. 0% vesting after 1 Year of Service
20% (not less than 20) vesting after 2 Years of
Service
40% (not less than 40) vesting after 3 Years of
Service
60% (not less than 60) vesting after 4 Years of
Service
80% (not less than 80) vesting after 5 Years of
Service
100% vesting after 6 Years of Service
[ ] 3. Same vesting schedule(s) as elected in Adoption
Agreement Section IX (already meets Top-Heavy minimum
vesting requirements).
-+ If the vesting schedule under the Plan shifts into the above
schedule for any Plan Year because of the Plan's Top-Heavy
status, such shift is an amendment to the vesting schedule and
the election provisions in Section 7B.1 of the Plan shall apply.
-+ The Top-Heavy vesting schedule will remain in effect even if
the Plan ceases to be Top Heavy.
-43-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XXIV. OTHER ADOPTING EMPLOYER
Section
- ------------------------------------------------------------------------------
6E.1, 6E.2 A. The following Adopting Employer(s) also adopt this plan and
have executed this Adoption Agreement:
-+ Fill in below the names and the Employer Identification
Numbers (EINs) of Adopting Employers.
-+ Must meet requirements of Plan definition of Employer, Plan
Section 1.24.
________________________________________
________________________________________
________________________________________
- --------------------------------------------------------------------------------
-44-
<PAGE>
The Employer hereby adopts the Connecticut General Life Insurance Company
Defined Contribution Prototype Profit Sharing/Thrift Plan with 401(k) Feature,
including all elections made in this Non-Standardized Adoption Agreement, and
the Employer agrees to be bound by all the terms of the Plan and by all the
terms of this Adoption Agreement and of the Annuity Contract. The Employer
further agrees that it will furnish promptly all information required by the
Trustee, if applicable, the Plan Administrator and the Insurance Company in
order to carry out their functions. The Employer shall notify the Trustee, if
applicable, the Plan Administrator and the Insurance Company promptly of any
changes in the status of the Employer which might affect the Employer's duties
and responsibilities hereunder.
The elections under this Adoption Agreement may be changed by the Employer from
time to time by a written instrument signed by the Employer, the Plan
Administrator and the Trustee, if applicable, and accepted by the Plan Sponsor.
The Employer consents to the exercise by the Plan Sponsor of the right to amend
the Plan and the Annuity Contract from time to time as it may deem necessary or
advisable.
By signing this Adoption Agreement, the Employer specifically acknowledges that
the Insurance Company has no authority: (1) to answer legal questions and that
all such questions shall be answered by legal counsel for the Employer; and (2)
to make determinations involved in the administration of the Plan and that all
such determinations shall be answered by the Employer's Plan Administrator or
other designated representative.
Upon execution of this Adoption Agreement by the Employer, the Plan shall be
effective with respect to that Employer as of the Effective Date specified
herein, provided the Plan Administrator and the Trustee, if applicable, shall
then or thereafter execute this Adoption Agreement to signify their acceptance
of their duties and responsibilities hereunder and provided further, the Plan
Sponsor will indicate its acceptance of the Employer in accordance with its
usual rules and practices.
The Adopting Employer may not rely on an opinion letter issued by the National
Office of the Internal Revenue Service as evidence that the Plan is qualified
under Internal Revenue Code section 401. In order to obtain reliance with
respect to plan qualification, the Employer must apply to the appropriate key
district office for a determination letter.
Connecticut General Life Insurance Company will inform the Employer of any
amendments made to the Plan or of the discontinuance or abandonment of such
Plan.
CAUTION: You should very carefully examine the elections you have made in this
Adoption Agreement and discuss them with your legal counsel. Failure to properly
fill out the Adoption Agreement may result in disqualification of your plan.
This Adoption Agreement may only be used in conjunction with Basic Plan Document
Number 03.
(Note: The Employer, Plan Administrator and Trustee, if applicable, must all
sign below.)
Executed at 10:35 am this 14th day of August, 1997
Employer's Exact Name: Central Castings Corporation
Witness: Linda M. Guba By: Jennifer R. Cemimi
----------------------
Title: Secretary
Additional Adopting Employer's Exact Name: N/A
Witness:______________________________ By: __________________________________
Title: _______________________________
-45-
<PAGE>
Additional Adopting Employer's Exact Name: N/A
Witness:______________________________ By: __________________________________
Title: _______________________________
Additional Adopting Employer's Exact Name: N/A
Witness:______________________________ By: __________________________________
Title: _______________________________
Additional Adopting Employer's Exact Name: N/A
Witness:______________________________ By: __________________________________
Title: _______________________________
ACCEPTED this 14th day of August 1997
By (Plan Administrator):
Witness: Dion Messa
Witness: By (Plan Administrator):
Witness: By (Plan Administrator):
Witness: Dion Messa By (Trustee): X X X X X X X
--------------
Witness: Dion Messa By (Trustee): X X X X X X X
--------------
Witness: Dion Messa By (Trustee): X X X X X X X
--------------
ACCEPTED this ____ day of ______________ 19__.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By (Authorized Representative): _______________________
-46-
<PAGE>
(5307) Application for Determination for Adopters of SAN 50030
(Rev 3/96 Master or Prototype, Regional Prototype or Volume OMB No. 1545-0200
Submitter Plans For IRS Use Only
File folder +
Case number +
Department of the Treasury
Internal Revenue Service
(Under sections 401 (a) and 501 (a) of the Internal Revenue Code)
You must attach user fee and Schedule Q to this application.
(See What To File.)
- --------------------------------------------------------------------------------
You must file both the substitute OCR data sheet and page 1 of this application.
The OCR data sheet is read by the computer and all the information filled in
must be typed in either 10 pitch type, Elite type, Courier 12 type, or Titan 12
type. Review the Procedural Requirements Checklist on page 4 before submitting
this application.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
la Name of plan sponsor (employer if single employer plan) lb Employer identification number
Central Casting Corporation 63-1121596
Number, street, and room or suite no. (If a P.O. box, see instructions.) 1c Employer's tax year ends-Enter(MM)
2660 Old Gadsen Highway
City State ZIP code 1d Telephone number
Anniston AL 36206 (205) 238-0579
2 Person to be contacted if more information is needed. (See Instructions.)
(If the same as line la, leave blank. Complete even if a Power of Attorney is attached.)
Name
James D. Link
Number, street, and room or suite no. (If a P.O. box, see instructions.)
451 N. Cannon Avenue
City State ZIP code Telephone number
Lansdale PA 19446 (215) 362-0700
3a Determination requested for (enter applicable number(s) at left and fill in required information.) (See instructions.)
[1] Enter 1 for Initial Qualification -- Date plan signed .........................__________________
[ ] Enter 2 for a request aftr Initial Qualification
Date amendment signed _________________________ Date amenment effective ____________________________
[ ] Enter 3 for Standardized Plans (See insturction)
b. Has the plan received a determination letter? (Submit a copy of the latest letter if one
was ever received.) ..................................................................... Yes [ ] No [X]
If 3b is no, were required amendments made retroactively effective?...................... Yes [ ] No [X]
c. Have interested parties been given the required notification of this application?........ Yes [X] No [ ]
d. Does the plan have a cash or deferred arrangement, or employee or matching
contribution (section 401(k) or (m))?.................................................... Yes [X] No [ ]
4a Name of plan:
Central Casting Corporation 401(k) Profit Sharing Plan
[001] b Enter plan number (3 digits) 1997 d Enter year plan originally effective
[1031] c Enter date plan-year ends (MMDD) [____] e Enter number of participants in plan
5a If this is a defined benefit plan, enter the appropriate number in box at left.
[ ] Enter 1 for unit benefit Enter 3 for flat benefit
Enter 2 for fixed benefit Enter 4 for other (Specify) ________________________
b If this is a defined contribution plan, enter the appropriate number in box at left.
[1] Enter 1 for profit sharing Enter 4 for target benefit
Enter 2 for stock bonus Enter 5 for other (Specify) ________________________
Enter 3 for money purchase
6a Is the employer a member of an affiliated service group?
[ ] Enter 1 if "Yes" and see the instructions Enter 2 if "No"
b Is the employer a member of a controlled group of corporations or a group of trades or businesses under common control?
[ ] Enter 1 if "Yes" and see the instructions Enter 2 if "No"
7 Enter type of adopter.
[1] Enter 1 if a master or prototype plan Enter 3 if a District approved volume submitter plan
Enter 2 if a regional prototype plan
<PAGE>
8 Enter type of plan.
[5] Enter 1 if governmental plan Enter 3 if collectively bargained plan Enter 5 if other
Enter 2 if nonelecting church plan Enter 4 if section 412(i) plan
___________________________________________________________________________________________________________________________________
Under penalties of perjury, I declare that I have examined this application, including accompanying statements, and to the best of
my knowledge and belief it is true, correct, and complete.
Signature + Title + Date +
- -----------------------------------------------------------------------------------------------------------------------------------
For Paperwork Reduction Act Notice, see page 1 of separate instructions. Form 5307 (Rev. 3-96)
</TABLE>
Form 5307 (Rev. 3-96) Page 2
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Yes No
<S> <C> <C>
9a Do you maintain any other qualified plan(s)? (See instructions.) ...........
If "No," skip to line 9d.
b Do you maintain another plan of the same type (i.e., both this plan and the
other plan are defined contributions plans or both are defined benefit
plans) that covers non-key employees who are also covered under this plan?
If yes, when the plan is top-heavy, do the non-key employees covered under
both plans receive the required top-heavy minimum contribution or benefit
under:
(1) This plan? .............................................................
(2) The other plan? ........................................................
c If this is a defined contribution plan, do you maintain a defined benefit
plan, (or if this is a defined benefit plan, do you maintain a defined
contribution plan) that covers non-key employees who are also covered under
this plan? .................................................................
If yes, when the plan is top-heavy, do non-key employees covered under both
plans receive:
(1) the top-heavy minimum benefit under the defined benefit plan? .........
(2) at least a 5% minimum contribution under the defined contribution
plan? .................................................................
(3) the minimum benefit offset by benefits provided by the defined
contribution plan? ....................................................
(4) benefits under both plans that, using a comparability analysis, are at
least equal to the minimum benefit? (See instructions.) ...............
d Does the plan prevent the possibility that the section 415 limitations will
be exceeded for any employee who is (or was) a participant in this plan and
any other plan of the employer? (See Regulations sections 1.415-7 and
1.415-8.) .................................................................. X
- ---------------------------------------------------------------------------------------------------------------
Miscellaneous
- ---------------------------------------------------------------------------------------------------------------
N/A Yes No
10a Does any amendment to the plan reduce or eliminate any section 411(d)(6)
protected benefit? (See instructions.) ..................................... X
b Are trust earnings and losses allocated on the basis of account balances in
a defined contribution plan? If "No," attach a statement explaining how
they are allocated ......................................................... X
c Is this plan or trust currently under examination or is any issue related
to this plan or trust currently pending before the Internal Revenue
Service, the Department of Labor, the Pension Benefit Guaranty Corporation,
or any court? If "Yes," attach a statement explaining the issues involved
and who is considering them. Do not answer "Yes" because the plan has been
considered under IRS's Voluntary Compliance Resolution Program .............
</TABLE>
<PAGE>
Form 5307 (Rev. 3-96) Page 3
- --------------------------------------------------------------------------------
Procedural Requirements
- --------------------------------------------------------------------------------
Use this list to see what MUST be included with Form 5307.
- --------------------------------------------------------------------------------
1 Is Schedule Q (Form 5300) attached?
2 Is Form 8717 and the appropriate user fee attached?
3 Master or Prototype, Regional Prototype or Volume Submitters Plans-Is a
copy of the adoption agreement attached or in the case of a volume
submitter plan, a copy of modifications? (See What To File in the
instructions.)
4 Is a copy of the master or prototype, regional prototype or volume
submitter letter attached? (See What To File in the instructions.)
5 Is a copy of the plan's latest determination letter attached? (Previously
approved plans only, see What To File in the instructions.)
6 Are the appropriate demonstrations attached to Schedule Q?
7 Have you submitted the OCR data sheet?
8 Have you signed the application?
9 Is the plan sponsor's (employer's if single-employer plan) 9-digit employer
identification number entered on line lb?
10 If appropriate, is Form 2848, or a privately designed authorization,
attached? (See Disclosure Request by Taxpayer in the instructions.)
11 Is the year the plan was originally effective entered on line 4d?
12 Affiliated Service Groups, Controlled Groups or Entities Under Common
Control-Is the information requested under "What To File" and the line 6
instructions attached?
13 Volume Submitter Plans-Is a copy of the plan and trust instrument attached?
(See What To File in the instructions.)
- --------------------------------------------------------------------------------
ALL APPLICATIONS ARE SCREENED BY COMPUTER. FAILURE TO INCLUDE A REQUIRED ITEM
WILL RESULT IN THE RETURN OF THIS APPLICATION TO YOU.
<PAGE>
Internal Revenue Service Department of the Treasury
Plan Description: Prototype Non-standardized Profit Sharing Plan with CODA
FFN: 50315620003-001 Case: 9401285 EIN: 06-0303370 Washington, DC 20224
BPD: 03 Plan: 001 Letter Serial No: 0365331a
Person to Contact: Ms. Arrington
CONNECTICUT GENERAL LIFE INSURANCE CO
Telephone Number: (202) 622-8173
350 CHURCH STREET M-92
Refer Reply to: CP:E:EP:T4
HARTFORD, CT 06067
Date: 05/07/96
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable under
section 401 of the Internal Revenue Code for use by employers for the benefit of
their employees. This opinion relates only to the acceptability of the form of
the plan under the Internal Revenue Code. It is not an opinion of the effect of
other Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents co each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
Our opinion an the acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). Therefore, an employer adopting the form of the plan should apply for a
determination letter by filing an application with the Key District Director of
Internal Revenue Service on Form 5307, Short Form Application for Determination
for Employee Benefit Plan.
Because you submitted this plan for approval after March 31, 1991, the
continued, interim and extended reliance provisions of sections 13 and 17.03 of
Rev. Proc. 89-9. 1989-1 C.B. 780. are not applicable.
Because you submitted this plan on or after July 1, 1994, it does not meet the
requirements for the extention of the remedial amendment period provided by
Rev. Proc. 95-12. 1995-3 I.R.S. 24.
This letter may not be relied upon with respect to whether the plan satisfies
the qualification requirements as amended by Uruguay Round Agreements Act, Pub.
L. 103-465.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case. please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial Number
and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerly yours,
John G. RidXXXXX, Jr.
----------------------
Chief, Employee Plans
Technical Branch 4
<PAGE>
Non-Standardized Profit Sharing/Thrift Plan With 401(k) Feature
Adoption Agreement Number 001-03
This Adoption Agreement, when executed by the Employer and accepted by the Plan
Administrator, and the Trustee, if applicable, and accepted by Connecticut
General Life Insurance Company, establishes the Employer's Plan and Trust, if
applicable, for the benefit of its eligible Employees and their Beneficiaries.
The terms of the Connecticut General Life Insurance Company Defined Contribution
Plan are expressly incorporated therein and shall form a part hereof as fully as
if set forth herein except that if more than one election is provided, only that
election made by the Employer shall be so incorporated. The terms of the Plan so
incorporated together with the terms of this Adoption Agreement shall constitute
the sole terms of the Employer's Plan and Trust, if applicable, and no further
trust instrument or other instrument of any nature whatsoever shall be required.
The Employer's participation under the Plan shall be subject to all the terms
set forth therein and in this Adoption Agreement.
- -+ Note: Section 414(d) governmental plans and section 414(e) nonelecting church
plans that do not wish to provide ERISA-required benefits should not adopt this
document.
- ------------------------------------------------------------------------------
Plan Document GENERAL INFORMATION
Section
- ------------------------------------------------------------------------------
Legal Name of Employer: Central CPVC Company
--------------------
- ------------------------------------------------------------------------------
Address: 245 Swancott Road
-----------------
City: Huntsville State: AL Zip: 35758
---------- -- -----
- ------------------------------------------------------------------------------
Plan Name: Central CPVC Company
401 (k) Profit Sharing Plan
---------------------------
- ------------------------------------------------------------------------------
Plan Number: 001
---
-+ To be assigned by the Employer. For example: 001, 002, and
so on.
- ------------------------------------------------------------------------------
Employer's EIN: 63-1133266
----------
- ------------------------------------------------------------------------------
Classification of Business:
[X] C Corporation [ ] S Corporation [ ] Partnership
[ ] Sole Proprietorship [ ] Tax-Exempt/Nonprofit Organization
[ ] Other:___________________
- ------------------------------------------------------------------------------
-1-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document GENERAL INFORMATION
Section
- --------------------------------------------------------------------------------
Employer Tax Status:
Tax Year Ends (MM/DD): 10/31
-----
Tax Basis: [ ] Cash [X] Accrual
- --------------------------------------------------------------------------------
1.20 Effective Date
The adoption of the CONNECTICUT GENERAL LIFE INSURANCE COMPANY
Non-Standardized Profit Sharing/Thrift Plan with 401(k) Feature
shall:
[X] A. Establish a new Plan effective as of (MM/DD/YY):
11/01/96.
---------
[ ] B. Constitute an amendment and restatment in its entirety of
a previously established Qualified Plan of the Employer
which was effective _________ (hereinafter called the
"Effective Date"). The effective date of this amendment
and restatement is _________.
- --------------------------------------------------------------------------------
Merger Data
This Plan includes funds from a prior or coincidental merger
of a:
[ ] A. Money Purchase Plan
[ ] B. Target Benefit Plan
[X] C. Not Applicable
- --------------------------------------------------------------------------------
Sponsoring Organization:
Connecticut General Life Insurance Company
P.O. Box 2975
Hartford, CT 06104
(860) 725-2274
- --------------------------------------------------------------------------------
-2-
<PAGE>
Table of Contents
Article Page
I. Nontrusteed, Trust and Trustee..........................................4
II. Plan Administrator......................................................4
III. Plan Year...............................................................5
IV. Compensation............................................................6
V. Highly Compensated Employee.............................................7
VI. Service.................................................................8
VII. Eligibility Requirements...............................................10
VIII. Entry Date.............................................................13
IX. Vesting................................................................15
X. Contributions..........................................................18
XI. Contribution Period....................................................28
XII. Allocation of Contributions............................................29
XIII. Limitations on Allocations.............................................31
XIV. Investment of Participant's Account....................................32
XV. Life Insurance.........................................................32
XVI. Employer Stock.........................................................33
XVII. Withdrawals Preceding Termination......................................34
XVIII. Loans to Participants, Beneficiaries and Parties-in-Interest...........38
XIX. Retirement and Disability..............................................39
XX. Distribution of Benefits...............................................40
XXI. Qualified Preretirement Survivor Annuity...............................41
XXII. Amendment of the Plan..................................................41
XXIII. Top-Heavy Provisions...................................................42
XXIV. Other Adopting Employer................................................44
-3-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document I. NONTRUSTEED, TRUST, AND TRUSTEE
Section
- --------------------------------------------------------------------------------
- -+ The Plan must have a Trustee if the Employer has elected Employer Stock,
Loans, investment in Life Insurance, and/or any investment other than through
a contract with Connecticut General Life Insurance Company.
- -+ If the plan is trusteed, the Employer must apply for a Trust Tax
Identification Number, unless the Trust already has obtained one, even if CG
Trust Company has been appointed as the Plan's Trustee:
- --------------------------------------------------------------------------------
The Plan is:
1.39 [ ] A. Nontrusteed.
- --------------------------------------------------------------------------------
1.73, 1.74 [X] B. Trusteed and Trustees are:
Trustee(s)
Name(s):George G. Meyer, William J. Pardue
-----------------------------------
Albert T. Sabol
---------------
Address: Central Sprinkler Corporation
-----------------------------
451 North Cannon Avenue
-----------------------
City: Lansdale St: PA Zip: 19446
-------- -- -----
Trust EIN:_______________________________________
- --------------------------------------------------------------------------------
1.73, 1.74 [ ] C. Trusteed and CG Trust Company has been appointed as the
Plan's Trustee.
Trust
Name: CG Trust Company
Address: 525 West Monroe St., Suite 1800
Chicago, IL 60661-3629
Employer's Trust EIN:
-----------
- --------------------------------------------------------------------------------
Plan Document II. PLAN ADMINISTRATOR
Section
- --------------------------------------------------------------------------------
1.50 The Plan Administrator is:
Name: Central Castings Corporation
----------------------------
c/o Central Sprinkler Company
-----------------------------
Address:451 North Cannon Avenue
-----------------------
City: Lansdale State: PA Zip: 19446
-------- -- -----
- --------------------------------------------------------------------------------
-4-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document III. PLAN YEAR
Section
- --------------------------------------------------------------------------------
1.51 A. The Plan Year will mean:
[ ] 1. The 12-consecutive-month period commencing on
(MM/DD/YY)_____ and each anniversary thereof
except that the first plan year will commence on
(MM/DD/YY)_____
This election may be made only for new plans.
[X] 2. The 12-consecutive-month period commencing on
(MM/DD/YY) 11/01/96 and each anniversary
thereof.
- --------------------------------------------------------------------------------
-5-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document IV. COMPENSATION
Section
- --------------------------------------------------------------------------------
-+(i) Election of options 1-6 below does not require a
separate nondiscrimination test.
-+(ii) If option 1, 2, or 3 is elected, you must elect the
same definition of Compensation in Section XIII,
Limitations on Allocations.
-+(iii) Options 1-6 include lump sum amounts and/or cash
bonuses. These amounts are included in compensation in
the year in which paid.
-+(iv) Options 4-9 may not be elected by a plan that uses an
integrated allocation formula.
-+(v) This compensation definition is for purposes of
allocating contributions under the Plan. For
nondiscrimination testing, the Employer may use any
definition of compensation that is based upon Code
section 4l4(s) or 4l5(c)(3). Use of options 7, 8, or 9
for nondiscrimination testing requires that the
employer satisfy a separate compensation
nondiscrimination test.
- --------------------------------------------------------------------------------
A. Indicate the number of the Compensation
definition that will be used for allocating
each type of contribution.
Elective Deferral Contributions: 2
Matching Contributions: 2
Nonelective Contributions: 2
Employee Contributions:__________
1.12 For purposes of allocating contributions, Compensation
means:
1.12(a) 1. Wages, Tips and Other Compensation Box on Form W-2.
1.12(b) 2. Section 3401(a) wages.
1.12(c) 3. 415 safe-harbor compensation.
1.12(d) 4. Modified Wages, Tips, and Other Compensation Box on
Form W-2.
1.12(e) 5. Modified section 3401(a) wages.
1.12(f) 6. Modified 415 safe-harbor compensation.
1.12(g) 7. Regular or base salary or wages.
1.12(h) 8. Regular or base salary or wages plus [ ] overtime
and/or [ ] bonuses.
1.12(i) 9. A "reasonable alternative definition of
Compensation," as that term is used under Code
section 414(s)(3) and the regulations thereunder.
The definition of Compensation is: _______________________
__________________________________________________________
__________________________________________________________
-+Lump sum amounts and/or cash bonuses may be excluded only
if specified in this definition. Also see note (v) above.
- --------------------------------------------------------------------------------
-6-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document IV. COMPENSATION
Section
- --------------------------------------------------------------------------------
1.12 B. Compensation shall be determined over the following
determination period:
[ ] 1. The Plan Year.
[ ] 2. A 12-consecutive-month period beginning on
(MM/DD)_____ and ending with or within the Plan
Year. For Employees whose date of hire is less
than 12 months before the end of the designated
12-month period, Compensation will be determined
over the Plan Year.
[X] 3. The Plan Year. However, for the Plan Year in
which an Employee's participation begins, the
applicable period is the portion of the Plan
Year during which the Employee is eligible to
participate in the Plan.
- --------------------------------------------------------------------------------
1.12 C. Compensation shall/shall not include Employer
contributions made pursuant to a salary reduction
agreement, which are not includable in the gross income
of the Employee under Code section 125, 402(e)(3),
402(h)(1)(B) or 403(b).
[X] Shall [ ] Shall Not
- --------------------------------------------------------------------------------
1.12 D. The highest annual Compensation to be used in
determining allocations to a Participant's Account shall
be:
$_______________
-+Enter an amount if less than the $150,000 (as indexed)
limitation on compensation.
- --------------------------------------------------------------------------------
Plan Document V. HIGHLY COMPENSATED EMPLOYEE
Section
- --------------------------------------------------------------------------------
1.29 A. Highly Compensated Employees shall be determined using:
1.29(a) [X] 1. The Traditional Method.
1.29(b) [ ] 2. The Simplified Method for Employers in more
than one geographical area.
1.29(c) [ ] 3. The alternative Simplified Method.
1.29(d) [ ] 4. The alternative Simplified Method with Snapshot
Day basis.
The Snapshot Day is ___________ (fill in).
- --------------------------------------------------------------------------------
-7-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document V. HIGHLY COMPENSATED EMPLOYEE
Section
- --------------------------------------------------------------------------------
1.29(a) B. If A.1. or A.2. is chosen above, the Look-Back Year
shall be:
[X] 1. The 12-month period immediately preceding
the Determination Year.
[ ] 2. The calendar year ending with or within the
Determination Year.
-+ If B.2. is selected and the Determination Year (Plan
Year) is the calendar year, then the Look-Back Year is
the same 12-month period as the Determination Year. This
avoids having to look back at data from a prior year.
-+ However, if the Determination Year is not the
calendar year, the Determination Year calculation must
be made on the basis of a lag period (the period running
from the end of the Look-Back Year to the end of the
Determination Year), with the applicable dollar amounts
adjusted on a pro rata basis for the number of months in
the lag period.
- --------------------------------------------------------------------------------
Plan Document VI. SERVICE
Section
- --------------------------------------------------------------------------------
Check off appropriate basis for determining service.
- --------------------------------------------------------------------------------
2A.3, 2A.9 A. Hours of Service or Elapsed Time
<TABLE>
<CAPTION>
1. Years of Service shall be determined on the following basis:
<S> <C> <C> <C>
a. Eligibility: [X] Hours of Service [ ] Elapsed Time
b. Vesting: [X] Hours of Service [ ] Elapsed Time
c. Allocation of Contributions: [X] Hours of Service [ ] Elapsed Time
</TABLE>
2. If service is based on Hours of Service, Hours
shall be determined on the basis of:
[X] a. Actual hours for which paid or entitled
to payment.
[ ] b. Days Worked (10 Hours of Service).
[ ] c. Weeks Worked (45 Hours of Service).
[ ] d. Semimonthly payroll periods (95 Hours of
Service).
[ ] e. Months Worked (190 Hours of Service).
-+ For options b, c, d, and e: If the Employee
would be credited with 1 Hour of Service during the
period, the Employee shall be credited with the
number of Hours of Service indicated in parentheses.
- --------------------------------------------------------------------------------
-8-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document VI. SERVICE
Section
- --------------------------------------------------------------------------------
B. Service with other employers.
1.24
1. Service with members of the Employer's controlled group of
corporations, affiliated service group, or group of business
under common control ("controlled group").
-+ Service for an employer while the employer is part of the
controlled group must be taken into account.
a. Service with a member of the controlled group prior to it
becoming part of the controlled group will be included for
all purposes.
[ ] Yes [X] No
2A.5 2. Service with a predecessor organization.
-+ Service with a predecessor organization of the Employer must be
taken into account if the Employer maintains the Plan of the
predecessor organization.
a. Service with a predecessor organization will be included for all
purposes even if the Employer does not maintain the plan of the
predecessor organization.
[ ] Yes [X] No
2A.5 3. Service with the following subsidiary(ies) or affiliated
organization, not related to the Employer under the rules of Code
sections 414(b), (c) or (m), shall be considered Service for all
purposes of this plan:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
-+Service credited under 1.a, 2.a and 3 must apply to all
similarly situated Employees, must be credited for a legitimate
business reason, and must not by design or operation discriminate
significantly in favor of Highly Compensated Employees.
- --------------------------------------------------------------------------------
-9-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document VII. ELIGIBILITY REQUIREMENTS
Section
- --------------------------------------------------------------------------------
- -+Check or fill out appropriate requirements for each type of contribution in
the Plan.
- --------------------------------------------------------------------------------
2A.5(a), 2B.1 A. Eligibility Requirements
1. If Employer is a Partnership or Sole Proprietorship:
Self-Employed Individuals are eligible to participate
in the Plan.
[ ] Yes [ ] No
2. Immediate Participation.
-+No age or service requirement.
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
3. Service Requirement.
-+Not to exceed 1 year if graded vesting; not to exceed
2 years if 100% immediate vesting. Not to exceed 1/2
year if graded vesting or 1 1/2 years if 100% immediate
vesting if annual Entry Date is chosen in Section VIII
"Entry Date." Not to exceed 1 year for Elective
Deferral Contributions.
[X] Elective Deferral Contributions: 1 (indicate number
of years)
[X] Matching Contributions: 1 (indicate number of
years)
[X] Nonelective Contributions: 1 (indicate number of
years)
[ ] Employee Contributions:_______ (indicate number of
years)
-+Fill in the blank(s) above with the amount of service
required. Any service requirement not in units of whole
years requires service for eligibility to be determined
based on elapsed time (see Section VI.A.1.a).
4. Age Requirement.
-+Not greater than 21 years. If annual entry date is
chosen in Section VIII "Entry Date," not greater than
20 1/2 years.
[X] Elective Deferral Contributions: 21 (indicate
minimum age)
[X] Matching Contributions: 21 (indicate minimum age)
[X] Nonelective Contributions: 21 (indicate minimum
age)
[ ] Employee Contributions:_____ (indicate minimum age)
5. Employees who were employed on or before the initial
Effective Date of the Plan or the Effective Date of the
amendment and restatement of the Plan, as indicated on
page 2, shall/shall not be immediately eligible without
regard to any Age and/or Service requirements specified
in 2 or 3 above.
[X] Shall [ ] Shall Not
- --------------------------------------------------------------------------------
-10-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document VII. ELIGIBILITY REQUIREMENTS
Section
- --------------------------------------------------------------------------------
2B.1 B. Job Class Requirements
An Employee must be a member of one or more of the following
selected classifications:
1. No Job Class Requirements:
[X] Elective Deferral Contributions
[X] Matching Contributions
[X] Nonelective Contributions
[X] Employee Contributions
2. Salaried:
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
3. Hourly:
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
4. Clerical:
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
5. Employees whose employment is governed by a collective
bargaining agreement represented by the following
union _________:
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
6. Other (fill in): _____________
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
-+"Part-time" Employees may not be excluded.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
Plan Document VII. ELIGIBILITY REQUIREMENTS
Section
- --------------------------------------------------------------------------------
2B.1 C. Additional Requirements
An Employee must be in the following designated
division(s) of the Employer:
_____________________________________________________
_____________________________________________________
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
2B.1 D. An Employee must not be a member of any one of the
following groups:
1. Union.
-+Employees who are members of a union are defined as:
Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer
and employee representatives, if retirement benefits
were the subject of good faith bargaining and if two
percent or less of the employees of the Employer who
are covered pursuant to that agreement are professional
employees as defined in section 1.410(b)-9 of the
regulations. For this purpose, the term "employee
representatives" does not include any organization more
than half of whose members are Employees who are
owners, officers, or executives of the Employer, unless
the collective bargaining agreement provides for
coverage under the Plan.
[X] Elective Deferral Contributions
[X] Matching Contributions
[X] Nonelective Contributions
[ ] Employee Contributions
2. Nonresident aliens (within the meaning of Code section
7701(b)(1)(B)) who receive no earned income (within the
meaning of Code section 911(d)(2)) from the Employer
that constitutes income from sources within the United
States (within the meaning of Code section 861(a)(3)).
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
-12-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document VII. ELIGIBILITY REQUIREMENTS
Section
- --------------------------------------------------------------------------------
3. Employees covered by the following designated qualified
employee benefit plans:
_____________________________________________________
_____________________________________________________
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
1.15 E. The Plan covers Employees whose conditions of
employment are mandated under the Davis-Bacon Act.
[ ] Yes [ ] No
- --------------------------------------------------------------------------------
Plan Document VIII. ENTRY DATE
Section
- --------------------------------------------------------------------------------
- -+Check the appropriate requirement for Entry Date.
- --------------------------------------------------------------------------------
1.25 A. Immediately.
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
1.25 B. The first day of any month.
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
1.25 C. Quarterly (that is, three months apart) on each:
(MM/DD) 02/01, or (MM/DD) 05/0l, or
(MM/DD) 08/01, or (MM/DD) 11/01,
-+Fill in dates.
[X] Elective Deferral Contributions
[X] Matching Contributions
[X] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
-13-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document VIII. ENTRY DATE
Section
- --------------------------------------------------------------------------------
1.25 D. Semiannually (that is, six months apart) on each:
(MM/DD)_____ or (MM/DD) ________.
-+Fill in dates.
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
1.25 E. Annually, on each (MM/DD)_________.
-+Fill in date.
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
- --------------------------------------------------------------------------------
1.25 F. The first day nearest to the date(s) selected in B, C,
D or E above, whether before or after that date, that
the Participant meets the Eligibility Requirements.
[ ] Elective Deferral Contributions
[ ] Matching Contributions
[ ] Nonelective Contributions
[ ] Employee Contributions
-+ Allows retroactive entry into the Plan. This may have an
effect on various nondiscrimination tests for the Plan.
- --------------------------------------------------------------------------------
-14-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document IX. VESTING
Section
- --------------------------------------------------------------------------------
1.76 A. Vesting Percentage.
The Vesting Schedule, based on number of Years or Periods of
Service, shall be as indicated below. Indicate the number of
the vesting schedule that applies to any Nonelective
Contributions, Matching Contributions, and Prior Employer
Contributions. The vesting schedules are depicted in 1
through 8, below.
Nonelective Contributions are subject to vesting
schedule: __________________
Matching Contributions are subject to vesting
schedule: __________________
Prior Employer Contributions are subject to
vesting schedule: __________
1. Immediately = 100%
2. 0-3 Years = 0%
3 Years = 100%
3. 1 Year = 20%
2 Years = 40%
3 Years = 60%
4 Years = 80%
5 Years = 100%
4. 0-3 Years = 0%
3 Years = 20%
4 Years = 40%
5 Years = 60%
6 Years = 80%
7 Years = 100%
5. 0-2 Years = 0%
2 Years = 20%
3 Years = 40%
4 Years = 60%
5 Years = 80%
6 Years = 100%
6. 0-5 Years = 0%
5 Years = 100%
7. 1 Year = 25%
2 Years = 50%
3 Years = 75%
4 Years = 100%
-15-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document IX. VESTING
Section
- --------------------------------------------------------------------------------
8. Other. Must be at least as liberal as #4 or #6
above.
Less than 3 = 0%
3 but greater than 4 = 25%
4 but greater than 5 = 50%
5 but greater than 6 = 75%
6 or more = 100%
- --------------------------------------------------------------------------------
2A.5(b) B. The vesting computation period shall be based on the
Employee's service in the:
[X] Plan Year [ ] Employment year
- --------------------------------------------------------------------------------
2A.7, 2A.10 C. Excluded Years or Periods of Service.
The vesting percentage shall be based on all Years of
Service (i.e., completing 1000 Hours of Service) or
Periods of Service (i.e., Elapsed Time), EXCEPT that
the following shall be excluded:
Years or Periods of Service:
[ ] 1. Prior to the time the Participant attained
age 18.
[X] 2. During which the Employer did not maintain
the plan or predecessor plan.
[ ] 3. During which the Participant elected not to
contribute to a plan which required Employee
Contributions.
[ ] 4. Rule of Parity (Elapsed Time).
-+Rule of Parity (Elapsed Time): In the
event a reemployed Employee has no vested
interest in Employer Contributions at the
time the break occurred, and has since
incurred 5 consecutive 1-year
Breaks-in-Service, and has a Period of
Severance which equals or exceeds his prior
Period of Service, such prior Service may be
disregarded.
[ ] 5. Rule of Parity (Hours of Service).
-+Rule of Parity (Hours of Service): Years
of Service prior to a Break-in-Service may
be disregarded if the participant had no
vested interest in Employer Contributions at
the time the break occurred, and the
Participant has since incurred 5 consecutive
1-year Breaks-in-Service, and the number of
consecutive 1-year Breaks-in-Service is at
least as great as the Years of Service
before the break occurred.
[ ] 6. Prior to any 1-Year Break-in-Service until
the Employee completes a Year of Service
following reemployment.
[ ] 7. None of the above.
- --------------------------------------------------------------------------------
-16-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document IX. VESTING
Section
- --------------------------------------------------------------------------------
3D.1, 3D.2, D. Forfeitures.
2A.7, 2A.10
1. Forfeitures will occur:
[ ] a. Immediately.
[ ](1) Optional Payback Method.
[ ](2) Required Payback Method.
[ ] b. Upon a 1-Year Break-in-Service.
[ ](1) Optional Payback Method.
[ ](2) Required Payback Method.
[ ] c. upon 5 consecutive 1-Year Breaks-in-Service.
2. Forfeitures will be:
[ ] a. Used as an Employer Credit.
[X] b. Reallocated to Participants' Accounts.
[ ] c. Used as an Employer Credit and then, to the
extent any Forfeitures remain, reallocated
to Participants' Accounts.
-+If choice IX.D.2.b or c is selected and the Plan
provides Matching Contributions, the Actual
Contribution Percentage (ACP) Test will be affected.
-17-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
2C.1(k) (1) A. Elective Deferral Contributions
1. Availability/Amount
[ ] Not Available under the Plan.
[X] Available under the Plan (complete the following).
Each Participant MAY elect to have his
Compensation actually paid during the Plan Year
reduced by:
[ ] a. _______%.
[ ] b. up to _________%.
[ ] c. from _______% to ________%.
[X] d. up to the maximum percentage
allowable, not to exceed the limits
of Code sections 402(g) and 415.
-+Lump sum amounts and/or cash bonuses must be
subject to the salary deferral election unless the
definition of compensation in Section IV.A.9 has
been elected and these amounts have been
specifically excluded from that compensation
definition. Lump sum amounts and cash bonuses are
deferred upon and tested in the Plan Year in which
paid.
2. Modification
A Participant may change the amount of Elective
Deferral Contributions the Participant makes to the
Plan (complete a and b):
[ ] a. _____ per calendar year (may not be less
frequent than once).
[X] b. As of the following date(s) (MM/DD):
02/01
------------------------------------
05/01
------------------------------------
08/01
------------------------------------
11/01
------------------------------------
------------------------------------
-18-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
B. Required Employee Contributions
2C.1(b) 1. Availability/Amount
[ ] Not Available under the Plan.
[ ] Available under the Plan and must be made as a
condition of receiving an Employer
Contribution.
-+Required Employee Contributions are NOT AVAILABLE
unless Elective Deferral Contributions are
available.
Required Contributions shall be in the amount of:
[ ] a. ___ % of Compensation actually paid during the
Contribution Period.
2C.1(k)(1) [ ] b. Not less than ____ % nor more than ____ % of
Compensation actually paid during the Contribution
Period.
2. Modification
A Participant may suspend Required Employee
Contributions for a minimum period of:
[ ] a. 1 month
[ ] b. 2 months
[ ] c. 3 months
-+The suspension period may be of indefinite duration.
A Participant's reentry into the Plan shall be as of
the first Entry Date following the end of the
suspension period.
- --------------------------------------------------------------------------------
-19-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
2C.1 C. Matching Contributions
Availability/Amount
[ ] Not Available under the Plan.
[X] Available under the Plan (elect one from
option 1 and, if applicable, elect one from
option 2).
1. [X] a. Matching Contributions SHALL be based upon a
percentage of Considered Net Profits.
[ ] b. Matching Contributions SHALL NOT be based
upon a percentage of Considered Net Profits.
2. Partnership Plans.
[ ] a. The Employer SHALL make Matching
Contributions to Partners.
-+Matching Contributions to Partners are
treated in all respects as Elective Deferral
Contributions.
[ ] b. The Employer SHALL NOT make Matching
Contributions to Partners.
For each $ 1.00 of either Elective Deferral
Contributions or Required Employee Contributions, as
selected above, the Employer will contribute and
allocate to each Participant's Matching Contribution
Account an amount equal to:
[X] 1. $____ (e.g., $.50).
[ ] 2. A discretionary percentage, to be determined by
the Employer.
-+If option 2 is elected, the amount of the
discretionary percentage should be determined by
an annual Board of Directors resolution setting
the percentage.
[ ] 3. Graded Match.
-+If a or b is elected, the minimum and maximum
percentages must be within the parameters of the
Elective Deferral election in Section X.A or the
Required Employee Contribution election in
Section X.B of this Adoption Agreement.
-+Percentages for higher amounts must be lower
than the percentages for lower amounts. For
example: 100% of the first $500, plus 75% of the
next $500, plus 50% of the next $500.
[ ] a. Graded based upon the dollar amount of
each Participant's Elective Deferral
Contributions or Required Employee
Contributions as follows:
_____% of the first $_____ plus
_____% of the next $_____ plus
_____% of the next $_____ plus
_____% of the next $_____.
- --------------------------------------------------------------------------------
-20-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
[ ] b. Graded based upon the percentage of Compensation
of each Participant's Elective Deferral
Contribution or Required Employee Contribution
as follows:
_____% of the first $______% plus
_____% of the next $______% plus
_____% of the next $______% plus
_____% of the next $______%
-+If 3.a or b is elected, additional testing will be
required to prove that the different contributions are
available on a nondiscriminatory basis.
[ ] 4. Separate specific dollar amounts for different
employees (e.g., employees in different job
classifications):
-+This option is available only for Plans covering
Employees whose conditions of employment are mandated
under the Davis-Bacon Act.
$____ (e.g., $.50) to employees in ______ (fill in)
$____ (e.g., $.50) to employees in ______ (fill in)
$____ (e.g., $.50) to employees in ______ (fill in)
$____ (e.g., $.50) to employees in ______ (fill in)
$____ (e.g., $.50) to employees in ______ (fill in)
Additional Formulas (fill in below):
-+Formulas must be the same type as above.
_______
_______
_______
_______
-+If 4 is selected, additional testing will be required
to prove that the different contributions are available
on a nondiscriminatory basis.
- --------------------------------------------------------------------------------
-21-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
[ ] 5. Different graded matches for different employees
(e.g., employees in different job classifications,
divisions, organizations, members of a controlled group
of corporations, etc.):
-+This option is available only for Plans covering
Employees whose conditions of employment are mandated
under the Davis-Bacon Act
-+Percentages for higher amounts must be lower than the
percentages for lower amounts. For example: 100% of the
first $500, plus 75% of the next $500, plus 50% of the
next $500.
[ ] a. Graded based upon the dollar amount of Elective
Deferral Contributions or Required Contributions
of each Participant as follows:
Employees in _____ (fill in)
_____% of the first $_____ plus
_____% of the next $______ plus
_____% of the next $______ plus
_____% of the next $______.
Employees in _____ (fill in)
_____% of the first $_____ plus
_____% of the next $______ plus
_____% of the next $_____ plus
_____% of the next $_____.
Employees in _____ (fill in)
_____% of the first $_____ plus
_____% of the next $______ plus
_____% of the next $_____ plus
_____% of the next $_____.
Additional Formulas (fill in below):
-+Formulas must be the same type as above.
_______
_______
_______
_______
_______
- --------------------------------------------------------------------------------
-22-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
[ ] b. Graded based upon the percentage of compensation
of the Elective Deferral Contributions or Required
Contributions of each Participant as follows:
-+ This option is available only for Plans covering
Employees whose conditions of employment are mandated
under the Davis-Bacon Act.
-+Matching percentages for higher compensation
percentages must be lower than matching percentages for
lower compensation percentages. For example: 100% of
the first 3%, plus 75% of the next 2%, plus 50% of the
next 2%.
Employees in _____ (fill in)
_____% of the first $_____ plus
_____% of the next $______ plus
_____% of the next $_____ plus
_____% of the next $_____.
Employees in _____ (fill in)
_____% of the first $_____ plus
_____% of the next $______ plus
_____% of the next $_____ plus
_____% of the next $_____.
Employees in _____ (fill in)
_____% of the first $_____ plus
_____% of the next $______ plus
_____% of the next $_____ plus
_____% of the next $_____.
Additional Formulas (fill in below):
-+Formulas must be the same type as above.
_______
_______
_______
_______
_______
-+If 5.a or b is selected, additional testing will be
required to prove that the different contributions are
available on a nondiscriminatory basis.
- --------------------------------------------------------------------------------
-23-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
The Elective Deferral or Required Employee
Contributions, upon which Matching Contributions are
made by the Employer, shall not exceed:
[ ] 1. $______ for the Plan Year.
[X] 2. 2% of Participant's Compensation for the
Contribution Period.
[ ] 3. N/A.
True-Up Contributions:
The Employer may/may not contribute a True-Up
Contribution for each Participant at the end of the
Plan Year so that the total Matching Contribution for
each Participant is calculated on an annual basis.
[ ] May [X] May not
Additional Matching Contributions:
In addition, at the end of the Plan Year, the Employer
may contribute Additional Matching Contributions to be
allocated in the same proportion that the Matching
Contribution made on behalf of each Participant during
the Plan Year bears to the Matching Contribution made
on behalf of all Participants during the Plan Year.
[ ] Yes [X] No
- --------------------------------------------------------------------------------
-24-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
2C.1 D. Nonelective Contributions
-+If you choose to make a Nonelective Contribution,
each Employee eligible to participate in the Plan and
who satisfies the Annual Allocation Requirement of
Section XII.A or XII.B MUST be given an allocation,
regardless of whether they make Elective Deferral
Contributions.
Availability/Amount
[ ] Not Available under the Plan.
[X] Available under the Plan (complete the
following).
The Contribution for each Contribution Period shall be:
[ ] 1. _____% of Considered Net Profits.
[ ] 2. _____% of Compensation of each Participant.
[ ] 3. The Employer will contribute an amount equal to
$______ for each Participant.
[X] 4. Discretionary.
-+If option 4 is elected, the amount of the
discretionary contribution should be determined by an
annual Board of Directors resolution setting a fixed
amount of contribution or a formula by which a fixed
amount can be determined.
[ ] 5. The Employer will contribute an amount equal to
$____ /hour or unit of each Participant
(indicate dollar or cents amount).
-+Option 5 may be chosen ONLY for Employees who are
subject to a Collective Bargaining Agreement.
[ ] 6. ___% of Considered Net Profits to ____(fill in)
___% of Considered Net Profits to ____(fill in)
___% of Considered Net Profits to ____(fill in)
___% of Considered Net Profits to ____(fill in)
___% of Considered Net Profits to ____(fill in)
-+Fill in job classification.
- --------------------------------------------------------------------------------
-25-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
Additional Formulas (fill in below):
-+Formulas must be the same type as above.
______________________________________________________
______________________________________________________
______________________________________________________
[ ] 7. ___% of Compensation to each Participant in ____ (fill in)
___% of Compensation to each Participant in ____ (fill in)
___% of Compensation to each Participant in ____ (fill in)
___% of Compensation to each Participant in ____ (fill in)
___% of Compensation to each Participant in ____ (fill in)
-+Fill in job classification.
Additional Formulas (fill in below):
-+Formulas must be the same type as above.
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
-+Options 6 and 7 may be selected ONLY when a Plan covers
Employees whose conditions of employment are mandated
under the Davis-Bacon Act.
-+If option 6 or 7 is selected, subsection A.1
(Compensation to Compensation allocation) MUST be chosen
in Section XIII, "Allocation of Contributions."
-+If options 6 or 7 is selected, additional testing will
be required to prove that the different contributions are
available on a nondiscriminatory basis.
Nonelective Contributions shall/shall not be based on
Considered Net Profits.
-+"Shall" must be chosen if option 1 is selected.
[X] Shall [ ] Shall not
- --------------------------------------------------------------------------------
-26-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
2C.1(b) E. Voluntary Employee Contributions
Availability/Amount
[X] Not Available under the Plan.
[ ] Available under the Plan (complete the following).
[ ] Voluntary Employee Contributions SHALL be permitted
up to ____% of Compensation actually paid during
the Plan Year.
[ ] Voluntary Employee Contributions made in a Lump Sum
SHALL be permitted.
-+Voluntary Employee Contributions are NOT AVAILABLE unless
Elective Deferral Contributions are available.
- --------------------------------------------------------------------------------
2C.3 F. Rollover Contributions
Availability
[X] 1. Rollover Contributions out of the Plan are always
available.
[X] Cash only.
[ ] Cash and Loan Notes from this and/or a prior
plan.
[X] 2. Rollover Contributions into the Plan:
[ ] Not Available under the Plan.
[X] Available under the Plan (complete the
following).
Cash Only or Cash and Loan Notes:
[X] Cash only.
[ ] Cash and Loan Notes from prior plan.
Rollover contributions into the Plan may be
made by:
[ ] Both eligible Employees and Employees who
would be eligible except they do not yet
meet the Plan's age and/or service
requirement.
[X] Eligible Employees only.
- --------------------------------------------------------------------------------
-27-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
7B.8, 7B.9 G. Transfers of Account Balances
Availability
[X] 1. Transfers of account balances out of the Plan are
always available.
[X] 2. Transfers of Account Balances into the Plan:
[ ] Not Available under the Plan.
[X] Available under the Plan.
- --------------------------------------------------------------------------------
Plan Document X. CONTRIBUTION PERIOD
Section
- --------------------------------------------------------------------------------
1.14 A. The regular Contribution Period (by contribution type) shall
be:
-+For 1 and 2 below, "Other" Contribution Period may not be
longer than annual, but may be shorter than 4-weekly.
-+For 3 below, "Other" Contribution Period may not be longer than
monthly, but may be shorter than 4-weekly.
1. Matching Contributions:
[ ] Annual [ ] 4-Weekly
[ ] Monthly [X] Other (specify) weekly.
2. Nonelective Contributions:
[X] Annual [ ] 4-Weekly
[ ] Monthly [X] Other (specify) ______.
3. Elective Deferral Contributions, Required Employee
Contributions, and/or Voluntary Employee Contributions:
-+Annual contribution period is not available for
contributions in #3.
[X] Monthly [ ] 4-Weekly
[ ] Other (specify) _________.
-28-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XII. ALLOCATION CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
2C.1 (f) A. Allocation Formula for Nonelective Contribution
Complete the following ONLY if Section X.D is 1, 4, 6 or 7.
-+If Section X.D is 6 or 7, the Compensation to Compensation
allocation formula (1 below) must be chosen.
The Nonelective Contribution will be allocated to
Participants who meet the requirements of Section XII.B or C
as follows:
[X] 1. Compensation to Compensation:
In the same ratio as each Participant's Compensation
bears to the total Compensation of all Participants.
[ ] 2. Integrated with Social Security:
a. Choose one of the following methods:
[ ] Step-Rate Method
For each Plan Year, the Employer will
contribute an amount equal to ___% of each
Participant's Compensation up to the Social
Security Integration Level, plus ___% of each
Participant's Compensation in excess of the
Social Security Integration Level. However, in
no event will the Excess Contribution
percentage exceed the amount specified in
Section 2C.1(f)(2)(B) of the Plan.
[ ] Maximum Disparity Method
For each Plan Year, the Employer's Nonelective
Contribution shall be allocated in the manner
stated in Section 2C.1(f)(3) of the Plan in
order to maximize permitted disparity.
b. Social Security Integration Level:
[ ] i. $___ (not to exceed the Social Security
Taxable Wage Base).
[ ] ii. The Social Security Taxable Wage Base
in effect on the first day of the Plan
Year.
[ ] iii. ___% of the Social Security Taxable Wage
Base (not to exceed 100%).
- --------------------------------------------------------------------------------
-29-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XII. ALLOCATION CONTRIBUTIONS
Section
- --------------------------------------------------------------------------------
2C.1(g) B. Annual Allocation Requirements
An allocation of the annual Nonelective Contribution, annual
Matching Contribution, and/or Additional Matching
Contribution made by the Employer will be made to each
Participant who:
[ ] 1. Is a Participant on ANY day during the Plan Year
regardless of Service credited during the Plan Year.
[ ] 2. Is credited with a Year of Service in the Plan Year
for which the contribution is made.
[ ] 3. Is a Participant on the last day of the Plan Year.
[X] 4. Is credited with a Year of Service in the Plan Year
for which the contribution is made and is a
Participant on the last day of the Plan Year.
In addition, an allocation will be made by the Employer on
behalf of any Participant who retires, dies or becomes
disabled during the Plan Year, regardless of the number of
Hours of Service credited to such Participant and regardless
of whether such Participant is a participant on the last day
of the Plan Year.
Annual Nonelective Contribution [ ] Yes [ ] No
Annual Matching Contribution [ ] Yes [ ] No
Additional Matching Contribution [ ] Yes [ ] No
- --------------------------------------------------------------------------------
2C.1 (g) C. Nonannual Allocation Requirement
An allocation of the nonannual Matching Contribution or
nonannual Nonelective Contribution made by the Employer will
be made to each Participant who:
[X] 1. Is a Participant on any day of the Contribution
Period.
[ ] 2. Is a Participant as of the last day of the
Contribution Period.
In addition, an allocation will be made by the Employer on
behalf of any Participant who retires, dies, or becomes
disabled during the Contribution Period, regardless of
whether such Participant is a Participant as of the last day
of the Contribution Period.
Nonannual Nonelective Contribution [ ] Yes [ ] No
Nonannual Matching Contribution [ ] Yes [ ] No
- --------------------------------------------------------------------------------
-30-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XIII. LIMITATIONS ON ALLOCATIONS
Section
- --------------------------------------------------------------------------------
4B A. If any Participant is covered by another qualified defined
contribution plan maintained by the Employer, other than a
Master or Prototype plan:
-+ Complete part A if you: (1) maintain, or at any time
maintained, another qualified retirement plan in which any
Participant in this Plan is, was, or could be, a
participant; or (2) maintain a Code section 415(l)(2)
individual medical account, for which amounts are treated as
Annual Additions for any Participant in this Plan.
[X] 1. N/A. The Employer has no other defined
contribution plan(s).
[ ] 2. The provisions of Section 4B.5 of the Plan will
apply, as if the other plan were a Master or
Prototype plan.
__________
__________
- --------------------------------------------------------------------------------
4B B. If any Participant is or ever has been a Participant in a
qualified defined benefit plan maintained by the Employer:
-+ Complete part B if you maintain, or at any time
maintained, another qualified retirement plan in which any
Participant in this Plan is, was, or could be a participant.
[X] 1. N/A. The Employer has no defined benefit plan(s).
[ ] 2. In any Limitation Year, the Annual Additions credited
to the Participant under this Plan may not cause the
sum of the Defined Benefit Plan Fraction and the
Defined Contribution Fraction to exceed 1.0. If the
Employer contributions that would otherwise be
allocated to the Participant's account during such
year would cause the 1.0 limitation to be exceeded,
the allocation will be reduced so that the sum of the
fraction equals 1.0. Any contributions not allocated
because of the preceding sentence will be allocated
to the remaining Participants according to the Plan's
allocation formula. If the 1.0 limitation is exceeded
because of an Excess Amount, such Excess Amount will
be reduced in accordance with Section 4B.4 of the
Plan.
[ ] 3. Provide the method under which the Plan involved will
satisfy the 1.0 limitation in a manner that precludes
Employer discretion.
__________
__________
-31-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XII. LIMITATIONS ON ALLOCATIONS
Section
- --------------------------------------------------------------------------------
C. Compensation will mean all of each Participant's:
-+ Everyone must complete Section C. If option 1, 2, or 3
was selected in Section IV.A., you must make the same
selection here.
4B.1(b)(1) [ ] 1. Wages, Tips, and Other Compensation Box on Form W-2.
4B.1(b)(2) [X] 2. Section 3401(a) wages.
4B.1(b)(3) [ ] 3. 415 safe-harbor compensation.
- --------------------------------------------------------------------------------
4B.1(h) D. The Limitation Year shall be:
-+Everyone must complete Section D.
[ ] 1. The Calendar Year.
[X] 2. The 12-month period coinciding with the Plan Year.
[ ] 3. The 12-month period beginning on (MM/DD): ________
- --------------------------------------------------------------------------------
Plan Document XIV. INVESTMENT OF PARTICIPANTS ACCOUNTS
Section
- --------------------------------------------------------------------------------
5A.1 A. The Participant shall/shall not have the authority to direct the
Investment of Contributions made by the Employer.
[X] Shall [ ] Shall Not
- --------------------------------------------------------------------------------
5A.1 B. If SHALL is elected above, complete the following.
Those having authority to direct the investment of the
Participant's Account are (choose all that apply):
[X] 1. Participants who are active Employees.
[X] 2. Participants who are former employees and continue to
maintain an account in the Plan or Trust.
[X] 3. Beneficiaries.
[X] 4. Alternate Payees.
- --------------------------------------------------------------------------------
Plan Document XV. LIFE INSURANCE
Section
- --------------------------------------------------------------------------------
5B.1 A. Available as a Participant investment:
[ ] Yes [X] No
- --------------------------------------------------------------------------------
-32-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XV. LIFE INSURANCE
Section
- --------------------------------------------------------------------------------
B. If yes is elected above, Life Insurance shall be available to:
[ ] 1. All Participants.
[ ] 2. Only to the specified group of Participants (fill in
below):
_______________________________________________________
_______________________________________________________
_______________________________________________________
-+If subsection 2 is checked, separate nondiscrimination testing
will be required.
- --------------------------------------------------------------------------------
Plan Document XVI EMPLOYER STOCK
Section
- --------------------------------------------------------------------------------
- -+Before electing Employer Stock as an investment option, you should consult
your legal counsel on any federal or state securities law requirements arising
from offering Employer Stock as an investment option under your Plan and whether
use of this document is appropriate for you under those laws. Neither
Connecticut General Life Insurance Company nor any of its employees can advise
you on these matters.
- --------------------------------------------------------------------------------
1.45 A. Investment in Employer Stock is:
[ ] Permitted.
[ ] Not Permitted.
-+You must complete the following subsections B and C if
investment in Employer Stock is permitted and Participants have
the authority to direct the investment of Employer Contributions.
- --------------------------------------------------------------------------------
1.45 B. Investment in Employer Stock within the Plan by officers or
directors of the Employer or by an individual who owns more than
10% of the Employer's Stock is:
[ ] Permitted.
[ ] Not Permitted.
- --------------------------------------------------------------------------------
1.45 C. The Trustee:
[ ] 1. Will vote the shares of the Employer Stock.
[X] 2. Will vote the shares of the Employer Stock in
accordance with any instructions received by the Trustee
from the Participant.
-+Option 2 must be selected if CG Trust Company is the Trustee.
[ ] 3. May request voting instructions from the Participants.
- --------------------------------------------------------------------------------
-33-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XVII. WITHDRAWALS PRECEDING TERMINATION
Section
- --------------------------------------------------------------------------------
- -+ Complete only the sections for the type of contributions in your plan.
- --------------------------------------------------------------------------------
3E.1(a) A. Withdrawal of Required Employee Contributions.
-+Withdrawal may be for any reason.
[ ] Not Available under the Plan.
[ ] Available under the Plan.
If available, Required Employee Contributions may be
withdrawn:
[ ] Once each 6 months.
[ ] Once each 12 months.
[ ] Other (specify) ______.
The Contribution suspension period following a
withdrawal of Required Employee Contributions shall
be:
-+You must choose one of the suspension periods
shown. Related Employer Contributions will be
suspended for the same period.
[ ] 6 Months.
[ ] 12 Months.
[ ] 24 Months.
- --------------------------------------------------------------------------------
3E.1(b) B. Withdrawal of Voluntary Employee Contributions.
-+ Withdrawal may be for any reason.
[ ] Not Available under the Plan.
[ ] Available under the Plan.
If available, Voluntary Employee Contributions may be
withdrawn:
[ ] Once each 6 months.
[ ] Once each 12 months.
[ ] Other (specify)_________.
- --------------------------------------------------------------------------------
-34-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XVII. WITHDRAWALS PRECEDING TERMINATION
Section
- --------------------------------------------------------------------------------
C. Withdrawal of Elective Deferral Contributions.
[ ] Not Available under the Plan.
[X] Available under the Plan.
If available, select the conditions for withdrawal:
3E.2 [X] Withdrawal upon Participant's attainment of
age 59 1/2.
3E.5 [X] Withdrawal for Serious Financial Hardship.
-+ If a Participant makes a withdrawal of Elective
Deferral Contributions due to a Serious Financial
Hardship, the Participant must be suspended from
making any additional Elective Deferral Contributions
for a period of 12 months.
- --------------------------------------------------------------------------------
D. Withdrawal of Employer Contributions (Matching, Nonelective
and/or Prior Employer Contributions).
[ ] Not Available under the Plan.
[X] Available under the Plan.
-+ If Prior Employer Contributions are money purchase plan
contributions, they may not be withdrawn.
If available, select the conditions for withdrawal:
3E.3
[X] 1. Withdrawal upon Participant's attainment of
age 59 1/2.
Available from:
[X] a. Matching Contributions.
[X] b. Nonelective Contributions.
[ ] c. Prior Employer Contributions.
- --------------------------------------------------------------------------------
-35-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XVII. WITHDRAWALS PRECEDING TERMINATION
Section
- ------------------------------------------------------------------------------
3E.3 [ ] 2. Withdrawals to active Participants who have been
Participants for a minimum of 60 consecutive months.
Available from:
[ ] a. Matching Contributions.
[ ] b. Nonelective Contributions
[ ] c. Prior Employer Contributions.
Frequency of withdrawal:
[ ] Once each 6 months.
[ ] Once each 12 months.
[ ] Other (specify) ________.
Suspension Period following withdrawal:
[ ] N/A.
[ ] 6 months.
[ ] 12 months.
[ ] 24 months
3E.4 [X] 3. Withdrawal for Serious Financial Hardship.
Available from:
[X] a. Matching Contributions.
[X] b. Nonelective Contributions.
[ ] c. Prior Employer Contributions.
Prior Employer Contributions:
Prior Employer Contributions are contributions made to the Plan by
the Employer prior to the Plan's original conversion and/or
restatement on (fill in date).
-36-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XVII. WITHDRAWALS PRECEDING TERMINATION
Section
- ------------------------------------------------------------------------------
3E.6 E. Withdrawal of Rollover Contributions:
[ ] Not Available under the Plan.
[X] Available under the Plan.
If available, Rollover Contributions may be
withdrawn:
[ ] once per Plan Year.
[ ] Every 6 Months.
[ ] Every 3 Months.
[ ] Every Month.
[X] Anytime.
- --------------------------------------------------------------------------------
3E.6 F. Withdrawal of Qualified Voluntary Employee Contributions
(QVEC Contributions)
-+ Applicable only if this is a readoption of an existing plan.
If selected, Contributions may be withdrawn for any reason.
[ ] Not Available under the Plan.
[ ] Available under the Plan.
If available, Qualified Voluntary Employee
Contributions may be withdrawn:
[ ] Once per Plan Year.
[ ] Every 6 Months.
[ ] Every 3 Months.
[ ] Every Month.
[ ] Anytime.
- --------------------------------------------------------------------------------
-37-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XVII. WITHDRAWALS PRECEDING TERMINATION
Section
- ------------------------------------------------------------------------------
3E.1(c) G. Withdrawal of Prior Required Employee Contributions.
-+ Withdrawal may be for any reason.
[ ] Not Available under the Plan.
[ ] Available under the Plan.
If available, Prior Required Employee Contributions
may be withdrawn:
[ ] Once each 6 months.
[ ] Once each 12 months.
[ ] Other (specify)________.
Prior Required Employee Contributions are posttax contributions
made by Employees in order to receive an Employer contribution
and which were made before the Plan's original conversion and/or
restatement on ________(fill in date).
- --------------------------------------------------------------------------------
3E.1(d) H. Withdrawal of Prior Voluntary Employee Contributions.
-+Withdrawal may be for any reason and may be taken at any time.
[ ] Not Available under the Plan.
[ ] Available under the Plan.
Prior Voluntary Employee Contributions are voluntary
contributions made by Employees prior to these types of
contribution being eliminated as a plan option on _________
(fill in date).
- --------------------------------------------------------------------------------
Plan Document XVIII. LOANS TO PARTICIPANTS, BENEFICIARIES AND PARTIES-IN-
Section INTEREST
5C A. Loans are permitted.
[X] Yes
-+If yes, Plan must be trusteed
[ ] No
- --------------------------------------------------------------------------------
-38-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XVIII. LOANS TO PARTICIPANTS,
Section BENEFICIARIES AND PARTIES-IN-INTEREST
- ------------------------------------------------------------------------------
5C B. Loans are available only from the following sources:
-+ Qualified Voluntary Employee Contributions (QVEC Contributions)
may not be taken in a loan.
[X] All Sources.
[ ] List Sources:
____________________________________________________
____________________________________________________
____________________________________________________
- --------------------------------------------------------------------------------
Plan Document XIX. RETIREMENT AND DISABILILTY
Section
- ------------------------------------------------------------------------------
1.40 A. Normal Retirement Age is:
[X] 1. The date the Participant attains age 65 (not to
exceed 65).
[ ] 2. The later of:
a. The date the Participant attains age ___ (not to exceed
65), or
b. The_____________(not to exceed 5th) anniversary of the
Participation Commencement Date.
-+ Note regarding 2.b above: If, for Plan Years beginning
before January 1, 1988, Normal Retirement Age was determined
with reference to the anniversary of the Participation
Commencement Date (more than 5 but not to exceed 10 years),
the anniversary date for Participants who first commenced
participation under the Plan before the first Plan Year
beginning on or after January 1, 1988 shall be the earlier
of (A) the tenth anniversary of the date the Participant
commenced participation in the Plan (or such anniversary as
had been elected by the Employer, if less than 10) or (B)
the fifth anniversary of the first day of the first Plan
Year beginning on or after January 1, 1988. The
Participation Commencement Date is the first day of the
first Plan Year in which the Participant commenced
participation in the Plan.
- --------------------------------------------------------------------------------
-39-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XIX. RETIREMENT AND DISABILILTY
Section
- ------------------------------------------------------------------------------
1.18 B. Early Retirement by Participants
1. Early Retirement by Participants is:
[X] a. Not Permitted.
[ ] b. Permitted. Subject to the following conditions:
[ ] i. Age ___ (not to exceed 65).
[ ] ii. Years of Service _____.
[ ] iii. Age ___ (not to exceed 65) and
____ Years of Service.
[ ] iv. Age ___ (not to exceed 65) and
____ Years of Participation.
- --------------------------------------------------------------------------------
1.16 C. Disability
1. The Employer shall/shall not make contributions on behalf of
disabled Participants who are Nonhighly Compensated
Employees on the basis of the Compensation each such
Participant would have received for the Limitation Year if
the Participant had been paid at the rate of Compensation
paid immediately before becoming permanently and totally
disabled.
[ ] Shall [X] Shall Not
-+ All such contributions are 100% vested and nonforfeitable when
made.
- --------------------------------------------------------------------------------
Plan Document XX. DISTRIBUTION OF BENEFITS
Section
- ------------------------------------------------------------------------------
3A.1 A. Distribution of benefits should be in the form of (check all
that apply):
[X] 1. Single Sum.
[X] 2. Life Annuity.
[ ] 3. Installment Payments.
[ ] 4. Installment Refund Annuity.
[ ] 5. Employer Stock, to the extent the Participant is
invested therein.
- --------------------------------------------------------------------------------
B. Distribution Timing
[ ] 1. All Participants may elect to defer their distributions.
[X] 2. Participants who terminate employment and whose account
balances never exceeded $3,500 shall receive an
immediate, lump sum cash distribution.
- --------------------------------------------------------------------------------
-40-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XX. DISTRIBUTION OF BENEFITS
Section
- --------------------------------------------------------------------------------
C. Expenses - Deferred Participants.
1. Participants who elect to defer distribution of their
benefits shall/shall not pay for all fees associated with
administration of their deferral payment.
[X] Shall [ ] Shall Not
- --------------------------------------------------------------------------------
Plan Document XXI. QUALIFIED PRERETIREMENT SURVIVOR ANNUITY
Section
- --------------------------------------------------------------------------------
3C.4 The Qualified Preretirement Survivor Annuity shall be:
-+ 100% is required for Plans allowing only single sum distributions.
[X] 100% to the surviving spouse.
[ ] 50% to the surviving spouse.
- --------------------------------------------------------------------------------
Plan Document XXII. AMENDMENT TO THE PLAN
Section
- ------------------------------------------------------------------------------
7B A. The party having the authority to amend the Adoption Agreement
is the:
[ ] 1. Trustee(s).
-+ Trustee(s) cannot be chosen if the Trustee is CG Trust
[X] 2. Plan Administrator.
[ ] 3. Plan Committee.
[ ] 4. Designated Representative of the Employer.
-41-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XXIII. TOP-HEAVY PROVISIONS
Section
- ------------------------------------------------------------------------------
7A.1(i) A. Method to be used to avoid duplication of Top-Heavy Minimum
benefits when a non-Key Employee is a Participant in both
this Plan and a defined benefit plan maintained by the
Employer (select one response):
[X] 1. N/A. The Employer has no other plan(s).
[ ] 2. Single Plan Minimum Top-Heavy Allocation. A
minimum Top-Heavy contribution will be allocated to
each non-Key Employee's Participant Account in an
amount equal to:
[ ] a. The lesser of 3% of Compensation or the
highest percentage allocated to any Key
Employee.
[ ] b. _____% of Compensation (must be at least 3%).
[ ] 3. Multiple Plans Top-Heavy Allocation. In order to
satisfy Code sections 415 and 416, and because of
the required aggregation of multiple plans, a
minimum Top-Heavy contribution will be allocated to
each non-Key Employee in an amount equal to:
[ ] a. Not Applicable. No other plan was in
existence prior to the Effective Date of this
Adoption Agreement.
[ ] b. 5% of Compensation, to be provided in a
defined contribution plan of the Employer.
[ ] c. 7 1/2% of Compensation, to be nonintegrated,
and provided in this Plan.
-+ If c is chosen, for all Plan Years in which this
Plan is Top-Heavy (but not Super Top-Heavy), the
Defined Benefit and Defined Contribution fractions
shall be computed using 125%.
[ ] 4. Enter the name of the plan(s) and specify the
method under which the plan(s) will provide
Top-Heavy Minimum Benefits to non-Key Employees
[include any adjustments required under Code
section 415(e)]:
____________________________________________________
____________________________________________________
-+ If 4 is selected, the method specified must preclude
Employer discretion and inadvertent omissions.
-42-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XXIII. TOP-HEAVY PROVISIONS
Section
- ------------------------------------------------------------------------------
7A.1 B. Present Value: In order to establish the present value to
compute the Top-Heavy Ratio, any benefit shall be discounted
only for mortality and interest, based on:
-+ Complete B only if response to A is 2, 3, or 4. Fill in all
blanks.
[ ] 1. Interest Rate _______%.
[ ] 2. Mortality Table _______.
[ ] 3. Valuation Date _______.
- --------------------------------------------------------------------------------
7A.2 C. Where a non-Key Employee is a Participant in this and
another defined contribution plan(s) of the Employer, choose
which plan will provide the minimum Top-Heavy contribution:
[X] 1. N/A. The Employer has no other plan.
[ ] 2. The minimum allocation will be met in this Plan.
[ ] 3. The minimum allocation will be met in the
other defined contribution plan. Enter the name
of the plan:
________________________________________________
- --------------------------------------------------------------------------------
7A.3 D. Top-Heavy Vesting Schedule. In the event the plan becomes
Top-Heavy, the vesting schedule shall be:
-+ Must meet one of the schedules below and must be at least as
liberal as the vesting schedule elected in Section IX.A.
[ ] 1. 100% vesting after ___ (not to exceed 3) years of
Service.
[X] 2. 0% vesting after 1 Year of Service
20% (not less than 20) vesting after 2 Years of
Service
40% (not less than 40) vesting after 3 Years of
Service
60% (not less than 60) vesting after 4 Years of
Service
80% (not less than 80) vesting after 5 Years of
Service
100% vesting after 6 Years of Service
[ ] 3. Same vesting schedule(s) as elected in Adoption
Agreement Section IX (already meets Top-Heavy minimum
vesting requirements).
-+ If the vesting schedule under the Plan shifts into the above
schedule for any Plan Year because of the Plan's Top-Heavy
status, such shift is an amendment to the vesting schedule and
the election provisions in Section 7B.1 of the Plan shall apply.
-+ The Top-Heavy vesting schedule will remain in effect even if
the Plan ceases to be Top Heavy.
-43-
<PAGE>
- --------------------------------------------------------------------------------
Plan Document XXIV. OTHER ADOPTING EMPLOYER
Section
- ------------------------------------------------------------------------------
6E.1, 6E.2 A. The following Adopting Employer(s) also adopt this plan and
have executed this Adoption Agreement:
-+ Fill in below the names and the Employer Identification
Numbers (EINs) of Adopting Employers.
-+ Must meet requirements of Plan definition of Employer, Plan
Section 1.24.
_________________________________________________________
________________________________________
________________________________________
- --------------------------------------------------------------------------------
-44-
<PAGE>
The Employer hereby adopts the Connecticut General Life Insurance Company
Defined Contribution Prototype Profit Sharing/Thrift Plan with 401(k) Feature,
including all elections made in this Non-Standardized Adoption Agreement, and
the Employer agrees to be bound by all the terms of the Plan and by all the
terms of this Adoption Agreement and of the Annuity Contract. The Employer
further agrees that it will furnish promptly all information required by the
Trustee, if applicable, the Plan Administrator and the Insurance Company in
order to carry out their functions. The Employer shall notify the Trustee, if
applicable, the Plan Administrator and the Insurance Company promptly of any
changes in the status of the Employer which might affect the Employer's duties
and responsibilities hereunder.
The elections under this Adoption Agreement may be changed by the Employer from
time to time by a written instrument signed by the Employer, the Plan
Administrator and the Trustee, if applicable, and accepted by the Plan Sponsor.
The Employer consents to the exercise by the Plan Sponsor of the right to amend
the Plan and the Annuity Contract from time to time as it may deem necessary or
advisable.
By signing this Adoption Agreement, the Employer specifically acknowledges that
the Insurance Company has no authority: (1) to answer legal questions and that
all such questions shall be answered by legal counsel for the Employer; and (2)
to make determinations involved in the administration of the Plan and that all
such determinations shall be answered by the Employer's Plan Administrator or
other designated representative.
Upon execution of this Adoption Agreement by the Employer, the Plan shall be
effective with respect to that Employer as of the Effective Date specified
herein, provided the Plan Administrator and the Trustee, if applicable, shall
then or thereafter execute this Adoption Agreement to signify their acceptance
of their duties and responsibilities hereunder and provided further, the Plan
Sponsor will indicate its acceptance of the Employer in accordance with its
usual rules and practices.
The Adopting Employer may not rely on an opinion letter issued by the National
Office of the Internal Revenue Service as evidence that the Plan is qualified
under Internal Revenue Code section 401. In order to obtain reliance with
respect to plan qualification, the Employer must apply to the appropriate key
district office for a determination letter.
Connecticut General Life Insurance Company will inform the Employer of any
amendments made to the Plan or of the discontinuance or abandonment of such
Plan.
CAUTION: You should very carefully examine the elections you have made in this
Adoption Agreement and discuss them with your legal counsel. Failure to properly
fill out the Adoption Agreement may result in disqualification of your plan.
This Adoption Agreement may only be used in conjunction with Basic Plan Document
Number 03.
(Note: The Employer, Plan Administrator and Trustee, if applicable, must all
sign below.)
Executed at 10:35 am, this 14th day of August, 1997.
Employer's Exact Name: Central CPVC Corporation
Witness: Linda M. Gaba By: Jennifer R. Cemini
Title: Secretary
Additional Adopting Employer's Exact Name: N/A
Witness:______________________________ By: __________________________________
Title: _______________________________
-45-
<PAGE>
Additional Adopting Employer's Exact Name: N/A
Witness:______________________________ By: __________________________________
Title: _______________________________
Additional Adopting Employer's Exact Name: N/A
Witness:______________________________ By: __________________________________
Title: _______________________________
Additional Adopting Employer's Exact Name: N/A
Witness:______________________________ By: __________________________________
Title: _______________________________
ACCEPTED this 14th day of August 1997
Witness: Dion Messa By (Plan Administrator): X X X X X X X X
----------------
Witness:________________________ By (Plan Administrator): N/A
Witness:________________________ By (Plan Administrator): N/A
Witness: Dion Messa By (Trustee): X X X X X X X
-------------------
Witness: Dion Messa By (Trustee): /s/ Albert T. Sabol
-------------------
Witness: Dion Messa By (Trustee): X X X X X X X
-------------------
ACCEPTED this ____ day of ______________ 19__.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By (Authorized Representative): _______________________
-46-
<PAGE>
Internal Revenue Service Department of the Treasury
Plan Description: Prototype Non-standardized Profit Sharing Plan with CODA
FFN: 50315620003-001 Case: 9401285 EIN: 06-0303370 Washington, DC 20224
BPD: 03 Plan: 001 Letter Serial No: 0365331a
Person to Contact: Ms. Arrington
CONNECTICUT GENERAL LIFE INSURANCE CO
Telephone Number: (202) 622-8173
350 CHURCH STREET M-92
Refer Reply to: CP:E:EP:T4
HARTFORD, CT 06067
Date: 05/07/96
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable under
section 401 of the Internal Revenue Code for use by employers for the benefit of
their employees. This opinion relates only to the acceptability of the form of
the plan under the Internal Revenue Code. It is not an opinion of the effect of
other Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
Our opinion an the acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). Therefore, an employer adopting the form of the plan should apply for a
determination letter by filing an application with the Key District Director of
Internal Revenue Service on Form 5307, Short Form Application for Determination
for Employee Benefit Plan.
Because you submitted this plan for approval after March 31, 1991, the
continued, interim and extended reliance provisions of sections 13 and 17.03 of
Rev. Proc. 89-9, 1989-1 C.B. 780, are not applicable.
Because you submitted this plan on or after July 1, 1994, it does not meet the
requirements for the extention of the remedial amendment period provided by
Rev. Proc. 95-12. 1995-3 I.R.B. 24.
This letter may not be relied upon with respect to whether the plan satisfies
the qualification requirements as amended by Uruguay Round Agreements Act. Pub.
L. 103-465.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial Number
and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerly yours,
John G. RidXXXXX, Jr.
------------------------
Chief, Employee Plans
Technical Branch 4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(5307) Application for Determination for Adopters of SAN 50030
(Rev 3/96) Master or Prototype, Regional Prototype or Volume OMB No. 1545-0200
Submitter Plans For IRS Use Only
File folder number +
Case number +
</TABLE>
Department of the Treasury
Internal Revenue Service
(Under sections 401(a) and 501(a) of the Internal Revenue Code)
You must attach user fee and Schedule Q to this application.
(See What To File.)
- --------------------------------------------------------------------------------
You must file both the substitute OCR data sheet and page 1 of this application.
The OCR data sheet is read by the computer and all the information filled in
must be typed in either 10 pitch type, Elite type, Courier 12 type, or Titan 12
type. Review the Procedural Requirements Checklist on page 4 before submitting
this application.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
la Name of plan sponsor (employer if single employer plan) lb Employer identification number
Central CPVC Company 63-1133266
Number, street, and room or suite no. (if a P.O. box, see instructions.) 1c Employer's tax year ends-Enter(MM)
245 Swancott Road __________________________________
City State ZIP code Telephone number
Huntsville AL 35758 (205) 859-8290
2 Person to be contacted if more information is needed. (See Instructions.)
(If the same as line la, leave blank. Complete even if a Power of Attorney is attached.)
Name
James D. Link
Number, street, and room or suite no. (if a P.O. box, see instructions.)
451 N. Cannon Avenue
City State ZIP code Telephone number
Lansdale PA 19446 (215) 362-0700
3a Determinaton requested for (enter applicable number(s) at left and fill in required information.) (See instructions.)
[1] Enter 1 for Initial Qualification -- Date plan signed .........................__________________
[ ] Enter 2 for a request after Initial Qualification
Date amendment signed _________________________ Date amendment effective ____________________________
[ ] Enter 3 for Standardized Plans (See instructions)
b Has the plan received a determination letter? (Submit a copy of the latest letter if one
was ever received.) ..................................................................... Yes [ ] No [X]
If 3b is no, were required amendments made retroactively effective?...................... Yes [ ] No [X]
c Have interested parties been given the required notification of this application?........ Yes [X] No [ ]
d Does the plan have a cash or deferred arrangement, or employee or matching
contribution (section 401(k) or (m))?.................................................... Yes [X] No [ ]
4a Name of plan:
Central CPVC Company 401(k) Profit Sharing Plan
[001] b Enter plan number (3 digits) 1997 d Enter year plan originally effective
[1031] c Enter date plan-year ends (MMDD) [______] e Enter number of participants in plan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5a If this is a defined benefit plan, enter the appropriate number in box at left.
[ ] Enter 1 for unit benefit Enter 3 for flat benefit
Enter 2 for fixed benefit Enter 4 for other (Specify) ________________________
b If this is a defined contribution plan, enter the appropriate number in box at left.
[1] Enter 1 for profit sharing Enter 4 for target benefit
Enter 2 for stock bonus Enter 5 for other (Specify) ________________________
Enter 3 for money purchase
6a Is the employer a member of an affiliated service group?
[ ] Enter 1 if "Yes" and see the instructions Enter 2 if "No"
b Is the employer a member of a controlled group of corporations or a group of trades or businesses under common control?
[ ] Enter 1 if "Yes" and see the instructions Enter 2 if "No"
7 Enter type of adopter.
[1] Enter 1 if a master or prototype plan Enter 3 if a District approved volume submitter plan
Enter 2 if a regional prototype plan
8 Enter type of plan.
[5] Enter 1 if governmental plan Enter 3 if collectively bargained plan Enter 5 if other
Enter 2 if nonelecting church plan Enter 4 if section 412(i) plan
___________________________________________________________________________________________________________________________________
Under penalties of perjury, I declare that I have examined this application, including accompanying statements, and to the best of
my knowledge and belief it is true, correct, and complete.
Signature + Title + Date +
- -----------------------------------------------------------------------------------------------------------------------------------
For Paperwork Reduction Act Notice, see page 1 of separate instructions. Form 5307 (Rev. 3-96)
</TABLE>
<PAGE>
Form 5307 (Rev. 3-96) Page 2
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Yes No
<S> <C> <C>
9a Do you maintain any other qualified plan(s)? (See instructions.) ...........
If "No," skip to line 9d.
b Do you maintain another plan of the same type (i.e., both this plan and the
other plan are defined contributions plans or both are defined benefit
plans) that covers non-key employees who are also covered under this plan?
If yes, when the plan is top-heavy, do the non-key employees covered under
both plans receive the required top-heavy minimum contribution or benefit
under:
(1) This plan? .............................................................
(2) The other plan? ........................................................
c If this is a defined contribution plan, do you maintain a defined benefit
plan, (or if this is a defined benefit plan, do you maintain a defined
contribution plan) that covers non-key employees who are also covered under
this plan? .................................................................
If yes, when the plan is top-heavy, do non-key employees covered under both
plans receive:
(1) the top-heavy minimum benefit under the defined benefit plan? .........
(2) at least a 5% minimum contribution under the defined contribution
plan? .................................................................
(3) the minimum benefit offset by benefits provided by the defined
contribution plan? ....................................................
(4) benefits under both plans that, using a comparability analysis, are at
least equal to the minimum benefit? (See instructions.) ...............
d Does the plan prevent the possibility that the section 415 limitations will
be exceeded for any employee who is (or was) a participant in this plan and
any other plan of the employer? (See Regulations sections 1.415-7 and
1.415-8.) .................................................................. X
- ---------------------------------------------------------------------------------------------------------------
Miscellaneous
- ---------------------------------------------------------------------------------------------------------------
N/A Yes No
10a Does any amendment to the plan reduce or eliminate any section 411(d)(6)
protected benefit? (See instructions.) ..................................... X
b Are trust earnings and losses allocated on the basis of account balances in
a defined contribution plan? If "No," attach a statement explaining how
they are allocated ......................................................... X
c Is this plan or trust currently under examination or is any issue related
to this plan or trust currently pending before the Internal Revenue
Service, the Department of Labor, the Pension Benefit Guaranty Corporation,
or any court? If "Yes," attach a statement explaining the issues involved
and who is considering them. Do not answer "Yes" because the plan has been
considered under IRS's Voluntary Compliance Resolution Program .............
</TABLE>
<PAGE>
Form 5307 (Rev. 3-96) Page 3
- --------------------------------------------------------------------------------
Procedural Requirements
- --------------------------------------------------------------------------------
Use this list to see what MUST be included with Form 5307.
1 Is Schedule Q (Form 5300) attached?
2 Is Form 8717 and the appropriate user fee attached?
3 Master or Prototype, Regional Prototype or Volume Submitters Plans-is a
copy of the adoption agreement attached or in the case of a volume
submitter plan, a copy of modifications? (See What To File in the
instructions.)
4 Is a copy of the master or prototype, regional prototype or volume
submitter letter attached? (See What To File in the instructions.)
5 Is a copy of the plan's latest determination letter attached? (Previously
approved plans only, see What To File in the instructions.)
6 Are the appropriate demonstrations attached to Schedule Q?
7 Have you submitted the OCR data sheet?
8 Have you signed the application?
9 Is the plan sponsor's (employer's if single-employer plan) 9-digit employer
identification number entered on line lb?
10 If appropriate, is Form 2848, or a privately designed authorization,
attached? (See Disclosure Request by Taxpayer in the instructions.)
11 Is the year the plan was originally effective entered on line 4d?
12 Affiliated Service Groups, Controlled Groups or Entities Under Common
Control-Is the information requested under "What To File" and the line 6
instructions attached?
13 Volume Submitter Plans-Is a copy of the plan and trust instrument attached?
(See What To File in the instructions.)
- --------------------------------------------------------------------------------
ALL APPLICATIONS ARE SCREENED BY COMPUTER. FAILURE TO INCLUDE A REQUIRED ITEM
WILL RESULT IN THE RETURN OF THIS APPLICATION TO YOU.
<PAGE>
CREDIT AGREEMENT
Among
CENTRAL SPRINKLER CORPORATION
CENTRAL SPRINKLER COMPANY
CENTRAL CASTINGS CORPORATION
CENTRAL CPVC CORPORATION
CENTRAL SPRINKLER EXPORT CORPORATION,
Collectively as Borrowers,
and
THE LENDERS IDENTIFIED HEREIN,
and
CORESTATES BANK, N.A.,
as Agent
Dated: October 28, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Section Page
- ------- ----
<S> <C> <C>
SECTION 1. DEFINITIONS
1.1 General Provisions........................................................................... 1
1.2 Defined Terms................................................................................ 2
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT FACILITY
2.1 Revolving Credit Facility; Reduction in Revolving Credit
Commitment; Extension of Termination Date.................................................... 16
2.2 Revolving Credit Note........................................................................ 17
2.3 Interest Rate Elections...................................................................... 18
2.4 Inability to Determine LIBOR; Illegality..................................................... 19
2.5 Funding of Advances; Reduction in Revolving Credit
Commitment; Pro Rata Treatment............................................................... 20
2.6 Fees......................................................................................... 20
2.7 Loan Account................................................................................. 21
2.8 Computation of Interest...................................................................... 21
2.9 Maximum Legal Rate........................................................................... 21
2.10 Payments..................................................................................... 21
2.11 Application of Payments...................................................................... 22
2.12 Late Charges................................................................................. 22
2.13 Voluntary Prepayments........................................................................ 22
2.14 Yield Protection; Capital Adequacy........................................................... 23
2.15 Taxes........................................................................................ 23
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 Organization and Qualification............................................................... 24
3.2 Power and Authority.......................................................................... 25
3.3 Enforceability............................................................................... 25
3.4 Conflict with Other Instruments.............................................................. 25
3.5 Litigation................................................................................... 25
3.6 Title to Assets.............................................................................. 25
3.7 Licenses; Intellectual Property.............................................................. 25
3.8 Default...................................................................................... 26
3.9 Taxes........................................................................................ 26
3.10 Financial Condition.......................................................................... 26
3.11 ERISA........................................................................................ 26
3.12 Use of Proceeds.............................................................................. 27
3.13 Regulation U................................................................................. 27
3.14 No Notices; No Violations.................................................................... 27
3.15 Labor........................................................................................ 28
3.16 Group Health Plans........................................................................... 28
3.17 Material Transactions with Affiliates........................................................ 28
3.18 Environmental Matters........................................................................ 28
3.19 Fees......................................................................................... 28
3.20 Location of Collateral....................................................................... 28
3.21 Fictitious Names............................................................................. 28
3.22 Accuracy of Information...................................................................... 28
3.23 No Omissions................................................................................. 29
SECTION 4. CONDITIONS OF BORROWING
4.1 Initial Advance.............................................................................. 29
4.2 Subsequent Advances.......................................................................... 30
4.3 Satisfaction of Conditions................................................................... 31
SECTION 5. AFFIRMATIVE COVENANTS
5.1 Financial Statements; Reports................................................................ 31
5.2 Liabilities.................................................................................. 32
5.3 ERISA........................................................................................ 32
5.4 Notices...................................................................................... 33
5.5 Environmental Matters; Compliance with Laws.................................................. 33
5.6 Corporate Existence; Properties.............................................................. 35
5.7 Insurance.................................................................................... 35
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
5.8 Books and Records............................................................................ 36
5.9 Adjusted Current Ratio....................................................................... 36
5.10 Funded Debt To Total Capitalization.......................................................... 36
5.11 Minimum Cash and Investments................................................................. 36
5.12 Tangible Net Worth........................................................................... 36
5.13 Group Health Plans........................................................................... 36
5.14 Lender's Lien................................................................................ 36
5.15 Joinder by Future Subsidiaries............................................................... 36
5.16 Cross-Guaranty by Borrowers.................................................................. 37
5.17 Satisfactory Management...................................................................... 37
5.18 Location of Business......................................................................... 37
5.19 Location of Collateral....................................................................... 37
5.20 Landlord's Waivers........................................................................... 37
5.21 The Federal Assignment of Claims Act......................................................... 37
SECTION 6. NEGATIVE COVENANTS
6.1 Debt......................................................................................... 38
6.2 Liens........................................................................................ 39
6.3 Investments and Advances..................................................................... 40
6.4 Mergers, Consolidations...................................................................... 40
6.5 Disposition of Assets........................................................................ 40
6.6 Disposition of Accounts...................................................................... 41
6.7 Guaranty Obligations; Letters of Credit/Bankers'
Acceptances.................................................................................. 41
6.8 Sales and Lease-Backs........................................................................ 41
6.9 Continuance of Business...................................................................... 41
6.10 Transactions with Affiliates................................................................. 41
6.11 Handling of Hazardous Substances............................................................. 42
6.12 Use of Proceeds.............................................................................. 42
6.13 Removal and Protection of Collateral......................................................... 42
SECTION 7. EVENTS OF DEFAULT, REMEDIES
7.1 Events of Default............................................................................ 42
7.2 Acceleration................................................................................. 45
7.3 Exercise of Rights and Remedies by Agent..................................................... 45
7.4 Right of Setoff.............................................................................. 45
7.5 No Marshalling, Etc.......................................................................... 45
7.6 Remedies Cumulative.......................................................................... 45
7.7 Allocation of Payments After Event of Default................................................ 45
7.8 Sharing of Payments.......................................................................... 46
7.9 Interest on Overdue Amounts.................................................................. 46
SECTION 8. AGENCY PROVISIONS
8.1 Appointment.................................................................................. 46
8.2 Delegation of Duties......................................................................... 47
8.3 Exculpatory Provisions....................................................................... 47
8.4 Reliance on Communications................................................................... 47
8.5 Notice of Default............................................................................ 48
8.6 Non-Reliance on Agents and Other Lenders..................................................... 48
8.7 Indemnification.............................................................................. 48
8.8 Agent in Its Individual Capacity............................................................. 49
8.9 Successor Agent.............................................................................. 49
SECTION 9. MISCELLANEOUS
9.1 No Waiver; Cumulative Remedies............................................................... 49
9.2 Notices...................................................................................... 49
9.3 Payment of Expenses; Indemnification......................................................... 50
9.4 Payment of Expenses and Taxes................................................................ 51
9.5 Survival of Indemnification and Representations and
Warranties................................................................................... 51
9.6 Benefit of Agreement......................................................................... 51
9.7 Amendments, Waivers and Consents............................................................. 53
9.8 Construction................................................................................. 53
9.9 Severability................................................................................. 53
9.10 Confidentiality.............................................................................. 54
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
9.11 Defaulting Lender............................................................................ 54
9.12 Waiver of Trial by Jury; Jurisdiction........................................................ 54
9.13 Actions Against Lenders; Release............................................................. 54
9.14 Performance by Lenders....................................................................... 55
9.15 Counterparts................................................................................. 55
9.16 Further Actions.............................................................................. 55
9.17 Entire Agreement............................................................................. 55
Table of Schedules .....................................................................................................
Table of Exhibits ......................................................................................................
</TABLE>
(iii)
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into this 28th day
of October, 1997, by and among CENTRAL SPRINKLER CORPORATION, a Pennsylvania
corporation, CENTRAL SPRINKLER COMPANY, a Pennsylvania corporation, CENTRAL
CASTINGS CORPORATION, an Alabama corporation, CENTRAL CPVC CORPORATION, an
Alabama corporation, and CENTRAL SPRINKLER EXPORT CORPORATION, a Barbados
corporation, the LENDERS identified herein, and CORESTATES BANK, N.A., a
national banking association in its capacity as administrative agent for the
LENDERS.
BACKGROUND:
A. The Lenders have agreed to provide a revolving credit
facility in the maximum principal amount of Fifty-Five Million Dollars
($55,000,000) to the Borrowers, on the terms and subject to the conditions
hereinafter set forth.
B. CoreStates Bank, N.A. has been appointed by the Lenders to
serve as their administrative agent in connection with such revolving credit
facility, on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, covenant and agree as follows:
SECTION 1. DEFINITIONS.
1.1 General Provisions. Unless expressly provided otherwise in
this Agreement or in the Loan Documents, or unless the context requires
otherwise:
(a) all accounting terms used in this Agreement and
in the Loan Documents shall have the meanings given to them in accordance with
GAAP;
(b) all terms used herein and in the Loan Documents
that are defined in the Pennsylvania Uniform Commercial Code, as amended from
time to time, shall have the meanings set forth therein;
(c) all capitalized terms defined in this Agreement
shall have the defined meanings when used in the Loan Documents and in any other
documents made or delivered pursuant to this Agreement;
(d) the singular shall include the plural, the plural
shall include the singular, and the use of any gender shall include all genders;
(e) all references to any particular party defined
herein shall be deemed to refer to each and every Person defined herein as such
party individually, and to all of them, collectively, jointly and severally, as
though each were named wherever the applicable defined term is used;
(f) all references to "Sections," "Subsections,"
"Paragraphs" and "Subparagraphs" shall refer to provisions of this Agreement;
(g) all references to time herein shall mean Eastern
Standard Time or Eastern Daylight Time, as then in effect; and
(h) all references to sections, subsections,
paragraphs or other provisions of statutes or regulations shall be deemed to
include successor, amended, renumbered and replacement provisions.
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1.2 Defined Terms. As used herein, the following terms shall
have the meanings indicated, unless the context otherwise requires:
"Accumulated Funding Deficiency" shall have the
meaning ascribed to it in ss.302(a) of ERISA.
"Additional Costs" shall have the meaning ascribed to
it in Section 2.14(a).
"Adjusted Current Ratio" shall mean, as at any
applicable time and for the Borrowers, the ratio of (i) Current Assets
to (ii) (A) Current Liabilities plus (B) the outstanding principal
balance of the Revolving Credit Facility.
"Adjusted LIBOR Rate" shall mean, for and with
respect to any LIBOR Loan and LIBOR Period applicable thereto, (i) the
LIBOR Rate, plus (ii) the Applicable LIBOR Margin.
"Advance" or "Advances" shall mean, individually or
collectively, as appropriate, any and/or all advances under the
Revolving Credit Facility.
"Affiliate" shall mean, as to any Person:
(a) if such Person is an individual, any
(i) relative of such Person, (ii) partnership in which such Person is a
general partner, or (iii) corporation of which such Person is a
director, officer, or person in control;
(b) if such Person is a corporation, any
(i) director of such Person, (ii) officer of such Person, (iii) person
in control of such Person, (iv) partnership in which such Person is a
general partner, (v) joint venturer with such Person, or (vi) relative
of a director, officer, or person in control of such Person; or
(c) if such Person is a partnership, any
(i) general partner in such Person, (ii) relative of a general partner
in such Person, (iii) partnership in which such Person is a general
partner, or (iv) person in control of such Person.
As used in this definition, "control" shall mean possession, directly
or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of securities or partnership or
other ownership interests, by contract or otherwise), provided that, in
any event, any Person which owns or holds directly or indirectly five
percent (5%) or more of the voting securities or five percent (5%) or
more of the partnership or other equity interests of any other Person
(other than as a limited partner of such other Person) will be deemed
to control such corporation or other Person.
"Agent" shall mean CoreStates Bank, N.A., in its
capacity as administrative agent for the Lenders under this Agreement,
and any successor agent hereunder.
"Agent's Fee" shall mean the Fee payable by the
Borrowers to the Agent pursuant to Section 2.6(c).
"Agreement" shall mean this Credit Agreement and any
future amendments, restatements, modifications or supplements hereof or
hereto.
"Applicable LIBOR Margin" shall mean that number of
basis points (bp) reflected in the table below under the Applicable
LIBOR Margin based upon and determined by reference to the ratio of the
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Borrowers' Funded Debt to Total Capitalization as of the relevant date
of determination:
<TABLE>
<CAPTION>
Pricing Ratio of Funded Debt to
Category Total Capitalization Applicable LIBOR Margin
-------- ----------------------- -----------------------
<S> <C> <C>
1 less than or equal to .45 45 bp
2 greater than .45 or equal to .50 60 bp
3 greater than .50 or equal to .55 75 bp
4 greater than .55 or equal to .60 100 bp
5 greater than .60 125 bp
</TABLE>
For purposes hereof, the Applicable LIBOR Margin will change on that
date (a "Calculation Date") five (5) Business Days following the
delivery by the Borrowers to the Agent of the applicable Compliance
Certificate and the accompanying financial statements of the Borrowers
required pursuant to Section 5.1(b) indicating that the ratio of the
Borrowers' Funded Debt to Total Capitalization has changed to a
different Pricing Category than the Pricing Category then in effect;
provided, however, (i) the Applicable LIBOR Margin prior to the
delivery to the Agent of the initial Compliance Certificate pursuant
hereto shall be the Applicable LIBOR Margin for Pricing Category 4 set
forth above based upon the quarterly financial statements of the
Borrowers for the fiscal quarter ending July 31, 1997 (which have
heretofore been furnished by the Borrowers to Agent); (ii) if the
Borrowers shall fail to deliver the Compliance Certificate on or before
the date on which it is required to be delivered pursuant hereto and
such failure has not given rise to an Event of Default, the ratio of
the Borrowers' Funded Debt to Total Capitalization shall, for purposes
hereof and during the period from such required delivery date until the
date on which such Compliance Certificate is actually delivered to the
Lender, be assumed to be in the Pricing Category then in effect
(provided that, if the Compliance Certificate, when so delivered,
indicates a Pricing Category higher than the Pricing Category then in
effect, the Applicable LIBOR Margin tied to such higher Pricing
Category shall be immediately applied retroactively to all LIBOR Loans
as of the date on which the Compliance Certificate was required to have
been furnished hereunder); (iii) at any time after the occurrence of an
Event of Default which has not been waived in writing by the Required
Lenders, the ratio of the Borrowers' Funded Debt to Total
Capitalization shall, for purposes hereof, be deemed to be in Pricing
Category 5 (subject, however, to the Default Rate provisions of the
Revolving Credit Note); and (iv) if a change to the Applicable LIBOR
Margin is ever made based upon a false, misleading, or inaccurate
Compliance Certificate or accompanying financial statements,
retroactive adjustments to the interest rates hereunder shall be
immediately made to take into effect the rates at which the LIBOR Loans
should have borne interest (which amount shall be due and payable by
the Borrowers upon demand by the Agent, together with interest thereon
at the Default Rate from the date as of which the retroactive
adjustment is made until payment is made by the Borrowers). Each
Applicable LIBOR Margin shall be effective from one Calculation Date to
the next Calculation Date except as hereinbefore provided. Any
adjustment in the Applicable LIBOR Margin shall be applicable to all
existing Advances as well as any new Advances.
"Assignment Agreement" shall mean an instrument of
assignment and assumption, pursuant to which a Lender shall transfer
and assign all or any portion of its Commitment and rights pertaining
thereto to an Eligible Assignee pursuant to and in accordance with (but
only to the extent permitted by) the provisions hereof, which
instrument of assignment and assumption shall be reasonably
satisfactory to the Agent.
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<PAGE>
"Bankruptcy Code" shall mean the United States
Bankruptcy Code, Title 11 of the United States Code, as amended, or any
successor law thereto, and any rules promulgated in connection
therewith.
"Base Rate" shall mean, as at any applicable time,
the greater of (i) the Prime Rate, or (ii)(A) the Federal Funds Rate
plus (B) one-half of one percent (0.5%). If for any reason the Agent
shall have determined (which determination shall be conclusive for
purposes hereof) that it is unable after due inquiry to ascertain the
Federal Funds Rate for any reason, including the inability or failure
of the Agent to obtain sufficient quotations in accordance with the
terms hereof, the Base Rate shall be determined without regard to
clause (ii) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change
in the Base Rate due to a change in the Prime Rate or the Federal Funds
Rate, as the case may be, shall be effective on the effective date of
such change in the Prime Rate or the Federal Funds Rate, respectively.
"Base Rate Loan" and "Base Rate Loans" shall mean,
individually or collectively, as appropriate, any and/or all Advances
bearing interest at the Base Rate.
"Borrower" shall mean Central Sprinkler.
"Borrowers" shall mean, collectively, (i) the
Borrower, and (ii) the Co-Borrowers.
"Borrowers' Agent" shall mean Central Sprinkler,
which has been designated and appointed by the Co-Borrowers to serve as
their agent for the purpose of making requests for Advances, making
interest rate elections, and for certain other purposes set forth
herein.
"Borrowing Notice" shall mean a written request by
Borrowers' Agent to the Agent for an Advance pursuant hereto, which
Borrowing Notice shall be in the form of Exhibit "A" attached hereto
(as such form of Borrowing Notice may be modified and amended from time
to time by the Agent).
"Brown Brothers" shall mean Brown Brothers Harriman &
Co., a Pennsylvania limited partnership.
"Brown Brothers Liens" shall mean, collectively, the
Liens heretofore granted by CPVC to and in favor of Brown Brothers as
security for the Brown Brothers Loan.
"Brown Brothers Loan" shall mean the loan made by
Brown Brothers to CPVC on May 30, 1997 in the original principal amount
of Seven Million Five Hundred Thousand Dollars ($7,500,000).
"Brown Brothers Replacement Loan" shall have the
meaning ascribed to in Section 6.1(h).
"Business Day" shall mean (i) for all purposes other
than as covered by clause (ii) below, any day excluding Saturday,
Sunday or any day that shall be in the City of Philadelphia,
Pennsylvania or New York, New York, a legal holiday or a day on which
banking institutions are authorized by law or other governmental
agencies to close, and (ii) with respect to all determinations and
notices in connection with, and payments of principal and interest on,
LIBOR Loans, any day that is a Business Day described in clause (i)
above and that is also a day for trading by and between banks in Dollar
($) deposits in the London interbank market.
"Calculation Date" shall have the meaning ascribed to
it in the definition of Applicable LIBOR Margin.
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<PAGE>
"Capital Lease Obligations" shall mean, collectively,
the obligations of any Person to pay rent or other amounts under any
lease of or other arrangement conveying the right to use real or
personal property, or a combination thereof, which obligations are
required to be classified and accounted for as capital leases on a
balance sheet of such Person pursuant to and accordance with GAAP, and
the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Castings" shall mean Central Castings Corporation,
an Alabama corporation.
"Castings Bonds" shall mean, collectively, (i) the
industrial revenue bonds issued on or about December 5, 1995 by the
State Industrial Development Authority of the State of Alabama for the
benefit of Castings in the aggregate principal amount of Eight Million
Dollars ($8,000,000), and (ii) the industrial revenue bonds issued on
or about December 5, 1995 by Calhoun County Economic Development
Council of the State of Alabama for the benefit of Castings in the
aggregate principal amount of Three Million Dollars ($3,000,000).
"Castings LC" shall mean that certain standby letter
of credit issued on or about December 5, 1995 by First Union for the
benefit of the trustee for the owners of the Castings Bonds in the
original stated amount of Eleven Million Two Hundred Six Thousand Two
Hundred Fifty Dollars ($11,206,250), which letter of credit assures the
repayment of the principal of and a certain portion of the interest
under the Castings Bonds.
"Central Sprinkler" shall mean Central Sprinkler
Company, a Pennsylvania corporation.
"Closing Date" shall mean the date hereof.
"Closing Fee" shall mean the fee due and payable by
the Borrowers pursuant to Section 2.6(b).
"Co-Borrowers" shall mean, collectively, (i) CSC,
(ii) Castings, (iii) CPVC, (iv) Export, and (v) any other Subsidiaries
that are required to become parties to this Agreement by Joinder hereto
pursuant to the provisions of Section 5.15.
"COBRA Continuation Coverage" shall mean those
provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, found in Code ss.4980B(f), which impose certain
continuation coverage requirements upon group health plans in order for
such plans to retain certain tax advantages.
"Code" shall mean the Internal Revenue Code of 1986,
as amended, or any successor law thereto, and any regulations
promulgated thereunder.
"Collateral" shall mean, collectively, (i) those
properties and assets of the Secured Borrowers in which a lien,
security interest, or similar right has been granted in favor of the
Agent pursuant to the Security Agreement, and (ii) any other real or
personal property, rights and interests now or hereafter pledged,
mortgaged or assigned to the Agent, or in which the Agent has or is
granted a security interest, to secure any of the Obligations.
"Commitment" shall mean (i) with respect to each
Lender listed on Schedule "A" hereto, the amount set forth opposite its
name on Schedule "A" attached hereto, and (ii) with respect to each
Eligible Assignee that becomes a Lender pursuant to Section 9.6(b), the
amount of the Commitment thereby assumed by it, in each case as such
amount may be
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<PAGE>
increased, reduced, or terminated from time to time pursuant to Section
9.6(a) or reduced or terminated from time to time pursuant to Section
2.1(c).
"Commitments" shall mean, collectively, the aggregate
amount of each Lender's Commitment.
"Commitment Percentage" shall mean, with respect to
each Lender, each Lender's percentage interest in each Advance to be
made hereunder as set forth on Schedule "A" attached hereto, as such
percentage may be increased or decreased as provided in Section 9.6(b).
"Compliance Certificate" shall mean a certificate in
the form of Exhibit "B" attached hereto and made a part hereof
certifying as to the matters therein described.
"Contamination" shall mean the presence of any
Hazardous Substance which may require Remedial Actions under applicable
law.
"Controlled Group Member" shall mean:
(a) any corporation included with the
Borrowers in a controlled group of corporations within the
meaning of Code ss.414(b);
(b) any trade or business (whether or
not incorporated) which is under common control with the
Borrowers within the meaning of Code ss.414(c); and
(c) any member of an affiliated service
group of which the Borrowers is a member within the meaning of
Code ss.414(m).
"CoreStates" shall mean CoreStates Bank, N.A., a
national banking association.
"CoreStates Term Loan" shall mean the term loan made
by CoreStates to Central Sprinkler on or about April 29, 1994 in the
original principal amount of Ten Million Dollars ($10,000,000), the
obligations of Central Sprinkler with respect to which are guaranteed
by CSC.
"CPVC" shall mean Central CPVC Corporation, an
Alabama corporation.
"CSC" shall mean Central Sprinkler Corporation, a
Pennsylvania corporation.
"Current Assets" shall mean, as at any applicable
time and for the Borrowers, the aggregate amount of current assets of
the Borrowers and any Subsidiaries on a consolidated basis, after
eliminating all intercompany items, as determined in accordance with
GAAP applied on a consistent basis.
"Current Liabilities" shall mean the aggregate amount
of current liabilities of the Borrowers and any Subsidiaries on a
consolidated basis, after eliminating all intercompany items, as
determined in accordance with GAAP applied on a consistent basis.
"Debt" shall mean, with respect to any Person at any
applicable time (without duplication), (i) all obligations of such
Person for borrowed money, (ii) all obligations of such Person
evidenced by bonds, debentures, notes or similar instruments, (iii) all
obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person to
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<PAGE>
the extent of the value of such property (other than customary
reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business), (iv) all obligations,
other than intercompany items, of such Person issued or assumed as the
deferred purchase price of property or services purchased by such
Person which would appear as liabilities on a balance sheet of such
Person, (v) all Debt of others secured by (or for which the holder of
such Debt has an existing right, contingent or otherwise, to be secured
by) any Lien on, or payable out of the proceeds of production from,
property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (vi) all Guaranty
Obligations of such Person, (vii) the principal portion of all Capital
Lease Obligations, (viii) amounts due and payable by such Person in
respect of letters of credit, bankers' acceptances or similar
obligations, (ix) all preferred stock issued by such Person and
required by the terms thereof to be redeemed, or for which mandatory
sinking fund payments are due, by a fixed date, and (x) any other item
of indebtedness that would be reflected on the liabilities side of a
balance sheet of such Person in accordance with GAAP. The Debt of any
Person shall also include the Debt of any partnership or unincorporated
joint venture in which and to the extent such Person is legally
obligated or has a reasonable expectation of being liable with respect
thereto.
"Default" shall mean any event specified in Section
7.1, whether or not any requirement for notice or lapse of time or any
other condition has been satisfied.
"Defaulting Lender" shall mean, as at any applicable
time, any Lender that, within one (1) Business Day of the date when due
(i) has failed to make an Advance required pursuant to the term of this
Agreement, (ii) other than as set forth in clause (i) above, has failed
to pay to the Agent or any Lender an amount owed by such Lender
pursuant to the terms of this Agreement unless such amount is subject
to a good faith dispute, or (iii) has been deemed insolvent or has
become subject to a bankruptcy or insolvency proceeding or to a
receiver, trustee or similar official.
"Default Rate" shall mean an annual rate per annum
equal to (i) two percent (2%), plus (ii) the Prime Rate (as in effect
from time to time).
"Deficiency Balance" shall have the meaning ascribed
to it in Section 2.10(a).
"Dollars" and "$" shall mean dollars in lawful
currency of the United States of America.
"Effective Date" shall mean the date as of which all
conditions set forth in Section 4.1(a) have been satisfied.
"Eligible Assignee" shall mean (i) any Lender or
Affiliate or Subsidiary of a Lender and (ii) any other commercial bank,
financial institution, or institutional lender.
"Employee Pension Plan" shall mean any pension plan
which (i) is maintained by any of the Borrowers or any Controlled Group
Member, and (ii) is qualified under ss.401 of the Code.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and any regulations issued thereunder
by the United States Department of Labor or the PBGC.
"Event of Default" shall mean any event specified in
Section 7.1, provided that any requirement for notice or lapse of time
or any other condition has been satisfied.
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<PAGE>
"Excluded Subsidiaries" shall mean, collectively, the
following: (i) CSC Finance Company, a Delaware corporation and
wholly-owned Subsidiary of CSC; (ii) CSC Investment Company, a Delaware
corporation and wholly-owned Subsidiary of CSC Finance Company; (iii)
Spraysafe; and (iv) Subsidiaries of Spraysafe.
"Export" shall mean Central Sprinkler Export
Corporation, a Barbados corporation.
"Extension Request" shall have the meaning ascribed
to it in Section 2.1(d).
"Federal Funds Rate" shall mean, for any day, the
rate per annum (rounded upward, if necessary, to the nearest 1/100th of
one percent) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the Business Day next succeeding
such day; provided, however, that (i) if such date is not a Business
Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day, and (ii) if no such
rate is so published on such next preceding Business Day, the Federal
Funds Rate for such day shall be the average rate quoted to the Agent
on such day on such transactions as determined by the Agent.
"Fees" shall mean, collectively, those fees due and
payable by the Borrowers under Section 2.6.
"Financial Covenants" shall mean, collectively, the
affirmative covenants set forth at Sections 5.9 through 5.12.
"First Union" shall mean First Union National Bank, a
national banking association.
"First Union Term Loan" shall mean the term loan made
by First Union to Central Sprinkler on or about April 15, 1994 in the
original principal amount of Ten Million Dollars ($10,000,000), the
obligations of Central Sprinkler with respect to which are guaranteed
by CSC.
"Funded Debt" shall mean, as at any applicable time
and for the Borrowers (without duplication), the sum of (i) all Debt of
the Borrowers and their Subsidiaries for borrowed money, (ii) all
purchase money Debt of the Borrowers and their Subsidiaries, (iii) the
principal portion of all obligations of the Borrowers and their
Subsidiaries in respect of Capital Lease Obligations, (iv) amounts due
and payable by the Borrowers and their Subsidiaries in respect of
letters of credit, bankers' acceptances, or similar obligations, (v)
all Guaranty Obligations of the Borrowers and their Subsidiaries with
respect to Funded Debt of another Person, (vi) all Funded Debt of
another Person secured by a Lien on any property of the Borrowers and
their Subsidiaries whether or not such Funded Debt has been assumed by
any Borrower or any of its Subsidiaries, and (vii) all Funded Debt of
any partnership or unincorporated joint venture to the extent any
Borrower or any of its Subsidiaries is legally obligated or has a
reasonable expectation of being liable with respect thereto, net of any
assets of such partnership or joint venture; provided, however, that,
notwithstanding the foregoing, (A) trade indebtedness, tax and other
accruals, tax deferrals and deferred compensation incurred in the
ordinary course of the Borrowers' business shall not constitute Funded
Debt of the Borrowers for purposes hereof, and (B) the amount of Funded
Debt in respect of the Castings Bonds for purposes hereof shall be
equal to the greater of (x) the aggregate outstanding amount of Debt
under the Castings Bonds, and (y) the maximum aggregate liability
(fixed or contingent) of the issuer of the Castings LC under the
Castings LC.
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<PAGE>
"GAAP" shall mean, at any particular time, generally
accepted accounting principles as in effect at such time, provided,
however, that, if employment of more than one principle shall be
permissible at such time in respect of a particular accounting matter,
"GAAP" shall refer to the principle which is then employed by the
Borrowers with the agreement of their independent certified public
accountants.
"Government Receivables" shall have the meaning
ascribed to it in Section 5.21.
"Guaranty Obligations" shall mean, as at any
applicable time and for any Person, without duplication, any
obligations (other than endorsements in the ordinary course of business
of negotiable instruments for deposit or collection) guaranteeing or
intended to guarantee any Debt of any other Person in any manner,
whether direct or indirect, and including without limitation any
obligation, whether or not contingent, (i) to purchase any such Debt or
other obligation or any property constituting security therefor, (ii)
to advance or provide funds or other support for the payment or
purchase of such Debt or obligation or to maintain working capital,
solvency or other balance sheet condition of such other Person
(including, without limitation, maintenance agreements, comfort
letters, take or pay arrangements, put agreements or similar agreements
or arrangements) for the benefit of the holder of Debt of such other
Person, (iii) to lease or purchase property, securities or services
primarily for the purpose of assuring the owner of such Debt, or (iv)
to otherwise assure or hold harmless the owner of such Debt or
obligation against loss in respect thereof. The amount of any Guaranty
Obligation hereunder shall (subject to any limitations set forth
therein) be deemed to be an amount equal to the outstanding principal
amount (or maximum principal amount, if larger) of the Debt in respect
of which such Guaranty Obligation is made.
"Hazardous Substances" shall mean, collectively, any
chemical, solid, liquid, gas, or other substance having the
characteristics identified in, listed under, or designated pursuant to:
(a) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended,
42 U.S.C. ss.9601(14), as a "hazardous substance;"
(b) the Clean Water Act, 33 U.S.C.
ss.1321(b)(2)(A), as a "hazardous substance;"
(c) the Clean Water Act, 33 U.S.C.
ss.ss.1317(a) and 1362(13), as a "toxic pollutant;"
(d) Table 1 of Committee Print Numbered
95-30 of the Committee on Public Works and Transportation of
the United States House of Representatives, as a "toxic
pollutant;"
(e) the Clean Air Act, 42 U.S.C.
ss.7412(a)(1), as a "hazardous air pollutant;"
(f) the Toxic Substances Control Act, 15
U.S.C. ss.2606(f), as an "imminently hazardous chemical
substance or mixture;"
(g) the Resource, Conservation and
Recovery Act, 42 U.S.C. ss.ss.6903(5) and 6921, as a
"hazardous waste;" or
(h) any other laws, regulations or
governmental publications, as presenting an imminent and
substantial danger to the public health or welfare or to the
environment, or as
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<PAGE>
otherwise requiring special handling, collection, storage,
treatment, disposal, or transportation.
The term "Hazardous Substances" shall also include: (x) petroleum,
crude oil, gasoline, natural gas, liquified natural gas, synthetic
fuel, and all other petroleum, oil, or gas based products; (y)
radioactive substances, mixtures, wastes, compounds, materials,
elements, products or matters; and (z) asbestos, asbestos-containing
materials, polychlorinated biphenyls.
"Inter-Company Debt" shall mean, collectively, any
and all Debt due and owing by any of the Borrowers to (i) any of the
other Borrowers or (ii) any Subsidiary.
"Intercreditor Agreement" shall mean the
Intercreditor Agreement entered into by and among the Agent,
CoreStates, First Union, and the Secured Borrowers pursuant to the
provisions of Section 4.1(k), and any future amendments, restatements,
modifications or supplements thereof or thereto.
"Investment" in any Person shall mean, collectively,
(i) the acquisition (whether for cash, property, services, assumption
of Indebtedness, securities or otherwise) of assets, shares of capital
stock, bonds, notes, debentures, partnership, joint ventures or other
ownership interests or other securities of such other Person, (ii) any
advance, loan or other extension of credit to, such Person, or (iii)
any other capital contribution to or investment in such Person,
including, without limitation, any Guaranty Obligation (including any
support for a letter of credit issued on behalf of such Person)
incurred for the benefit of such Person.
"Joinder" shall have the meaning ascribed to it in
Section 5.15.
"Lender" and "Lenders" shall mean, individually and
collectively, as appropriate, the Persons listed on Schedule "A"
attached hereto, as such Schedule "A" may be modified and amended from
time to time, and any Person which may become a Lender by way of
assignment in accordance with the provisions hereof, together with
their successors and permitted assigns.
"LIBOR" shall mean, for each LIBOR Loan and LIBOR
Period applicable thereto, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100th of 1%) determined by the Agent
according to the following formula:
X
R = -
1-Y
where R = LIBOR
X = London Interbank Offered Rate for
such LIBOR Loan for the applicable
LIBOR Period
Y = the average of the daily rates
(expressed as a decimal fraction)
of maximum reserve requirements
which are, at any time, applicable
during such LIBOR Period
(including, without limitation,
basic, special, supplemental,
marginal and emergency reserves)
under any regulations of the Board
of Governors of the Federal Reserve
System or other banking authority,
domestic or foreign, as now and
from time to time hereafter in
effect, prescribed for
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<PAGE>
eurocurrency funding (currently
referred to as Eurocurrency
Liabilities in Regulation D of such
Board) to which the Agent (including
any branch, Affiliate, or other
fronting office making or holding a
LIBOR Loan) is subject, as now and
from time to time hereafter in
effect.
"LIBOR Loan" and "LIBOR Loans" shall mean,
individually and collectively, as appropriate, any Advance and/or
Advances or portion thereof which bear interest at the Adjusted LIBOR
Rate pursuant hereto.
"LIBOR Period" shall mean, with respect to any
Advance or portion thereof bearing interest at the Adjusted LIBOR Rate
pursuant hereto, the period commencing on the date on which the Advance
or portion thereof begins to bear interest at the Adjusted LIBOR Rate
in accordance herewith and ending one (1) month, two (2) months, three
(3) months, or six (6) months thereafter, as appropriate, as selected
by Borrowers' Agent pursuant to Section 2.3, subject to the following:
(i) if the last day of the LIBOR Period
selected by the Borrowers' Agent pursuant to Section 2.3 does
not fall on a Business Day:
(A) the LIBOR Period shall be
automatically extended until the next succeeding
Business Day unless such Business Day falls in
another calendar month, in which case such LIBOR
Period shall end on the next preceding Business Day;
(B) interest shall, to the extent
applicable, continue to accrue at the Adjusted LIBOR
Rate then in effect; and
(C) the next LIBOR Period elected,
or deemed to have been elected, by such Borrower with
respect to the LIBOR Loan to which the LIBOR Period
relates, if any, shall commence on the Business Day
described in clause (i)(A) above; and
(ii) any LIBOR Period that begins on the
last Business Day of the calendar month (or on a date for
which there is no numerically corresponding day in the
calendar month in which such LIBOR Period ends) shall end on
the last Business Day of a calendar month and the next LIBOR
Period with respect to the LIBOR Loan to which the LIBOR
Period relates, if any, shall commence on such Business Day.
"Lien" shall mean, collectively, any mortgage,
pledge, hypothecation, assignment, security interest, encumbrance, lien
(statutory or otherwise), preference, priority or charge of any kind,
including, without limitation, any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, and
any lease in the nature thereof.
"Loan Account" shall mean, collectively, the account
or accounts of the Borrowers on the books of the Agent in which are
recorded the Advances and the payments of principal and interest made
by the Borrowers to Agent thereon.
"Loan Documents" shall mean, collectively, this
Agreement, the Revolving Credit Note, the Security Documents, the
Intercreditor Agreement, the Subordination Agreement, any Joinder
hereafter executed by a Subsidiary of any of the Borrowers pursuant
hereto, and all other documents executed and delivered to the Agent or
the Lenders by or on behalf of any of the Borrowers in connection
therewith and any
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modifications, amendments, restatements, substitutions and replacements
of or for any of the foregoing.
"London Interbank Offered Rate" shall mean, for and
with respect to any LIBOR Loan and any LIBOR Period applicable thereto,
the rate (rounded upwards, if necessary, to the nearest 1/16th of 1%)
equal to the composite London Interbank Offered Rate for Dollar ($)
deposits approximately equal in principal amount to the amount of such
LIBOR Loan and for a maturity comparable to such LIBOR Period appearing
on the Telerate Screen Page 3750 at approximately 9:00 A.M.,
Philadelphia time, on the date that is two (2) Business Days prior to
the commencement of such LIBOR Period; provided, however, that if such
rate shall for any reason not be available on the Telerate Screen Page
3750 at such time, the London Interbank Offered Rate shall be the
arithmetic average of the rates at which Dollar ($) deposits
approximately equal in principal amount to the amount of such LIBOR
Loan and for a maturity comparable to such LIBOR Period are offered to
the principal London office of any bank designated by the Agent in
immediately available funds in the London interbank market at
approximately 11:00 A.M., London time, two (2) Business Days prior to
the commencement of such LIBOR Period. As used herein, the term
"Telerate Screen Page 3750" shall mean the display designated as the
page for LIBOR on the Dow Jones Telerate Service (or such other page as
may replace the LIBOR page on that service for the purpose of
displaying London interbank offered rates of major banks). If, for any
reason, such rate is not available, the term "London Interbank Offered
Rate" shall mean, with respect to any LIBOR Loan and the LIBOR Period
applicable thereto, the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) appearing on the Reuters Screen
LIBO Page as the London interbank offered rate for deposits in Dollars
($) at approximately 11:00 A.M. (London time) two (2) Business Days
prior to the first day of such LIBOR Period for a maturity comparable
to such LIBOR Period; provided, however, if more than one rate is
specified on the Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates.
"Loss Contingency" shall have the meaning ascribed to
it in Section 3.10(a).
"Material Adverse Effect" shall mean, relative to any
occurrence of whatever nature, a material adverse effect on (i) the
assets, operations, profits, financial condition, or business of the
Borrowers taken as a whole, (ii) the ability of the Borrowers taken as
a whole to perform their respective obligations under this Agreement or
any of the other Loan Documents, or (iii) the validity or
enforceability of this Agreement, any of the other Loan Documents, or
any of the rights and remedies of the Lenders hereunder or thereunder.
"Minimum Tangible Net Worth Amount" shall mean, as at
any applicable time, (i) Forty-Eight Million Dollars ($48,000,000) plus
(ii) (A) seventy-five percent (75%) multiplied by (B) the Net Income of
the Borrowers for each fiscal year (on a cumulative basis) of the
Borrowers subsequent to the Closing Date (i.e. commencing with the
fiscal year ending October 31, 1997); provided, however, no change
shall be made to the Minimum Tangible Net Worth Amount by reason of
clause (ii) if the Borrowers' Net Income is negative for any fiscal
year.
"Multiemployer Plan" shall mean a multiemployer
pension plan as defined in ss.3(37) of ERISA to which any of the
Borrowers or any Controlled Group Member is or has been required to
contribute subsequent to September 25, 1980.
"Net Income" shall mean, for any relevant period, the
net income after taxes for such period of the Borrowers and their
Subsidiaries on a consolidated basis, as determined in accordance with
GAAP.
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"Obligations" shall mean, collectively, all
liabilities, duties and obligations of the Borrowers to the Lenders or
the Agent with respect to any covenants, representations or warranties
herein or in the Loan Documents, with respect to the principal of and
interest on the Advances, and all other present and future fixed and/or
contingent obligations of the Borrowers to the Lenders or the Agent
hereunder and under the Loan Documents, including, without limitation,
obligations with respect to interest accruing (or which would accrue
but for ss.502 of the Bankruptcy Code) after the date of any filing by
any Borrower of any petition in bankruptcy or the commencement of any
bankruptcy, insolvency or similar proceedings with respect to any of
the Borrowers.
"Other Taxes" shall have the meaning ascribed to it
in Section 2.15.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation.
"Permitted Encumbrances" shall mean, collectively,
those Liens listed on Schedule 3.6 or expressly permitted under Section
6.2.
"Permitted Debt" shall mean, collectively, any and
all Debt expressly permitted under Section 6.1.
"Person" shall mean an individual, a corporation, a
partnership, a joint venture, a trust or unincorporated organization, a
limited liability company, a joint stock company or other similar
organization, a government or any political subdivision thereof, or any
other legal entity.
"Premises" shall mean, collectively, any and all real
properties, improvements thereon and fixtures attached thereto in which
any Borrower has any right, title, or interest (whether as owner,
lessee, occupant, or otherwise).
"Prevailing Rate" shall mean, with respect to any
Advance or portion thereof, the annual rate of interest applicable
thereto, as determined pursuant to and in accordance with the
provisions of Section 2.3.
"Prime Rate" shall mean the floating annual rate of
interest that is designated from time to time by the Agent as its
"Prime Rate" and is used by the Agent as a reference base with respect
to different interest rates charged to borrowers generally. Such rate
of interest shall change simultaneously and automatically upon the
Agent's designation of any change in such reference rate, and the
Agent's determination and designation from time to time of the
reference rate shall not in any way preclude CoreStates from making
loans to other borrowers at rates which are higher or lower than or
different from the referenced rate.
"Register" shall have the meaning ascribed to it in
Section 9.6(d).
"Regulatory Change" shall mean, collectively, (i) any
change on or after the date of this Agreement in United States federal,
state, or any foreign, laws or regulations (including Regulation D of
the Board of Governors of the Federal Reserve System) applying to the
class of banks including any Lender (or the direct or indirect parent
corporation thereof), or (ii) the adoption or making on or after such
date of any interpretations, directives or requests applying to a class
of banks including any Lender (or the direct or indirect parent
corporation thereof), or under any United States federal or state, or
any foreign, laws or regulations (whether or not having the force of
law) by any court or governmental or monetary authority charged with
the interpretation or administration thereof.
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"Release" shall mean, collectively, any spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, or dumping.
"Remedial Actions" shall mean:
(a) clean-up or removal of Hazardous
Substances;
(b) such actions as may be necessary to
monitor, assess, or evaluate the Release or threatened Release
of Hazardous Substances;
(c) proper disposal or removal of
Hazardous Substances;
(d) the taking of such other actions as
may be necessary to prevent, minimize, or mitigate the damages
caused by a Release or threatened Release of Hazardous
Substances to the public health or welfare or to the
environment; and
(e) the providing of emergency
assistance after a Release.
Remedial Actions include, but are not limited to, such actions at the
location of a Release as: storage; confinement; perimeter protection
using dikes, trenches, or ditches; clay cover; neutralization; clean-up
of Hazardous Substances or contaminated materials; recycling or reuse;
diversion; destruction; segregation of reactive wastes; dredging or
excavations; repair or replacement of leaking containers; collection of
leachate and runoff; onsite treatment or incineration; providing
alternative water supplies; and any monitoring reasonably required to
assure that such actions protect the public health and welfare and the
environment.
"Reorganization" shall mean a reorganization as
defined in ss.4241(a) of ERISA.
"Reportable Event" shall mean with respect to any
Employee Pension Plan, an event described in ss.4043(b) of ERISA, other
than such a described event for which the notice requirement under
ss.4043 of ERISA is waived by regulation or by any other guidance
issued by the PBGC or any government agency or body having
jurisdiction.
"Required Lenders" shall mean, as at any applicable
time, Lenders that own, in the aggregate, at least sixty-six and
two-thirds percent (66 2/3%) of the Commitments; provided, however, (i)
at any time after the Commitments have been terminated, the Commitment
of each Lender shall, for purposes hereof, be determined by reference
to each Lender's share of the Advances then outstanding, and (ii) if
any Lender shall be a Defaulting Lender at such time, then there shall
be excluded from the determination of Required Lenders the Commitment
of such Defaulting Lender or (in the case of clause(i) above) the
Defaulting Lender's share of the Advances then outstanding.
"Revolving Credit Commitment" shall mean the sum of
Fifty-Five Million Dollars ($55,000,000), which sum shall be the
Borrowers' maximum credit availability under the Revolving Credit
Facility, subject to reduction in accordance with the provisions of
Section 2.1(c).
"Revolving Credit Facility" shall mean the revolving
credit facility in the maximum principal amount of the Revolving Credit
Commitment described in Section 2.1(a).
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"Revolving Credit Note" shall mean the promissory
note described in Section 2.2 and any future amendments, restatements,
modifications or supplements thereof or thereto.
"Revolving Credit Period" shall have the meaning
ascribed to it in Section 2.1(b).
"SEC" shall mean the Securities and Exchange
Commission or any successor thereto.
"Secured Borrowers" shall mean, collectively, CSC,
Central Sprinkler, and Export, and any other Subsidiaries that are
required to become parties to the Security Agreement pursuant to the
provisions of Section 5.15.
"Security Agreement" shall mean the Security
Agreement dated the date hereof by and among the Secured Borrowers and
the Agent, pursuant to which the Secured Borrowers, as security for the
Obligations, have granted to the Lender a perfected first-priority
security interest in all of their accounts (including, without
limitation, inter-company accounts among the Borrowers as provided
therein), equipment, and inventory, now owned or hereafter acquired,
and the products and proceeds thereof, and any future amendments,
restatements, modifications or supplements thereof or thereto.
"Security Documents" shall mean, collectively, (i)
the Security Agreement, and (ii) any other agreement, document, or
instrument now or hereafter executed and delivered to the Agent to
secure, or to assure, the payment or performance of any of the
Obligations, and any future amendments, restatements, modifications or
supplements thereof or thereto.
"Solvent" shall mean, as at any applicable time and
for any Person, that at such time (i) such Person is able to pay its
debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (ii) such
Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person's ability to pay as such debts
and liabilities mature in their ordinary course, (iii) such Person is
not engaged in a business or a transaction, and is not about to engage
in a business or a transaction, for which such Person's assets would
constitute unreasonably small capital after giving due consideration to
the prevailing practice in the industry in which such Person is engaged
or is to engage, (iv) the fair value of the assets of such Person is
greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, and (v) the present
fair saleable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured. In computing
the amount of contingent liabilities at any time, it is intended that
such liabilities will be computed at the amount which, in light of all
the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability.
"Spraysafe" shall mean Spraysafe Automatic
Sprinklers, Ltd., a private company organized under the laws of
England.
"Subordination Agreement" shall mean the
Subordination Agreement dated the date hereof by and among Central
Sprinkler, CSC Finance Company, and the Agent, pursuant to which, among
other things, the Inter-Company Debt therein described has been
subordinated to the prior payment and satisfaction of the Obligations,
on the terms and conditions set forth therein, and any future
amendments, restatements, modifications or supplements thereof or
thereto.
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"Subordinated Debt" shall mean, collectively, all
indebtedness of the Borrowers and their Subsidiaries, if any, for money
borrowed, whether now existing or hereafter incurred, and which is
subordinated in right of payment of principal and interest to the
Obligations, either absolutely or upon the occurrence of and during the
continuance of a Default or an Event of Default pursuant to a
subordination agreement with the Agent which is satisfactory, in form
and substance, to the Required Lenders.
"Subsidiary" shall mean any corporation more than
fifty percent (50%) of the outstanding shares of capital stock of which
(except for directors' qualifying shares, if required by law) are at
the time owned, directly or indirectly, by any of the Borrowers and/or
one or more Subsidiaries. Except as otherwise expressly provided
herein, the term "Subsidiary" shall include all of the Excluded
Subsidiaries.
"Tangible Net Worth" shall mean, at any time, the
amount by which (a) the book value of all tangible assets of the
Borrowers and any Subsidiaries on a consolidated basis, exceeds (b) the
consolidated liabilities of the Borrowers and any Subsidiaries, all as
determined in accordance with GAAP applied on a consistent basis.
"Taxes" shall have the meaning ascribed to it in
Section 2.15.
"Termination Date" shall mean November 1, 2000, and
any extension thereof granted pursuant to and in accordance with
Section 2.1(d).
"Term Loans" shall mean, collectively, the CoreState
Term Loan and the First Union Term Loan.
"Total Capitalization" shall mean, as at any
applicable time and for the Borrowers, (i) Funded Debt plus (ii)
Tangible Net Worth.
"Unused Facility Fee" shall mean the fee due and
payable by the Borrowers pursuant to Section 2.6(a).
"Withdrawal Liability" shall mean any withdrawal
liability as defined in ss.4201 of ERISA.
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT FACILITY.
2.1 Revolving Credit Facility; Reduction in Revolving
Credit Commitment; Extension of Termination Date.
(a) Subject to and in accordance with the terms
and conditions of this Agreement, each Lender severally (but not jointly) agrees
to extend credit to the Borrowers by making Advances to them, in Dollars ($),
from time to time during the period commencing on the Effective Date and ending
on the Business Day preceding the Termination Date, in an aggregate outstanding
amount that shall not exceed, at any one time outstanding, such Lender's
Commitment Percentage of the Revolving Credit Commitment. No Lender shall be
required to extend Advances to the Borrowers under this Section 2.1(a) in excess
of such Lender's Commitment.
(b) During the period in which the Revolving
Credit Facility is available under Section 2.1(a) (the "Revolving Credit
Period"), the Borrowers may use the Revolving Credit Facility by borrowing,
repaying and reborrowing. Subject to the provisions of Section 2.3(b), the
Borrowers shall notify the Agent pursuant to a Borrowing Notice of each request
for an Advance not later than 12:00 Noon Philadelphia, Pennsylvania, on the
Business Day on which the Borrowers desire the Advance to be made. Each Advance
shall be in minimum amounts of (i) One Million Dollars ($1,000,000) for LIBOR
Loans, and (ii) Two Hundred Fifty Thousand ($250,000) for Base Rate Loans. The
Borrowers
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authorize and direct the Lenders to disburse each such Advance by direct deposit
to the Borrowers' demand deposit account(s) maintained with the Agent.
(c) Upon at least two (2) Business Days' notice, the
Borrowers shall have the right to permanently terminate or reduce the aggregate
unused amount of the Revolving Credit Commitment at any time or from time to
time; provided that each partial reduction shall be in an aggregate amount at
least equal to One Million Dollars ($1,000,000) and in integral multiples of One
Million Dollars ($1,000,000) above such amount. Any reduction in (or termination
of) the Revolving Credit Commitment pursuant to this Section 2.1(c) shall be
permanent and may not be reinstated. Upon any reduction in or termination of the
Revolving Credit Commitment pursuant to this Section 2.1(c), (i) the Borrowers
shall pay to the Agent, simultaneously with such reduction or termination, the
amount (if any) by which (A) the outstanding balance of the Revolving Credit
Facility exceeds (B) the reduced amount of the Revolving Credit Commitment (or
zero (0) in the case of a termination), together with interest thereon at the
rates provided herein, and (ii) each Lender's Commitment shall be reduced on a
pro rata basis in accordance with each Lender's Commitment Percentage, in which
event the Agent shall modify Schedule "A" accordingly and distribute to the
Lenders a modified Schedule "A" which shall supersede and replace the Schedule
"A" then in effect.
(d) The Borrowers shall be permitted to request an
extension of the then scheduled Termination Date by providing written notice
thereof to the Agent at least ninety (90) days prior to the commencement of the
final twelve (12) months of the Revolving Credit Period (an "Extension
Request"). An Extension Request shall set forth in detail: (i) the length of the
desired extension of the Termination Date; and (ii) any terms and conditions
with respect thereto which are different from the terms and conditions of this
Agreement and the related Loan Documents. In connection with any Extension
Request, the Borrowers shall furnish to the Agent any and all financial and
other information which may be requested by the Agent. Within forty-five (45)
days following the Agent's receipt of an Extension Request, the Agent shall
notify the Borrowers whether any such Extension Request has been granted by the
Lenders and any terms and conditions applicable thereto; provided, however,
failure by the Agent to notify the Borrowers in accordance with the foregoing
shall constitute a rejection of the Extension Request. Notwithstanding anything
contained herein to the contrary, the Lenders shall have no duty or obligation,
express or implied, to grant any Extension Request.
(e) The proceeds of the Revolving Credit Facility
shall be used solely for the purpose of (i) financing the Borrowers' working
capital, and (ii) general corporate purposes, including, at the Borrowers'
election, (A) refinancing short-term Debt, and (B) (1) refinancing the Brown
Brothers Loan or (2) providing cash collateral to Brown Brothers as security for
the Brown Brothers Loan.
2.2 Revolving Credit Note. On the Closing Date, the Borrowers
shall execute and deliver their promissory note to the Agent (for the pro rata
benefit of the Lenders), which promissory note shall evidence the Borrowers'
obligations to repay the principal of, interest on, and other amounts due in
connection with the Revolving Credit Facility, and which shall:
(a) be dated the Closing Date and be payable to the
order of the Agent (for the pro rata benefit of the Lenders) in the principal
amount of Fifty-Five Million Dollars ($55,000,000);
(b) bear interest on the unpaid principal amount of
any outstanding Advances from the dates of such Advances at the Prevailing Rate;
(c) be payable as to interest with respect to Base
Rate Loans monthly commencing on November 1, 1997, and continuing on the first
day
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of each month thereafter until payment in full of the unpaid principal amount
of, and all accrued but unpaid interest thereon;
(d) be payable as to interest with respect to LIBOR
Loans at the expiration of the LIBOR Period applicable thereto; provided,
however, for LIBOR Loans having a LIBOR Period in excess of three (3) months,
interest shall be payable at the expiration of each three (3) month period
during the LIBOR Period and at the expiration of the LIBOR Period;
(e) be payable in full as to the entire unpaid
principal balance, all accrued interest and other sums due thereunder (i) on the
sooner of: (A) the Termination Date; or (B) upon written demand by the Agent
pursuant hereto after the occurrence of an Event of Default; or (ii) immediately
and automatically upon the occurrence of any Event of Default described in
Sections 7.1(e) or 7.1(f); and
(f) be secured by the Security Documents.
2.3 Interest Rate Elections.
(a) The Borrowers' Agent, subject to any prior
continuing interest rate elections made pursuant to Section 2.3(b), at any time
and from time to time, may notify the Agent in a Borrowing Notice that it is
electing, for and on behalf of the Borrowers, to have interest accrue at the
Base Rate on a specific portion (up to and including 100%) of the aggregate
unpaid amount of any Advance. All Advances for which an interest rate option is
not specifically designated by the Borrowers' Agent pursuant to the terms hereof
or not requested in conformity with the terms hereof shall constitute Base Rate
Loans.
(b) Subject to the notice provisions set forth in
this Section 2.3(b), at any time and from time to time, the Borrowers' Agent may
notify (which notice shall be contained in a Borrowing Notice and be
irrevocable) the Agent that it is electing, for and on behalf of the Borrowers,
to have interest accrue for a LIBOR Period specified in writing by the
Borrowers' Agent at the Adjusted LIBOR Rate on a specific portion (up to and
including 100%) of the aggregate unpaid amount of any Advance (including any
Advance to be made by the Lenders to the Borrower on the date of election) equal
to the amount specified in the Borrowing Notice by the Borrowers' Agent. The
Borrowers' Agent shall notify the Agent in the manner provided herein not later
than 12:00 Noon three (3) Business Days before the date on which the Borrowers'
Agent desires any Advance to bear interest at the Adjusted LIBOR Rate.
Notwithstanding anything contained herein to the contrary, any LIBOR Loan shall
be in minimum denominations of One Million Dollars ($1,000,000) and in multiples
thereof if in excess thereof.
(c) Following an interest rate election made by the
Borrowers' Agent with respect to any Advance pursuant to Sections 2.3(a) or
2.3(b), but subject to all other conditions of this Agreement, the Borrowers'
Agent may elect, for and on behalf of the Borrowers and in accordance with the
provisions of Sections 2.3(a) and 2.3(b), from time to time to convert or
continue the type of interest rate borne by such Advance. Any such notice of
conversion or continuance shall be made in writing by the Borrowers' Agent and
on forms prescribed by the Agent. In the event that the Borrowers' Agent fails
to provide the Agent with any notice of conversion or continuance, as described
herein, such Advance shall immediately and automatically become a Base Rate Loan
and shall commence bearing interest at the Base Rate. Notwithstanding anything
contained herein to the contrary, the Borrowers' Agent shall not convert, or
permit the conversion of, any LIBOR Loan to a Base Rate Loan until the
expiration of the LIBOR Period then in effect with respect thereto, unless such
conversion is accompanied by those amounts payable by the Borrowers to the Agent
pursuant to the provisions of Section 2.3(f).
(d) The Agent shall determine the Prevailing Rate in
accordance with the Borrowers' Agent's election made pursuant to and in
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accordance with this Section 2.3. Such determination of the Prevailing Rate by
the Agent in response to such election shall be conclusive in the absence of
manifest error.
(e) All LIBOR Periods shall end prior to the
Termination Date and the Borrowers' Agent shall not select a LIBOR Period the
expiration of which extends beyond the Termination Date.
(f) The Borrowers shall not prepay, in whole or in
part, any LIBOR Loans prior to the expiration of the LIBOR Period applicable
thereto. The Borrowers shall indemnify each Lender and hold each Lender harmless
from and against any loss or expense that each Lender may sustain or incur as a
result of (i) any prepayment of a LIBOR Loan, (ii) the conversion of a LIBOR
Loan to a Base Rate Loan prior to the expiration of the LIBOR Period applicable
thereto, (iii) an Advance being converted from a LIBOR Loan to a Base Rate Loan
by reason of the circumstances described in Sections 2.4(a) or 2.4(b) prior to
the expiration of the LIBOR Period applicable thereto, or (iv) a LIBOR Loan not
being made or converted upon instruction by the Borrowers after a request with
respect thereto has been made to the Agent pursuant hereto. Such agreement to
indemnify shall include, without limitation, any interest payable by any Lender
to lenders of funds obtained by the Lenders in order to make or maintain LIBOR
Loans pursuant hereto and any loss incurred in obtaining, liquidating, or
employing deposits from third parties.
(g) Following the occurrence of a Default or an Event
of Default, the Borrowers' Agent may not elect to have any Advance made or
maintained as, or converted into, a LIBOR Loan after the expiration of any LIBOR
Period then in effect with respect thereto.
2.4 Inability to Determine LIBOR; Illegality.
(a) In the event that the Agent shall determine
(which determination shall be conclusive and binding upon the Borrowers) that,
by reason of circumstances affecting the interbank eurodollar market or
otherwise, adequate and reasonable means do not exist for ascertaining LIBOR,
the Borrowers' right, by and through the Borrowers' Agent, to elect to have
interest accrue on any Advance at the Adjusted LIBOR Rate shall be suspended
until such time that the Agent determines that adequate and reasonable means
exist for ascertaining LIBOR, in which event all LIBOR Loans then in effect
shall automatically become Base Rate Loans at the expiration of the LIBOR Period
applicable thereto.
(b) Notwithstanding anything contained herein to the
contrary, if any applicable law, treaty, regulation or directive, or any change
in or in the application or interpretation of such law, treaty, regulation or
directive, or any other event shall make it unlawful for any Lender to make or
maintain LIBOR Loans and such Lender shall so notify the Agent, the Agent shall
forthwith give notice thereof to the other Lenders and the Borrowers, whereupon
until such Lender notifies the Borrowers and the Agent that such Lender is
permitted to make or maintain LIBOR Loans:
(i) the obligation of such Lender to make
or maintain LIBOR Loans shall be cancelled automatically and immediately; and
(ii) such Lender's share of LIBOR Loans then
in existence shall convert automatically and immediately to Base Rate Loans and
such Lender's share of LIBOR Loans thereafter shallconstitute Base Rate Loans
notwithstanding any election by the Borrowers' Agent hereunder.
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2.5 Funding of Advances; Reduction in Revolving Credit
Commitment; Pro Rata Treatment.
(a) Upon receipt of a Notice of Borrowing, the Agent
shall promptly inform the Lenders as to the terms thereof. Each such Lender
shall make its Commitment Percentage of the requested Advance available to the
Agent by 2:00 P.M. on the date specified in the Notice of Borrowing by deposit,
in Dollars ($), of immediately available funds at the offices of the Agent at
its principal office in Philadelphia, Pennsylvania or at such other address as
the Agent may designate in writing. The amount of the requested Advance will
then be made available to the Borrowers by the Agent by crediting the account of
the Borrowers on the books of such office of the Agent, to the extent the amount
of such Advance is made available to the Agent.
(b) No Lender shall be responsible for the failure or
delay by any other Lender in its obligation to make an Advance hereunder;
provided, however, the failure of any Lender to fulfill its obligations
hereunder shall not relieve any other Lender of its obligations hereunder.
Unless the Agent shall have been notified by any Lender prior to the date of any
such Advance that such Lender does not intend to make available to the Agent its
pro rata portion of the Advance to be made on such date, the Agent may assume
that such Lender has made such amount available to the Agent on the date of such
Advance, and the Agent, in reliance upon such assumption, may (in its sole
discretion but without any obligation to do so) make available to the Borrowers
a corresponding amount. If such corresponding amount is not in fact made
available to the Agent, the Agent shall be able to recover such corresponding
amount from such Lender. If such Lender does not pay such corresponding amount
forthwith upon the Agent's demand therefor, the Agent will promptly notify the
Borrowers, and the Borrowers shall immediately pay such corresponding amount to
the Agent. The Agent shall also be entitled to recover from the Lender or the
Borrowers, as the case may be, interest on such corresponding amount in respect
of each day from the date such corresponding amount was made available by the
Agent to the Borrowers to the date such corresponding amount is recovered by the
Agent at a per annum rate equal to (i) from the Borrowers, at the Prevailing
Rate for the Advance in question, and (ii) from a Lender, at the Federal Funds
Rate.
(c) Except to the extent otherwise provided herein,
each Advance, each payment or prepayment of principal of any Advance, each
payment of Fees (other than the Agent's Fee), each reduction of the Revolving
Credit Commitment, and each conversion or continuation of any Advance, shall be
allocated pro rata among the Lenders in accordance with their respective
Commitment Percentages (or, if the Commitments of such Lenders have expired or
been terminated, in accordance with the respective principal amounts of the
outstanding Advances); provided that, if any Lender shall have failed to pay its
applicable pro rata share of any Advance, then any amount to which such Lender
would otherwise be entitled pursuant to this Section 2.5(c) shall instead be
payable to the Agent; provided further, that in the event any amount paid to any
Lender pursuant to this Section 2.5(c) is rescinded or must otherwise be
returned by the Agent, each Lender shall, upon the request of the Agent, repay
to the Agent the amount so paid to such Lender, with interest for the period
commencing on the date such payment is returned by the Agent until the date the
Agent receives such repayment at a rate per annum equal to, during the period to
but excluding the date two (2) Business Days after such request, the Federal
Funds Rate, and thereafter, the Base Rate plus two percent (2%) per annum.
2.6 Fees. In connection with and as a condition to the
continuation of the Revolving Credit Facility, the Borrowers shall pay the
following fees to the Agent, all of which shall be non-refundable:
(a) An unused facility fee payable within fifteen
(15) days after the close of each calendar quarter, commencing on January 15,
1998, and on the Termination Date, in an amount equal to the product of (i) (A)
the maximum amount of the Revolving Credit Commitment during the calendar
quarter
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(or portion thereof) upon which such unused facility fee is being calculated
minus (B) the daily average outstanding principal balance of all outstanding
Advances during such calendar quarter (or portion thereof, as appropriate), and
(ii) one-quarter of one percent (.25%) per annum, which fee shall be payable in
arrears and shall be calculated based on the actual number of days elapsed over
a three hundred sixty (360)-day year. The Unused Facility Fee payable pursuant
to this Section 2.6(a) shall be for the pro rata benefit of the Lenders (based
upon each Lender's Commitment Percentage).
(b) A closing fee of Eighty-Two Thousand Five Hundred
Dollars ($82,500), which shall be due and payable on the Closing Date. The
Closing Fee payable pursuant to this Section 2.6(b) shall be for the pro rata
benefit of the Lenders (based upon each Lender's Commitment Percentage).
(c) An agency and administration fee in the amount
set forth in that certain letter agreement dated the date hereof between the
Agent and the Borrowers. No portion of the Agent's Fee shall be rebated or
refunded to the Borrowers notwithstanding the subsequent reduction in or
termination of the Revolving Credit Commitment pursuant hereto. The Agent's Fee
shall be paid for the sole and exclusive benefit of the Agent and shall not be
shared with the Lenders.
2.7 Loan Account. The Agent shall record in one or more Loan
Accounts, the Advances and all payments made by the Borrowers on account of the
Advances, and all other appropriate debits and credits. Each month the Agent
shall render to the Borrowers and the Lenders a statement setting forth the
debit balance of the Loan Account as of the close of the preceding month,
together with a statement of the amount of interest and other charges due to the
Lenders as of that time. Each statement shall be considered correct and accepted
by the Borrowers and the Lenders and conclusively binding upon the Borrowers and
the Lenders unless the Borrowers or the Lenders notify the Agent to the contrary
in writing within thirty (30) days from their receipt of such statement absent
manifest error.
2.8 Computation of Interest. Interest shall be calculated on
the basis of three hundred sixty (360) day year for actual days elapsed for Base
Rate Loans and LIBOR Loans. Any change in the interest rate on the Revolving
Credit Note resulting from a change in the Base Rate shall become effective as
of the opening of business on the day on which such change in the Base Rate
shall occur.
2.9 Maximum Legal Rate. The Borrowers shall not be obligated
to pay and the Agent and the Lenders shall not collect interest on any
Obligation at a rate in excess of the maximum permitted by law or the maximum
that will not subject the Agent or the Lenders to any civil or criminal
penalties. If, because of the acceleration of maturity, the payment of interest
in advance or any other reason, the Borrowers are required, under the provisions
of any Loan Document or otherwise, to pay interest at a rate in excess of such
maximum rate, the rate of interest under such provisions shall immediately and
automatically be reduced to such maximum rate, and any payment made in excess of
such maximum rate, together with interest thereon at the rate provided herein
from the date of such payment, shall be immediately and automatically applied to
the reduction of the unpaid principal balance of the Revolving Credit Note as of
the date on which such excess payment was made. If the amount to be so applied
to reduction of the unpaid principal balance exceeds the unpaid principal
balance, each Lender's pro rata share of such excess amount shall be refunded by
such Lender to the Borrowers.
2.10 Payments.
(a) Except as otherwise provided under Section
2.10(b), all payments (including prepayments) by the Borrowers hereunder shall
be made in Dollars ($) to the Agent at Agent's office identified in Section 9.2,
or such other place or places as the Agent may direct, prior to 12:00 Noon on
the date of payment, in lawful money of the United States of America, and in
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immediately available funds; provided, however, unless the Required Lenders
otherwise agree in writing, any and all payments due and owing by the Borrowers
to the Lenders under the Loan Documents shall be immediately and automatically
deducted by the Agent from the Borrowers' deposit account(s) maintained with the
Agent on the due dates thereof and the Borrowers expressly and irrevocably
authorize the Agent to make the deductions herein described from such account(s)
in order to make such payments as and when they become due. In the event that
funds of the Borrower on deposit with the Agent are insufficient to timely
satisfy any such payment obligation (other than a payment of principal) (the
amount of such insufficiency being referred to herein as a "Deficiency Balance")
and no Default or Event of Default has occurred, the Borrower's Agent shall be
deemed to have requested a Base Rate Loan in an amount equal to the Deficiency
Balance in conformity with the provisions of Section 2.3 and the Lenders shall
be deemed to have been made a Base Rate Loan to the Borrowers pursuant to this
Agreement in an amount equal to the Deficiency Balance, which Base Rate Loan
shall be deemed to have been made on the date on which the payment obligation
was due and the Deficiency Balance existed notwithstanding anything contained
herein to the contrary.
(b) The Agent will distribute payments received by it
from the Borrowers to the Lenders if any such payment is received prior to 2:00
P.M.; otherwise, the Agent will distribute such payment to the Lenders on the
next succeeding Business Day. Whenever any payment hereunder shall be stated to
be due on a day which is not a Business Day, the due date thereof shall be
extended to the next succeeding Business Day (subject to accrual of interest and
fees for the period of such extension).
2.11 Application of Payments. Subject to the provisions of
Section 7.7, all payments made hereunder by the Borrowers and received by the
Agent shall be applied by the Agent first to the payment in full of any costs
incurred in the collection of any Obligation, including (without limitation)
reasonable attorneys' fees, then to the payment in full of any late charges,
then to the payment in full of any Fees then due, then to the payment of
accrued, unpaid interest and finally to the reduction of the unpaid principal
balance thereof.
2.12 Late Charges. If the Borrowers shall fail to pay any
installment of interest or principal due under the Revolving Credit Facility or
any other sum due to the Lenders under any of the Loan Documents within fifteen
(15) days after the date it is due, the Borrowers shall immediately pay to the
order of the Agent (for the pro rata benefit of the Lenders), without notice or
demand, a late charge equal to two percent (2%) of the amount overdue to defray
part of the additional expense incurred by the Agent and the Lenders in
connection with the delinquency and collection of the overdue amount. The
provision for such late charge shall not be construed to permit the Borrowers to
make any payment after its due date, obligate the Lenders to accept any overdue
installment, or affect the Lenders' rights and remedies upon the occurrence of a
Default or an Event of Default.
2.13 Voluntary Prepayments.
(a) Except as otherwise provided herein, the
Borrowers at any time and from time to time may voluntarily prepay any Base Rate
Loans, in whole or in part, upon (1) one Business Day prior written notice to
the Agent of such prepayment.
(b) The Borrowers shall not prepay, in whole or in
part, any LIBOR Loan prior to the expiration of the appropriate LIBOR Period
applicable thereto, unless such prepayment is accompanied by any payment
required pursuant to the provisions of Section 2.3(f).
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2.14 Yield Protection; Capital Adequacy.
(a) The Borrowers shall pay to each Lender from time
to time such amounts as such Lender may determine to be necessary to compensate
it for any costs incurred by such Lender or any reduction in any amount
receivable by such Lender hereunder (such increases in costs and reductions in
amounts receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which: (i) changes the basis of taxation of any amounts
payable to any Lender under this Agreement or the Revolving Credit Note (other
than taxes imposed on the overall net income of such Lender by the jurisdiction
in which such Lender has its principal office); or (ii) imposes or modifies any
reserve, special deposit or similar requirements relating to any extensions of
credit, or other assets of, or any deposits with or other liabilities of, any
Lender (but excluding any such requirement to the extent reflected in an
applicable reserve requirement); or (iii) imposes any other condition affecting
this Agreement (or any of such extensions of credit or liabilities). Each Lender
will notify the Borrowers of any event occurring after the Closing Date that
will entitle such Lender to compensation pursuant to this Section 2.14 as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Any Lender making a request pursuant to this Section
2.14 shall furnish the Borrowers with a statement setting forth the basis and
amount of each such request.
(b) If after the Closing Date, any Lender shall have
determined that the adoption of any applicable law, rule, regulation or treaty
regarding capital adequacy, or any Regulatory Change, has or would have the
effect of reducing the rate of return on such Lender's capital as a consequence
of its obligations hereunder to a level below that which the Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an amount such
Lender deems material, the Borrowers shall pay to such Lender such additional
amount or amounts as will compensate the Lender for such reduction.
(c) In determining the amounts due under this Section
2.14, the Lenders may use any reasonable averaging and attribution methods.
Determination by any Lender for purposes of this Section 2.14 of the effect of
any Regulatory Change on its costs of making or maintaining Advances hereunder
or on amounts receivable by it hereunder and of the additional amounts required
to compensate such Lender shall be conclusive, absent manifest error.
2.15 Taxes.
(a) For the purposes of this Section 2.15, the
following terms have the following meanings:
"Taxes" shall mean any and all present or
future taxes, duties, levies, imposts, deductions, charges or withholdings with
respect to any payment by any Borrower pursuant to this Agreement or under the
Revolving Credit Note, and all liabilities with respect thereto, excluding (i)
in the case of each Lender and the Agent, taxes imposed on its income, and
franchise or similar taxes imposed on it, by a jurisdiction under the laws of
which such Lender or the Agent (as the case may be) is organized, in which its
principal executive office is located or, in the case of each Lender, in which
its applicable lending office is located, and (ii) in the case of each Lender,
any United States withholding tax imposed on such payments but only to the
extent that such Lender is subject to United States withholding tax at the time
such Lender first becomes a party to this Agreement.
"Other Taxes" shall mean any present or
future stamp or documentary taxes and any other excise or property taxes, or
similar charges or levies, which arise from any payment made pursuant to this
Agreement or under the Revolving Credit Note or from the execution or delivery
of, or otherwise with respect to, this Agreement or the Revolving Credit Note.
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(b) Any and all payments by the Borrowers to or for
the account of any Lender or the Agent hereunder or under the Revolving Credit
Note shall be made without deduction for any Taxes or Other Taxes; provided
that, if the Borrowers shall be required by law to deduct any Taxes or Other
Taxes from any such payments, (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.15) such Lender or
the Agent (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrowers shall make such
deductions, (iii) the Borrowers shall pay the full amount deducted to the
relevant taxing authority or other governmental authority in accordance with
applicable law, and (iv) the Borrowers shall furnish to the Agent, at its
address referred to in Section 9.2, the original or a certified copy of a
receipt evidencing payment thereof.
(c) The Borrowers agree to indemnify each Lender and
the Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 2.15) paid by such Lender or the Agent (as
the case may be) and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto. The indemnification provided for in
this Section 2.15 shall be paid within fifteen (15) days after any Lender or the
Agent (as the case may be) makes demand therefor.
(d) Each Lender organized under the laws of a
jurisdiction outside the United States, on or prior to the date of its execution
and delivery of this Agreement in the case of each Lender listed on Schedule "A"
and on or prior to the date on which it becomes a Lender in the case of each
other Lender, and from time to time thereafter if requested in writing by the
Borrowers (but only so long as such Lender remains lawfully able to do so),
shall provide the Borrowers and the Agent with Internal Revenue Service Form
1001 or 4224, as appropriate, or any successor form prescribed by the Internal
Revenue Service, certifying that such Lender is entitled to benefits under an
income tax treaty to which the United States is a party which exempts such
Lender from United States withholding tax or reduces the rate of withholding tax
on payments of interest for the account of such Lender or certifying that the
income receivable pursuant to this Agreement is effectively connected with the
conduct of a trade or business in the United States.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
To induce Lenders and Agent to enter into this Agreement and
to make the Advances, the Borrowers jointly and severally represent and warrant
to Lenders and Agent that:
3.1 Organization and Qualification.
(a) Each of the Borrowers and each Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction in which
the conduct of its business or the ownership of its assets requires such
qualification and in which the failure to so qualify could reasonably be
expected to have a Material Adverse Effect.
(b) Schedule 3.1 sets forth all Subsidiaries of each
of the Borrowers and all Subsidiaries of each Excluded Subsidiary.
(c) Each Subsidiary of each of the Borrowers is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all power and authority and
all governmental licenses, authorizations, consents and approvals required to
carry on its business as currently conducted.
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3.2 Power and Authority. Each of the Borrowers has the
corporate power to execute, deliver and perform under the Loan Documents and to
borrow under this Agreement, and to create the collateral security interests for
which the Security Documents provide, and has taken all necessary corporate
action to authorize the borrowings hereunder on the terms and conditions of this
Agreement and the execution and delivery of, and performance under, the Loan
Documents. No consent of any other party (including stockholders of the
Borrower) and no consent, license, approval or authorization of, or registration
or declaration with, any governmental authority, bureau or agency is required in
connection with the execution, delivery, performance, validity or enforceability
of the Loan Documents.
3.3 Enforceability. The Loan Documents, when executed and
delivered to the Agent pursuant to the provisions of this Agreement, will
constitute valid obligations of the Borrowers legally binding upon them and
enforceable in accordance with their respective terms, except as enforceability
of the foregoing may be limited by bankruptcy, insolvency or other laws of
general application relating to or affecting the enforcement of creditors'
rights.
3.4 Conflict with Other Instruments. The execution and
delivery of, and performance under, the Loan Documents will not violate or
contravene any provision of any existing law or regulation or decree of any
court, governmental authority, bureau or agency having jurisdiction in the
premises or of the Articles of Incorporation or of the By-Laws of any of the
Borrowers or of any mortgage, indenture, security agreement, contract,
undertaking or other agreement to which any of the Borrowers is a party or which
purports to be binding upon it or any of its properties or assets, and will not
result in the creation or imposition of any lien, charge, encumbrance on, or
security interest in, any of its properties or assets pursuant to the provisions
of any such mortgage, indenture, security agreement, contract, undertaking or
other agreement.
3.5 Litigation. Except as set forth in the footnotes to the
latest financial statements provided to Lenders or on Schedule 3.5, no actions,
suits or proceedings before any court or governmental department or agency
(whether or not purportedly on behalf of any of the Borrowers or any Subsidiary)
are pending or, to the knowledge of any of the Borrowers, threatened (a) with
respect to any of the transactions contemplated by this Agreement or (b) against
or affecting any of the Borrowers or any Subsidiary or any of its properties
that, if adversely determined, could reasonably be expected to have a Material
Adverse Effect. Based upon the Borrowers' review of all available data,
information and documentation and discussions with their professional advisors,
the Borrowers do not in good faith believe that any of the actions, suits or
proceedings described in Schedule 3.5 could reasonably be expected to have,
either singly or in the aggregate, a Material Adverse Effect.
3.6 Title to Assets. Each of the Borrowers has good and
marketable title in fee to, or valid, enforceable leases of, all property owned,
leased, or otherwise used by the Borrowers, and good and marketable title to all
of its other assets now carried on its books, or used by it, including those
reflected in the most recent consolidated balance sheet of the Borrowers
delivered to the Lenders or acquired since the date of such balance sheet
(except personal property disposed of since said date in the ordinary course of
business), free of any mortgages, pledges, charges, liens, security interests or
other encumbrances except those indicated in the footnotes to the latest
financial statements of Borrowers provided to the Lenders or on Schedule 3.6.
Each of the Borrowers enjoys peaceful and undisturbed possession under all
material leases under which it is operating, and all said leases are valid,
subsisting and in full force and effect.
3.7 Licenses; Intellectual Property. Each of the
Borrowers owns or has a valid right to use the patents, patent rights, permits,
licenses, trade secrets, trademarks, trademark rights, trade names or trade name
rights
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or franchises, copyrights, inventions, and intellectual property rights being
used to conduct its business as now operated and as now contemplated to be
operated; and the conduct of the business of each of the Borrowers as now
operated and as now proposed to be operated does not and will not conflict with
valid patents, patent rights, permits, licenses, trade secrets, trademarks,
trademark rights, trade names or trade name rights or franchises, copyrights,
inventions, and intellectual property rights of others. No claim is pending or
threatened to the effect that any such intellectual property owned or licensed
by any of the Borrowers or which any of the Borrowers otherwise has the right to
use, is invalid or unenforceable by the Borrowers, as the case may be. Except as
set forth on Schedule 3.7, no one of the Borrowers has any obligation to
compensate any Person for the use of any such patents or rights, and no Person
has been granted any license or other rights to use in any manner any of the
patents or rights of the Borrowers or any Subsidiary, whether requiring the
payment of royalties or not.
3.8 Default. None of the Borrowers is in default under any
material existing agreement, and no Default or Event of Default hereunder has
occurred and is continuing.
3.9 Taxes. The Borrowers have filed or caused to be filed all
tax returns (including, without limitation, those relating to federal and state
income taxes) required to be filed and have paid all taxes shown to be due and
payable on said returns or on any assessments made against them (other than
those being contested in good faith by appropriate proceedings for which
adequate reserves have been provided on its books). No tax liens have been filed
against any assets of any of the Borrowers or any Subsidiary, and no claims are
being asserted with respect to such taxes which could reasonably be expected to
have a Material Adverse Effect.
3.10 Financial Condition.
(a) All consolidated balance sheets, profit and loss
statements, and other financial statements of the Borrowers, dated as of July
31, 1997, all of which have heretofore been delivered to the Lenders, and all
financial statements and data of the Borrowers which will hereafter be furnished
to the Lenders, are or will be (when furnished) true and correct and do or will
(when furnished) present fairly, accurately and completely the consolidated
financial position of the Borrowers and the results of their operations as of
the dates and for the periods for which the same are furnished. All such
consolidated financial statements have been or will be, as appropriate, prepared
in accordance with GAAP applied on a consistent basis and, in the case of
interim financial statements only, subject to normal year-end adjustments and
the absence of footnotes thereon. Except as set forth on Schedule 3.10(a), the
Borrowers do not possess any "loss contingency" (as that term is defined in
Financial Accounting Standards Board, Statement of Financial Accounting
Standards No. 5 - "FASB 5") (a "Loss Contingency") which is not accrued,
reflected, or reserved against in its balance sheet or disclosed in the
footnotes to such balance sheet. There has been no event, circumstance, or
occurrence which could reasonably be expected to have a Material Adverse Effect
since the date of the financial statements which were most recently furnished by
the Borrowers to Agent.
(b) Each of the Borrowers is and, after completion of
the transactions described herein, will be Solvent.
3.11 ERISA.
(a) Except as set forth on Schedule 3.11, none of the
following events has occurred which, either singly or in the aggregate, has
resulted or could reasonably be expected to result in liability to any of the
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Borrowers involving an amount which, either singly or in the aggregate, exceeds
One Hundred Thousand Dollars ($100,000):
(i) there is no Accumulated Funding
Deficiency with respect to any Employee Pension Plan;
(ii) no Reportable Event has occurred with
respect to any Employee Pension Plan;
(iii) no violations of the Code have
occurred that could potentially cause the loss of the tax qualified status of
any Employee Pension Plan;
(iv) neither any of the Borrowers nor any
Controlled Group Member has incurred Withdrawal Liability with respect to any
Multiemployer Plan; and
(v) no Multiemployer Plan is in
Reorganization.
(b) No liability (whether or not such liability is
being litigated) has been asserted against any of the Borrowers or any
Controlled Group Member in connection with any Employee Pension Plan or any
Multiemployer Plan by the PBGC, by the trustee of a trust established pursuant
to ERISA ss.4049, by a trustee appointed pursuant to ERISA ss.4042(b) or (c), or
by a sponsor or an agent of a sponsor of a Multiemployer Plan, and no lien has
been attached and no Person has threatened to attach a lien on the property of
any of the Borrowers or any Controlled Group Member as a result of failure to
comply with ERISA or as a result of the termination of any Employee Pension Plan
and which liability or lien (as appropriate), either singly or in the aggregate,
could reasonably be expected to exceed One Hundred Thousand Dollars ($100,000).
(c) Each Employee Pension Plan, as most recently
amended, including amendments to any trust agreement, group annuity or insurance
contract, or other governing instrument, is or will be (with respect to the
recently formed Employee Pension Plans of Castings and CPVC) the subject of a
favorable determination letter by the Internal Revenue Service with respect to
its qualifications under Code ss.401(a) and such Employee Pension Plan's related
trusts are exempt from taxation under Code ss.501(a). Neither the Borrowers nor
any Controlled Group Member has an unfulfilled obligation to contribute to any
Multiemployer Plan.
3.12 Use of Proceeds. The proceeds of the Revolving Credit
Facility shall be used for the purposes set forth in Section 2.1(e).
3.13 Regulation U. Neither any of the Borrowers nor any
Subsidiary is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System), and no Advance or any portion
thereof will be used to purchase or carry any margin stock or to reduce or
retire any indebtedness incurred for such purpose or to extend credit to others
for such purpose.
3.14 No Notices; No Violations. Neither any of the Borrowers
nor any Subsidiary has received any notice from any federal, state or local
authority or any insurance or inspection body to the effect that any of its
properties, facilities, equipment or business procedures or practices fail to
comply with any applicable law, ordinance, regulation, building or zoning law,
judicial or administrative determination, or any other requirements of any such
authority or body, and the Borrowers and all Subsidiaries, and all such
properties, facilities, equipment, procedures and practices, are in compliance
in all material respects with all such laws, ordinances, determinations,
regulations and requirements.
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3.15 Labor. Neither any of the Borrowers nor any Subsidiary is
involved in any strike, lock-out, boycott or any other material labor trouble,
nor is it involved in labor negotiations, other than in the ordinary course of
business of each of the Borrowers' or their Subsidiaries' business as heretofore
conducted.
3.16 Group Health Plans. The Borrowers and each Subsidiary (a)
provide COBRA Continuation Coverage under group health plans for separating
employees in accordance with the provisions of Code ss.4980B(f) and (b) are in
compliance with the provisions of ss.1862(b)(1) of the Social Security Act.
3.17 Material Transactions with Affiliates. Except as set
forth in Schedule 3.17, there are no loans, leases, royalty agreements or other
agreements, arrangements or other transactions, which are material to the
business, operations, or financial condition of any of the Borrowers, between
(a) any of the Borrowers, and (b)(i) any of its respective customers or
suppliers, or (ii) any Affiliate. All transactions described in Schedule 3.17
between any of the Borrowers and an Affiliate which is not one of the Borrowers
comply with the proviso set forth in Section 6.10.
3.18 Environmental Matters. Except as disclosed in the annual
audit report of the Borrowers for the fiscal year ended October 30, 1996, in the
quarterly financial statements of the Borrowers for the fiscal quarter ended
July 31, 1997 on Form 10-Q filed with the Securities Exchange Commission, and on
Schedule 3.18:
(a) To the best of the Borrowers' knowledge, the
Premises have never been and are not being used to make, store, handle, treat,
dispose of, generate, or transport Hazardous Substances in violation of any
applicable law. To the best of the Borrowers' knowledge, there has never been a
Release of Hazardous Substances on or from the Premises or any other property
owned or used by any of the Borrowers in violation of any applicable law or that
caused Contamination, and no Contamination exists on any such property.
(b) None of the Borrowers or any Subsidiary has
received any notification, citation, complaint, violation, or notice of any kind
from any governmental authority relating or pertaining to the making, storing,
handling, treating, disposing, generating, transporting, or Release of any
Hazardous Substances, and neither the Borrowers nor any Subsidiary nor any
property owned or used by any of the Borrowers or any Subsidiary is under any
investigation with respect to any such matters.
(c) There are no underground storage tanks on the
Premises or any other property owned or used by any of the Borrowers or any
Subsidiary.
3.19 Fees. Except for the Agent's Fee and the other Fees, no
brokerage commission or similar compensation is due or will become due to any
Person by reason of the granting of the Revolving Credit Facility.
3.20 Location of Collateral. The Collateral is situated at the
locations identified on Schedule 3.20 and the places of business of the Secured
Borrowers, together with their "chief executive office" (as defined in the
Pennsylvania Uniform Commercial Code) and principal place of business are all
listed thereon.
3.21 Fictitious Names. The Secured Borrowers do not operate or
do business, and have not operated or done business within the five (5) year
period preceding the Closing Date, under any assumed, trade or fictitious names,
other than as set forth in Schedule 3.21.
3.22 Accuracy of Information. All information, reports and
other papers and data (including, without limitation, copies of all filings made
with governmental authorities) furnished heretofore or contemporaneously
herewith by or on behalf of any of the Borrowers to the Agent, the Lenders or
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any Person furnishing an opinion required to be delivered hereunder for purposes
of or in connection with this Agreement and the other Loan Documents and the
transactions contemplated hereby and thereby, is, and all other such information
hereafter furnished by or on behalf of the Borrowers to the Agent, the Lenders,
or any Person furnishing an opinion required to be delivered hereunder will be,
true and accurate in every material respect on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information not misleading and the
Borrowers have notified the Lenders of all events that have occurred since such
date that would render such information incomplete or misleading.
3.23 No Omissions. Neither this Agreement, any Schedules to
this Agreement, nor any Loan Documents required to be delivered pursuant to this
Agreement contain or will contain any untrue statement of material fact or omit
or will omit to state a material fact required to be stated in order to make
such statement, document or other instrument not misleading.
SECTION 4. CONDITIONS OF BORROWING.
4.1 Initial Advance. As a condition precedent to the Lenders'
obligation to make the initial Advance, the following conditions shall all be
satisfied:
(a) Loan Documents. The Borrowers shall have
delivered or caused to be delivered to the Agent duly executed copies of each of
the Loan Documents.
(b) Financing Statements. The Secured Borrowers shall
have executed and delivered to the Agent UCC-1 financing statements describing
the Collateral in sufficient number for the filing thereof in each filing office
as shall have been required by the Agent or the Lenders, which financing
statements shall be satisfactory, in form and substance, to the Agent.
(c) Borrowers' Authorizations. Each of the Borrowers
shall have delivered to the Agent:
(i) a copy, certified by its Secretary, of
the resolutions of its Board of Directors authorizing and approving
the execution and delivery of and performance under this Agreement and
the other Loan Documents, the borrowings provided for hereunder;
(ii) its articles of incorporation,
certified by its Secretary;
(iii) a good standing or subsistence
certificate certified by the Secretary of State of the state of its
jurisdiction of incorporation as of a date within twenty (20) days of
the Closing Date;
(iv) a copy of its By-Laws, as currently in
effect, certified by its Secretary; and
(v) an incumbency certificate reflecting
that the officers of the Borrowers who have executed the Loan
Documents on their behalf are duly authorized and empowered to do so.
(d) Legal Opinions. The law firm of Morgan, Lewis &
Bockius LLP, as legal counsel for the Borrowers, shall have delivered to the
Agent a favorable opinion, dated the Closing Date, addressed to the Agent and
the Lenders, and satisfactory in form and substance to Agent. The legal opinion
furnished to the Agent and the Lenders pursuant to this Section 4.1(d) shall
expressly state that the opinions therein set forth may be relied upon by the
successors and assigns of the addressees thereof.
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(e) Representations. The representations and
warranties contained in Section 3 hereof shall be true and correct in all
material respects on and as of the Closing Date, and no Event of Default or
Default shall be in existence on the Closing Date or shall occur as a result of
making any Advance on the Closing Date.
(f) Financial Projections. CSC shall have delivered
to the Lenders financial projections on a consolidated basis covering the three
(3) year period subsequent to the Closing Date, which projections shall (i)
include the assumptions upon which such projections were prepared, (ii) be in a
format which is satisfactory to the Lenders, and (iii) include such supporting
documentation and information as the Lenders may request, and (iv) be subject to
the review and approval by the Agent and the Lenders.
(g) No Material Adverse Change. No event,
circumstance, or occurrence shall have occurred since July 31, 1997 which could
reasonably be expected to have a Material Adverse Effect.
(h) Required Modifications to Existing Financial
Covenants. The Borrowers shall have furnished to the Agent satisfactory evidence
that any and all financial covenants to which any of the Borrowers or Subsidiary
is subject under any agreement, document, or instrument relating to pertaining
to any of the Permitted Debt in existence as of the Closing Date shall be no
more restrictive upon the Borrowers or Subsidiary than the Financial Covenants
and, in connection therewith, the Borrowers shall cause any amendments to or
modifications of such agreements, documents, and instruments, to be executed and
delivered to satisfy the provisions of this Section 4.1(h) (which amendments and
modifications shall be satisfactory to the Agent).
(i) No Litigation. There is no action, notice, claim,
litigation or proceeding before any court, governmental instrumentality, or
administrative agency pending or, to the knowledge of the officers of the
Borrowers and their Subsidiaries, threatened against the Borrowers or their
Subsidiaries, the outcome of which could reasonably be expected to have, either
singly or in the aggregate, a Material Adverse Effect.
(j) No Violation. The completion of the transactions
contemplated hereby and by the Loan Documents shall not contravene, violate or
conflict with, nor involve the Agent or any Lender in violation of, any law,
rule, or regulation applicable to any of them.
(k) Intercreditor Agreement. The Agent, CoreStates,
First Union, and the Secured Borrowers shall have entered into an Intercreditor
Agreement, pursuant to which, among other things, the Agent (on behalf of the
Lenders), CoreStates, and First Union shall agree, among other things, that (i)
the Collateral shall also secure the Term Loans, and (ii) the security interests
of CoreStates and First Union with respect to the Term Loans shall be on a pari
passu basis with the security interest of the Agent with respect to the
Obligations, which Intercreditor Agreement shall be satisfactory to the Agent
and the Lenders.
(l) Legal Matters. All legal matters incident to the
transactions contemplated by this Agreement shall be satisfactory to Stevens &
Lee, counsel for the Agent.
4.2 Subsequent Advances. As a condition precedent to the
Lenders' obligation to make any Advance after the Closing Date, the following
conditions shall all be satisfied on the date of such Advance:
(a) Material Adverse Change. No material adverse
change shall have occurred in the financial condition, assets, or results of
operations of the Borrowers since the date of the most recent financial
statements of the Borrowers furnished to the Agent pursuant to Sections 5.1(a)
and 5.1(b).
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(b) No Default. No Default or Event of Default shall
exist on the date of such Advance or shall occur as the result of making such
Advance.
(c) Representations. Without limiting the generality
of Section 4.2(b), the representations and warranties contained in Section 3
shall be true and correct in all material respects on and as of the date of the
making of such Advance with the same effect as if made on and as of such date.
(d) No litigation. There is no action, notice, claim,
litigation or proceeding before any court, governmental instrumentality, or
administrative agency pending or, to the knowledge of the officers of the
Borrowers and their Subsidiaries, threatened against the Borrowers or their
Subsidiaries, the outcome of which could reasonably be expected to have, either
singly or in the aggregate, a Material Adverse Effect.
4.3 Satisfaction of Conditions. The Agent's determination with
respect to whether an Advance is required to be made pursuant to the provisions
hereof and whether any condition herein described has been satisfied shall be
binding upon the Borrowers and the Lenders.
SECTION 5. AFFIRMATIVE COVENANTS.
The Borrowers covenant and agree that from and after the
Closing Date and so long as any of the Obligations remain outstanding and
unpaid, in whole or in part, or the Revolving Credit Facility remains available,
the Borrowers will observe the following covenants, unless the Required Lenders
shall otherwise consent in writing:
5.1 Financial Statements; Reports. The Borrowers will furnish
to the Agent:
(a) Annual Reports: as soon as available, but in any
event not later than one hundred twenty (120) days after the close of each
fiscal year of the Borrowers, the annual audit report of the Borrowers
containing consolidated balance sheets of the Borrowers and any Subsidiaries, as
at the end of such fiscal year, and related consolidated statements of income,
shareholders' equity and cash flows of the Borrowers and any Subsidiaries, for
such fiscal year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, all in reasonable detail,
prepared in accordance with GAAP applied on a consistent basis and accompanied
by an opinion from independent certified public accountants selected by the
Borrowers and satisfactory to the Lenders without material exception or
qualification and in all respects reasonably satisfactory to the Lenders;
(b) Quarterly Reports: as soon as available, but in
any event not later than sixty (60) days after the close of each of the first
three (3) fiscal quarters of each fiscal year of the Borrowers, consolidated
balance sheets of the Borrowers and any Subsidiaries, as at the end of such
quarterly period, and related consolidated statements of income for such
quarterly period and statements of cash flows for the period from the end of the
preceding fiscal year to the end of such quarterly period, setting forth in each
case in comparative form the corresponding figures for the corresponding period
of the preceding fiscal year, all in reasonable detail and prepared in
accordance with GAAP applied on a consistent basis (subject to normal year-end
adjustments and the absence of footnotes thereon);
(c) Quarterly Consolidating Work Sheets: Concurrently
with the delivery of those quarterly financial statements required pursuant to
Section 5.1(b), consolidating work sheets of the Borrowers and any Subsidiaries,
as at the end of the quarterly period for which financial statements are being
furnished under Section 5.1(b), and related consolidating
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work sheets containing a balance sheet and indicating the income and cash flows
of Borrowers and any Subsidiaries for such quarterly period, all in reasonable
detail and in a format reasonably acceptable to the Agent;
(d) Compliance Certificates: Within sixty (60) days
after the close of each of the first three (3) fiscal quarters of each fiscal
year of the Borrowers and within one hundred twenty (120) days after the close
of the final fiscal quarter of each fiscal year of the Borrowers, a Compliance
Certificate duly executed and completed by the Executive Vice President of
Finance and Administration of the Borrowers;
(e) Securities Filings: promptly upon sending, making
available, or filing the same, such reports and financial statements as the
Borrowers or any Subsidiary shall send or make available to the shareholders of
the Borrowers or file with the SEC;
(f) Other Reports: promptly after the furnishing
thereof, copies of any statement or report furnished to any other lender to any
of the Borrowers or any Subsidiary pursuant to the terms of any indenture, loan,
credit, or similar agreement and not otherwise required to be furnished to the
Lenders pursuant to any other clause of this Section 5.1; and
(g) Other Information: from time to time with
reasonable promptness, such additional financial and other information as the
Lenders may reasonably request.
The Borrowers shall furnish the Agent with three (3) copies of all statements
and reports furnished to the Agent pursuant to this Section 5.1 in order to
expedite the Agent's delivery thereof to the Lenders. As soon as practicable
after the Agent's receipt of all statements and reports furnished to the Agent
pursuant to this Section 5.1, the Agent shall furnish copies thereof to the
Lenders. In addition, although the Borrowers are not required to furnish monthly
financial statements to the Agent pursuant to this Section 5.1, if such monthly
financial statements are provided to the Agent, the Agent shall, as soon as
practicable following its receipt thereof, also furnish copies thereof to the
Lenders.
5.2 Liabilities. The Borrowers and any Subsidiaries will pay
and discharge, at or before their maturity or before they become delinquent, as
the case may be, all of their respective obligations and liabilities (including,
without limitation, tax liabilities and all employee wages as provided in the
Fair Labor Standards Act, 29 U.S.C. ss.ss.206-207 and any successor statute),
except (i) those obligations and liabilities which may be contested in good
faith, and for which adequate reserves are maintained in accordance with GAAP,
(ii) trade payables which, in the ordinary course of the Borrowers' business and
in accordance with industry practice, are repaid after the stated due date
thereof but prior to the commencement of any enforcement action against the
Borrowers as a result of such failure to pay on the due date and for which a
reserve is not required to be maintained in accordance with GAAP.
5.3 ERISA.
(a) Each of the Borrowers will furnish to the Lenders
(i) within thirty (30) days after it has reason to know that it or any
Controlled Group Member has incurred any Withdrawal Liability in excess of One
Hundred Thousand Dollars ($100,000) (either singly or in the aggregate), or that
any Multiemployer Plan is in Reorganization or that any Reportable Event has
occurred with respect to any Employee Pension Plan or that the PBGC has
instituted or will institute proceedings under Title IV of ERISA to terminate
any Employee Pension Plan or to appoint a trustee to administer any Employee
Pension Plan, a statement setting forth the details as to such Withdrawal
Liability, Reorganization, Reportable Event, termination or appointment
proceedings and the action which it (or the Multiemployer Plan sponsor or
Employee Pension Plan sponsor other than the Borrower) proposes to take with
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respect thereto, together with a copy of any notice of Withdrawal Liability or
Reorganization given to any of the Borrowers or any Controlled Group Member and
a copy of the notice of such Reportable Event given to PBGC if a copy of such
notice is available to any of the Borrowers or any of its Controlled Group
Members; and (ii) promptly after receipt thereof, a copy of any notice to any of
the Borrowers or any of its Controlled Group Members or the sponsor of any
Employee Pension Plan received from PBGC or the Internal Revenue Service which
sets forth or proposes any action or determination with respect to such Employee
Pension Plan.
(b) Each of the Borrowers will also notify Lenders of
(i) any excise taxes which have been assessed or which any of the Borrowers or
any of its Controlled Group Members have reason to believe may be assessed
against any of the Borrowers or any of its Controlled Group Members by the
Internal Revenue Service with respect to any Employee Pension Plan or
Multiemployer Plan or (ii) any revocation of qualification under Code ss.401
which has occurred or which any of the Borrowers or any of its Controlled Group
Members have reason to believe may occur with respect to any Employee Pension
Plan or Multiemployer Plan, which in the case of either of clauses (i) or (ii)
of this Section 5.3(b), either singly or in the aggregate, could reasonably be
expected to result in liability to any of the Borrowers in excess of One Hundred
Thousand Dollars ($100,000).
5.4 Notices. The Borrowers will give notice in writing to the
Agent as soon as possible, but in any event within five (5) days, after the
occurrence of any of the following:
(a) any Event of Default or Default;
(b) any event of default or similar occurrence under
any instrument or other agreement of any of the Borrowers or any Subsidiary
entitling any Person to accelerate the maturity of any obligation of any of the
Borrowers or any Subsidiary or to exercise any other remedy against any of the
Borrowers or such Subsidiary, which could reasonably be expected to result in
the occurrence of an Event of Default or have a Material Adverse Effect;
(c) any strike, lock-out, boycott or any other
material labor trouble, which could reasonably be expected to have a Material
Adverse Effect;
(d) the commencement of any litigation, proceeding or
dispute affecting any of the Borrowers or any Subsidiary, or any dispute between
any of the Borrowers or any Subsidiary, and any Person, if such litigation,
proceeding or dispute could reasonably be expected to materially interfere with
the normal business operations of any of the Borrowers or any Subsidiary, or, if
resolved other than in the favor of the Borrowers or any Subsidiary, such
litigation, proceeding or dispute could reasonably be expected to have a
Material Adverse Effect;
(e) any event, circumstance, or occurrence which
could reasonably be expected to have a Material Adverse Effect; or
(f) any change in the Chief Executive Officer or the
Chief Financial Officer of CSC.
5.5 Environmental Matters; Compliance with Laws.
(a) The Borrowers shall:
(i) immediately notify the Lenders (and any
other person that any Borrower or any Subsidiary is required to notify
pursuant to any applicable laws) once any of the Borrowers or
Subsidiary is aware of a Release or threatened Release of Hazardous
Substances on or from any of the Premises owned or used by any of the
Borrowers or any Subsidiary which might cause Contamination;
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(ii) immediately notify the Lenders once any
of them become aware that an environmental investigation or clean-up
proceeding is instituted by any Person in connection with any such
Premises;
(iii) to the extent required by applicable
law, comply with and assist any such environmental investigation and
clean-up proceeding;
(iv) promptly execute and complete any
Remedial Actions necessary to ensure that such Premises are in
compliance, in all material respects, with all applicable laws and
free from Contamination, and to ensure that no environmental liens or
encumbrances are levied against or exist with respect to such
Premises, and provide the Lenders with a certification from each
agency having jurisdiction with respect thereto that such Remedial
Actions have been completed to all such agencies' satisfaction;
(v) immediately notify the Lenders of any
citation, notification, complaint, or violation which any of the
Borrowers or any Subsidiary receives from any Person which relates to
or pertains to the making, storing, handling, treating, disposing,
generating, transporting or Release of any Hazardous Substances and
which, either singly or in the aggregate, could reasonably be expected
to (A) result in liability to any of the Borrowers in excess of One
Hundred Thousand Dollars ($100,000) or (B) have a Material Adverse
Effect; and
(vi) comply, and cause all properties,
assets, and operations owned or used by any of the Borrowers or any
Subsidiary to comply, in all material respects, with all applicable
federal, state, local and other environmental, zoning, occupational
safety, health, employment, discrimination, labor and other laws and
regulations.
(b) If the Borrowers shall fail to fully execute and
complete any requisite Remedial Action, the Lenders may, but shall not be
obligated to, make Advances toward performance or satisfaction of such Remedial
Actions.
(c) If the Agent or any Lender acquires equitable or
legal title to any of the Premises hereunder or under the Loan Documents, the
Agent and the Lenders do not accept and shall not bear (nor shall any assignee
or transferee of the Agent or any Lender accept or bear) any responsibility for
any Hazardous Substances in or about the Premises or for the actual or
threatened Release thereof from the Premises. No provisions of the Loan
Documents shall be interpreted to absolve or release the Borrowers or any
Subsidiary from any liability or responsibility which they may have to any
Person, under any local, state or federal statute or regulation, for Remedial
Actions with respect to any such Hazardous Substances or for the actual or
threatened Release of any such Hazardous Substances.
(d) The Borrowers shall defend, indemnify the Agent
and Lenders, and hold the Agent and Lenders harmless from and against all loss,
liability, damage, cost, and expense, including without limitation, reasonable
attorneys' fees, fines, or other civil and criminal penalties or payments, for
failure of the Premises, or any other operations, assets or property owned or
used by the Borrowers or their Subsidiaries to comply in all respects with all
environmental and other laws, caused, in whole or in part, regardless of fault,
by the Borrowers, by any Subsidiary, or by any past, present or future owner,
occupier, tenant, subtenant, licensee, guest or other person (except the Agent
or any Lender). The provisions of this Section 5.5(d) shall survive repayment of
the Obligations, termination of the Revolving Credit Facility, and foreclosure
on and sale of such properties hereunder or otherwise. The Borrowers shall
remain liable hereunder regardless of any other provisions hereof which may
limit the Borrowers' liability.
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(e) All sums advanced or paid by the Agent or the
Lenders under this Section 5.5, including sums so advanced or paid in connection
with any judicial or administrative investigation or proceeding relating
thereto, and including, without limitation, reasonable attorneys' fees, fines,
or other penalties or payments, and all of the Borrowers' obligations to defend,
indemnify and hold harmless the Agent and the Lenders, shall be deemed to be
Advances under the Revolving Credit Facility and shall be at once repayable. The
Borrowers' obligations with respect thereto shall be evidenced by the Revolving
Credit Note, and shall bear interest at the Default Rate.
5.6 Corporate Existence; Properties. The Borrowers will notify
the Agent and the Lenders prior to any change of name of any of the Borrowers or
any Subsidiary (provided that at least thirty (30) days' advance notice shall be
required if the name change involves any of the Secured Borrowers) and will
maintain, and cause each Subsidiary to maintain:
(a) their corporate existence and their qualification
to do business and good standing in each jurisdiction where the failure to be so
qualified or in good standing could reasonably be expected to materially and
adversely affect the business, operations, or financial condition of any of the
Borrowers;
(b) all licenses, permits and other authorizations
necessary for the ownership and operation of their properties and businesses;
and
(c) their assets and properties (including all of the
Collateral) in good repair, working order and condition and make all necessary
or appropriate repairs, renewals, replacements and substitutions, so that the
value and efficiency of all such assets and properties shall at all times be
properly preserved and maintained.
5.7 Insurance.
(a) The Borrowers and each Subsidiary shall carry at
all times, in coverage, form and amount reasonably satisfactory to the Agent,
hazard insurance (with fire, extended and vandalism and malicious mischief
coverage and coverage against such other hazards as are customarily insured
against by companies in the same or similar business), commercial general
liability insurance, worker's compensation insurance, comprehensive automobile
liability insurance, and such other insurance as the Agent or the Required
Lenders may from time to time reasonably require, and pay all premiums on the
policies for such insurance when and as they become due and do all other things
necessary to maintain such policies in full force and effect. The Borrowers
shall from time to time, upon request by the Agent or any Lender, promptly
furnish or cause to be furnished to the Agent or such Lender evidence, in form
and substance satisfactory to the Agent, of the maintenance of all insurance
required to be maintained by this Section 5.7 including, but not limited to,
such originals or copies, as the Agent or such Lender may request, of policies,
certificates of insurance, riders and endorsements relating to such insurance
and proof of premium payments.
(b) The Secured Borrowers shall cause all hazard
insurance policies and any policies insuring the inventory and equipment covered
by the Security Agreement to provide, and the insurers issuing such policies to
certify to the Agent, that:
(i) the interest of the Agent shall be
insured regardless of any breach or violation by the Secured Borrowers
or the holder or owner of the policies of any warranties, declarations
or conditions contained in such policies;
(ii) if such insurance be proposed to be
cancelled or materially changed for any reason whatsoever, such
insurer will promptly notify the Agent and such cancellation or change
shall not be effective,
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as to the Agent, until thirty (30) days after Agent's receipt of such
notice, unless the effect of such change is to extend or increase
coverage under the policy;
(iii) the Agent will have the right, at its
election, to remedy any default in the payment of premiums within
thirty (30) days of notice from the insurer of such default; and
(iv) loss payments in each instance will be
payable to the Agent as lender loss payee.
5.8 Books and Records. The Borrowers will maintain, and will
cause each Subsidiary to maintain, accurate and complete records and books of
account with respect to all of their operations in accordance with GAAP, and
will permit, and will cause each Subsidiary to permit, officers or
representatives of the Agent and the Lenders to examine and make excerpts from
such books and records and to visit and inspect their properties, both real and
personal (including, without limitation, the Collateral), at all reasonable
times.
5.9 Adjusted Current Ratio. The Borrowers and their
Subsidiaries will maintain, on a consolidated basis, an Adjusted Current Ratio
of not less than 1.00:1.00 as at the close of each fiscal quarter.
5.10 Funded Debt To Total Capitalization. The Borrowers and
their Subsidiaries will maintain, on a consolidated basis, a ratio of Funded
Debt to Total Capitalization of not greater than .65:1.00 as at the close of
each fiscal quarter.
5.11 Minimum Cash and Investments. The Borrowers and their
Subsidiaries will maintain, on a consolidated basis, cash and Investments of the
type described in Sections 6.3(b) and 6.3(c) of not less than Ten Million
Dollars ($10,000,000) in the aggregate at all times.
5.12 Tangible Net Worth. The Borrowers and their Subsidiaries
will maintain, on a consolidated basis, Tangible Net Worth of not less than the
Minimum Tangible Net Worth Amount.
5.13 Group Health Plans. The Borrowers will comply, and cause
each Subsidiary to comply, in all material respects with the group health plan
COBRA Continuation Coverage requirements of Code ss.4980B(f) and with all
provisions of ss.1862(b)(1) of the Social Security Act. The Borrowers will
furnish to Lenders, as soon as possible and in any event within thirty (30) days
after any of the Borrowers knows or has reason to know, notice that the
Borrowers or any Subsidiary is not in compliance with any provision of Code
ss.4980B(f) or ss.1862(b)(1) of the Social Security Act.
5.14 Lender's Lien. The Secured Borrowers grant to each
Lender, as additional collateral security for the prompt payment and
satisfaction of the Obligations, a lien upon and security interest in any and
all deposit and other accounts of the Secured Borrowers with the Lenders and any
other debts or obligations that the Lenders may owe to the Borrowers from time
to time.
5.15 Joinder by Future Subsidiaries. The Borrowers jointly and
severally covenant and agree to cause any Subsidiary of any Borrower (other than
the Excluded Subsidiaries) to execute and deliver a joinder or similar document
(a "Joinder"), in the form of Exhibit "C" attached hereto, pursuant to which
such Subsidiary shall (i) join in and become a party (as a Borrower) to this
Agreement and the other Loan Documents for the purpose of making the
representations, warranties, covenants, and agreements of the Borrowers
hereunder and thereunder as if it were an original party hereto and thereto, and
(ii) join in and become a party (as a Secured Borrower) to the Security
Agreement, pursuant to which such Subsidiary shall, as security for Obligations,
grant to the Agent a perfected security interest in the types of Collateral
covered thereby in accordance with the lien priority provisions
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thereof. In connection with the provisions of this Section 5.15, the Borrowers
shall cause each such Subsidiary which is required to execute and deliver a
Joinder to execute and deliver any and all additional agreements, documents, and
instruments (including, without limitation, a separate joinder to the Security
Agreement and UCC-1 financing statements) which the Lender may reasonably
request in order to effectuate the intent and purposes of this Section 5.15.
5.16 Cross-Guaranty by Borrowers. Without limiting the effect
of the Borrowers' joint and several responsibility for the repayment and
satisfaction of the Obligations, each of the Borrowers also hereby jointly and
severally unconditionally guarantees and becomes surety for the prompt payment
of all principal, interest, and other sums due and owing with respect to or in
connection with the Obligations, when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise, and the due and
punctual performance of all duties, obligations, and liabilities of each
Borrower Loan Documents. Each of the Borrowers covenants and agrees that its
duties and obligations under this Section 5.16 shall be absolute and
unconditional, irrespective of, and shall be unaffected by, any invalidity ,
irregularity, or unenforceability of any provision of any Loan Document.
5.17 Satisfactory Management. The Borrowers acknowledge that
the Lender is relying upon the abilities of the Borrowers' senior executive
management as a material inducement for the Lender to enter into this Agreement.
Therefore, the Borrowers shall not cause or permit either of George G. Meyer or
Albert T. Sabol to cease to be active in the Borrowers' senior executive
management for any reason.
5.18 Location of Business. The Borrowers will provide thirty
(30) days' advance written notice to the Agent and the Lenders of any change in
the location of any place of business of any of the Secured Borrowers, whether
the establishment of a new place of business or the discontinuance of a present
place of business.
5.19 Location of Collateral. All of the Collateral will at all
times be situated at the locations identified in Schedule 3.20, and the
Borrowers will provide the Agent and the Lenders with at least thirty (30) days'
advance written notice prior to any change in such locations, except for (i) the
temporary movement of equipment of the Secured Borrowers in the ordinary course
of their business in connection with the repair and maintenance thereof so long
as (A) no Event of Default has occurred and (B) the aggregate fair market value
of any such equipment which is not situated at the locations identified in
Schedule 3.20 by reason of the foregoing does not, at any time, exceed One
Hundred Thousand Dollars ($100,000), (ii) the temporary movement of inventory of
the Secured Borrowers which is necessary for the storage of excess inventory in
the ordinary course of their business so long as (A) concurrent written notice
is provided to the Agent, except in cases involving the movement of inventory
which, either individually or in the aggregate, has a value in excess of Five
Hundred Thousand Dollars ($500,000), in which latter event at least three (3)
Business Days' advance written notice thereof shall be required, and (B) no
Event of Default has occurred, and (iii) establishment by the Secured Borrowers
of new locations of Collateral in which case notice thereof shall be required
concurrently therewith.
5.20 Landlord's Waivers. The Borrowers shall use their best
efforts to cause all landlords, warehousemen, and operators of facilities at
which any of the Collateral is located to execute and deliver a waiver to the
Agent, pursuant to which such Person subordinates and waives, in favor of the
Agent, any and all right such Person may at any time have or acquire in and to
the Collateral, which waiver shall be satisfactory, in form and substance, to
the Agent.
5.21 The Federal Assignment of Claims Act. The Borrower shall
notify the Lender if any accounts receivable of the Secured Borrowers in excess
of One Hundred Thousand Dollars ($100,000) arise out of contracts with the
United States of America, or any department, agency or instrumentality
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thereof (collectively, the "Government Receivables"), and shall execute any and
all documents or instruments and shall take any and all steps or actions
required by the Agent or any Lender so that all monies due or to become due
under such contract will be assigned to the Agent in accordance with the
Security Agreement and notice given thereof to the United States in accordance
with the requirements of the Federal Assignment of Claims Act, as amended.
Notwithstanding the foregoing, upon and after the occurrence of any Event of
Default, the Borrowers shall notify the Agent of all Government Receivables
regardless of the amount thereof in addition to complying with the other
provisions of this Section 5.21.
SECTION 6. NEGATIVE COVENANTS.
The Borrowers covenant and agree that from and after the
Closing Date and so long as any of the Obligations remain outstanding and
unpaid, in whole or in part, or the Revolving Credit Facility remains available,
the Borrowers will observe the following covenants unless the Required Lenders
shall otherwise consent in writing:
6.1 Debt. The Borrowers will not, nor will they permit any
Subsidiary (other than Spraysafe) to, create, incur, assume or suffer or permit
to exist any Debt, including indebtedness for borrowed money or any indebtedness
constituting the deferred portion of the purchase price of any property, except:
(a) the Obligations;
(b) Debt to suppliers and other trade creditors
incurred in the ordinary course of business by a Borrower or any Subsidiary;
(c) Debt constituting the deferred purchase price of
equipment purchased or acquired as permitted by Section 6.2(b) so long as no
Default or Event of Default has occurred or would be caused by the incurrence
thereof;
(d) Debt in existence on the Closing Date and
described on Schedule 6.1(d), and so long as no Default or Event of Default has
occurred or be caused thereby, any renewals, extensions, or refinancings
thereof, provided that, (i) advance written notice thereon is furnished to the
Agent, and (ii) the unpaid principal balance thereof is not increased in
connection with any such renewal, extension, or refinancing and any such
renewal, extension or refinancing;
(e) so long as no Default or Event of Default has
occurred or would be caused thereby, (i) Inter-Company Debt in existence as of
the Closing Date (and described on Schedule 6.1(e)) and subject to the terms,
conditions, and restrictions of the Subordination Agreement, and (ii)
InterCompany Debt incurred after the Closing Date so long as the parties
involved in connection with the transaction whereby such Inter-Company Debt is
issued shall execute and deliver a joinder to the Subordination Agreement (in
form and substance satisfactory to the Agent), pursuant to which such
Inter-Company Debt shall be subject to the terms, conditions, and restrictions
of the Subordination Agreement;
(f) Subordinated Debt so long as no Default or Event
of Default has occurred or would be caused the incurrence thereof;
(g) Debt in the form of unsecured revolving lines of
credit under which (i) trade letters of credit and bankers' acceptance may be
issued, and (ii) the maximum credit availability thereunder does not exceed Ten
Million Dollars ($10,000,000) in the aggregate; and
(h) in the event that the Brown Brothers Loan is
repaid in full after the Closing Date, and so long as no Default or Event of
Default has occurred or would be caused by the incurrence thereof, term Debt in
a
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principal amount of up to Seven Million Five Hundred Thousand Dollars
($7,500,000) incurred by CPVC to repay or replace the Brown Brothers Loan (the
"Brown Brothers Replacement Loan"); provided, however, CPVC and the other
Borrowers shall have first provided the Lenders with a reasonable opportunity to
provide the Brown Brothers Replacement Loan through a term loan facility to be
made available to the Borrowers pursuant to a modification hereto and on terms
and conditions which are mutually satisfactory to the Lenders, the Agent, and
the Borrowers.
6.2 Liens. The Borrowers (other than Spraysafe and its
Subsidiaries) will not, nor will they permit any Subsidiary to, create, assume,
or suffer to exist, any Lien of any kind upon any of its assets (real or
personal, tangible or intangible), whether now owned or hereafter acquired,
except:
(a) the liens and security interests created or
permitted by the Security Documents;
(b) purchase money Liens on and security interests in
equipment acquired after the Closing Date securing Debt incurred in the ordinary
course of business in an aggregate amount which does not exceed Five Million
Dollars ($5,000,000) at any one time outstanding, provided that such Liens and
security interests attach only to the equipment so acquired and do not encumber
any other property of any Borrower or any Subsidiary;
(c) those Liens in existence on the Closing Date and
described in Schedule 6.2(c);
(d) (i) cash collateral provided by CPVC to Brown
Brothers as security for the Brown Brothers Loan, as contemplated by Section
2.1(e)(ii)(2), and (ii) Liens identical to the Brown Brothers Liens and Liens
encumbering any other assets of CPVC, as security for the Brown Brothers
Replacement Loan;
(e) Liens for taxes not yet payable or being
contested in good faith by appropriate proceedings and for which adequate
reserves have been provided on the books of the Borrowers or a Subsidiary;
(f) mechanics', materialmen's, warehousemen's,
carriers' or other like Liens arising in the ordinary course of business of the
Borrowers or any Subsidiary, arising with respect to obligations which are not
overdue for a period longer than thirty (30) days or which are being contested
in good faith by appropriate proceedings, and for which adequate reserves have
been provided on the books of the Borrowers or a Subsidiary;
(g) deposits or pledges to secure the performance of
bids, tenders, contracts, leases, public or statutory obligations, surety or
appeal bonds or other deposits or pledges for purposes of a like general nature
or given in the ordinary course of business by the Borrowers or any Subsidiary;
(h) other encumbrances consisting of zoning
restrictions, easements, restrictions on the use of real property or minor
irregularities in the title thereto, which do not arise in connection with the
borrowing of, or any obligation for the payment of, money and which, in the
aggregate, do not materially detract from the value of the business, properties
or assets of the Borrowers or any Subsidiary; and
(i) judgment and other similar Liens arising in
connection with court proceedings, provided the execution or other enforcement
of such Lien is effectively stayed and the claims secured thereby are being
actively contested in good faith and by appropriate proceedings promptly
initiated and diligently conducted and adequate reserves have been established
with respect thereto and which do not adversely affect the priority of the
Agent's security interest in any of the Collateral.
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6.3 Investments and Advances. The Borrowers will not, nor will
they permit any Subsidiary (other than Spraysafe) to, make or suffer to exist
any Investment (by way of transfer of property, contribution to capital,
purchase of stock, securities, partnership or other ownership interests or
evidence of indebtedness, acquisition of the business or assets or otherwise)
in, or make or suffer to exist any advances or loans to, any Person (including a
Borrower or any Subsidiary), except that:
(a) the Borrowers and the Subsidiaries (other than
CSC Finance Company and CSC Investment Company) may extend trade credit under
usual and customary arm's length terms in the ordinary course of business;
(b) the Borrowers and the Subsidiaries may purchase
and own marketable direct obligations of the United States of America or any
agency thereof, marketable obligations directly and fully guaranteed by the
United States of America and certificates of deposit issued by the Lenders or by
any other bank with a shareholders' equity of at least $50,000,000 organized
under the laws of the United States of America or any state thereof, provided
that such obligations and certificates of deposit have a maturity of two (2)
years or less;
(c) the Borrowers and the Subsidiaries may purchase
and own any marketable security that is rated (i) BBB or better by Standard &
Poor's, a Division of McGraw Hill Companies, or (ii) bbb or better by Moody's
Investors Service;
(d) the Borrowers may incur Inter-Company Debt on the
terms and subject to the conditions of Section 6.1(e);
(e) capital contributions may be made by any
Subsidiary to a Borrower;
(f) capital contributions may be made by a Borrower
to a Subsidiary in accordance with the provisions of Schedule 6.3(f) so long as
no Default or Event of Default has occurred or would be caused thereby; and
(g) The Borrowers and their Subsidiaries may dispose
of assets to the extent permitted pursuant to the provisions of Section 6.5.
6.4 Mergers, Consolidations. The Borrowers will not, nor will
they permit any Subsidiary to, enter into any transaction of merger or
consolidation, except that:
(a) any Subsidiary may be merged into any of the
Borrowers if the Borrower or any Co-Borrower, as appropriate, shall be the
surviving corporation; and
(b) any Subsidiary which is not one of the Borrowers
may be merged into or consolidated with any other Subsidiary which is not one of
the Borrowers;
provided that at least ten (10) days' advance written notice of such transaction
is provided to the Agent and the Lenders (together with copies of all
documentation relating thereto) and, after giving effect thereto, the Borrowers
and the Subsidiaries shall be in compliance with all the terms of this Agreement
and no Default or Event of Default hereunder shall have occurred and be
continuing.
6.5 Disposition of Assets. The Borrowers will not, nor will
they permit any Subsidiary to, liquidate or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, pledge, or otherwise
transfer or dispose of all or substantially all of its properties, assets or
business except that (i) any Subsidiary may be liquidated or dissolved in
connection with a merger or consolidation permitted by Section 6.4, and
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(ii) the Borrowers and their Subsidiaries may sell inventory in the ordinary
course of their respective business.
6.6 Disposition of Accounts. The Borrowers will not, nor will
they permit any Subsidiary to, sell, discount or otherwise dispose of its notes,
accounts, chattel paper, documents, general intangibles or instruments except to
or with the Agent or the Lenders hereunder.
6.7 Guaranty Obligations; Letters of Credit/Bankers'
Acceptances.
(a) Except as set disclosed in the annual report of
the Borrowers for the fiscal year ended October 31, 1996, in the quarterly
financial statements of the Borrowers for the fiscal quarter ended July 31, 1997
on Form 10-Q filed with the Securities Exchange Commission, and on Schedule
6.7(a), the Borrowers will not, nor will they permit any Subsidiary to, become
or remain liable, directly or indirectly, in connection with any Guaranty
Obligations, letters of credit, bankers' acceptances, or similar obligations,
except for trade letters of credit and bankers' acceptances issued after the
Closing Date for the account of any Borrower or Subsidiary in the ordinary
course of their business under the Permitted Debt described in Section 6.1(g).
(b) Except for those liabilities of the type set
forth in the consolidating balance sheets of the Borrower and their Subsidiaries
for the fiscal quarter ending July 31, 1997, the Borrowers will not permit CSC
Finance Company or CSC Investment Company to create, incur, assume, or suffer or
permit to exist any liability (fixed or contingent).
6.8 Sales and Lease-Backs. The Borrowers will not, nor will
they permit any Subsidiary to, enter into any arrangement, directly or
indirectly, with any Person, whereby the Borrowers or any Subsidiary shall sell
or transfer any property, real or personal, whether now owned or hereafter
acquired, and thereafter rent or lease such property or other property which the
Borrowers or such Subsidiary intends to use for substantially the same purpose
or purposes as the property being sold or transferred.
6.9 Continuance of Business. The Borrowers will not, nor will
they permit any Subsidiary to, engage in any line of business other than those
in which the Borrowers or any such Subsidiary is actively engaged on the Closing
Date and in the manufacture and distribution of products involving or relating
to fire protection.
6.10 Transactions with Affiliates. Except as expressly
permitted by this Agreement, the Borrowers will not, nor will they permit any
Subsidiary to, directly or indirectly:
(a) make any investment in, or loan or advance to, an
Affiliate;
(b) transfer, sell, lease, assign or otherwise
dispose of any assets to an Affiliate;
(c) merge into or consolidate with or purchase or
acquire assets from an Affiliate; or
(d) enter into any other transaction directly or
indirectly with or for the benefit of any Affiliate (including, without
limitation, any guarantees or assumptions of obligations of an Affiliate);
provided that (i) Borrowers and any Subsidiary may enter into any transaction
with an Affiliate for the leasing of property, the rendering or receipt of
services or the purchase or sale of assets in the ordinary course of business
for a consideration which is substantially as advantageous to Borrowers or
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such Subsidiary as the consideration which it would obtain in a comparable arm's
length transaction with a Person not an Affiliate, and (ii) royalty payments due
and owing under the trademark license agreement between Central Sprinkler and
CSC Finance Company referred on Schedule 3.7 are permitted.
6.11 Handling of Hazardous Substances. The Borrowers will not
permit, nor will they permit any Subsidiary to, use in its business or
operations, or produce as a result or as a by-product of its business or
operations, or store or hold at any site or location at which it conducts its
business or operations, or at any other property, any Hazardous Substance unless
the Borrower or Subsidiary strictly and fully complies with all requirements of
any applicable law, regulation, decision or edict relating to the special
handling, collection, storage, treatment, disposal, or transportation of such
Hazardous Substance. The Borrowers will not, nor will they permit any Subsidiary
to, permit the Release or threatened Release of any Hazardous Substance on or
from their respective properties which might cause Contamination.
6.12 Use of Proceeds. The Borrowers will not, nor will they
permit any Subsidiary to, directly or indirectly, apply any part of the proceeds
of the Advances to the purchasing or carrying of any "margin stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System,
or any regulations, interpretations or rulings thereunder.
6.13 Removal and Protection of Collateral. Except as otherwise
permitted under Section 5.19, the Borrowers will not, nor will they permit any
Subsidiary to, remove (other than in the ordinary course of business as
permitted hereunder) any of the Collateral from the place of business where
presently located, nor permit the value of any Collateral to be impaired or any
equipment of the Secured Borrowers to become a fixture or an accession to other
goods.
SECTION 7. EVENTS OF DEFAULT, REMEDIES.
7.1 Events of Default. The following shall constitute Events
of Default:
(a) Non-Payment. (i) Failure by the Borrowers to pay
the principal of or accrued interest on the Revolving Credit Note or any other
instrument evidencing any Obligation within one (1) day following written notice
from the Agent or any Lender (provided that such notice shall only be required
if payments of principal and interest are being automatically charged to the
Borrowers' deposit account(s) maintained with the Agent), or (ii) the failure of
the Borrowers or any Subsidiary to pay any other amount payable to Agent or the
Lenders, whether under this Agreement or otherwise, within three (3) days after
written notice from the Agent or any Lender.
(b) Falsity of Representations and Warranties. Any
representation or warranty made by the Borrowers in this Agreement or in any
other Loan Document or in any certificate, financial or other written statement
furnished at any time under or in connection with this Agreement or any other
Loan Document shall be false or misleading in any material respect on the date
when made or deemed so made on the date when made.
(c) Failure to Perform Certain Covenants. Failure by
the Borrowers to observe or perform any other covenants, conditions or
provisions contained in this Agreement or in any other Loan Document, provided
that, except with respect to a violation of any of the Financial Covenants or
Section 6, such failure shall continue for a period of fifteen (15) days after
the earlier of (i) written notice thereof from the Agent to the Borrowers, or
(ii) the date on which an executive officer of any of the Borrowers knew, or
should have known, of such failure or if such failure could not be cured by the
Borrowers due to circumstances beyond the Borrowers' control within such fifteen
(15) day period, such longer period necessary for the Borrowers to cure such
failure (in no event to exceed a total of thirty (30) days from the
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earlier of the dates referred to in the foregoing clauses (i) or (ii)) so long
as the Borrowers are diligently and in good faith taking all necessary steps to
cure such failure.
(d) Default Under Other Obligations. The Borrowers or
any Subsidiary:
(i) defaults in any payment of principal of
or interest on any Funded Debt; or
(ii) defaults in the performance of any
other agreement, term or condition contained in any other obligation or
in any agreement relating thereto involving, either singly or in the
aggregate, an amount or having a value in excess of One Million Dollars
($1,000,000),
if the effect, with respect to either of clauses (i) or (ii), of such default is
to cause, or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to then cause, such obligation to become due
prior to its stated maturity.
(e) Voluntary Bankruptcy, Etc. The commencement by
any of the Borrowers or any Subsidiary of a voluntary case under the Bankruptcy
Code, as now constituted or hereafter amended, or any other applicable federal
or state bankruptcy, insolvency, reorganization, rehabilitation or other similar
law, or the consent by it to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of any of the Borrowers or any Subsidiary or for any
substantial part of its property, or the making by it of any assignment for the
benefit of creditors, or the failure of any of the Borrowers or any Subsidiary
generally to pay its debts as such debts become due, or the taking of corporate
action by any of the Borrowers or any Subsidiary in furtherance of any of the
foregoing.
(f) Involuntary Bankruptcy, Etc. The entry of a
decree or order for relief by a court having jurisdiction in the premises in
respect of any of the Borrowers or any Subsidiary in an involuntary case under
the Bankruptcy Code, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of any of the Borrowers or any Subsidiary or for any substantial part
of its property, or ordering the winding-up or liquidation of its affairs and
the continuance of any such decree or order unstayed and in effect for a period
of thirty (30) days.
(g) ERISA.
(i) (A)(1) Any Employee Pension Plan is
terminated within the meaning of Title IV of ERISA, or (2) a trustee is
appointed by the appropriate United States District Court to administer
any Employee Pension Plan, or (3) the PBGC institutes proceedings to
terminate any Employee Pension Plan, or (4) any Reportable Event occurs
which the Required Lenders determine in good faith indicates a
substantial likelihood that an event described in (1), (2), or (3)
above will occur, or (5) any Borrower or any of its Controlled Group
Members incur any Withdrawal Liability with respect to any
Multiemployer Plan or (6) any Multiemployer Plan enters Reorganization,
and (B) with respect to events described in (1)-(5) above, only, the
benefit commitments (within the meaning of ERISA ss.4001(a)(16)),
exceed the market value of the assets in the fund under the Employee
Pension Plan by, five percent (5%) or more of the Borrowers' or its
Controlled Group Members' tangible net worth;
(ii) there occurs any Accumulated Funding
Deficiency with respect to any Employee Pension Plan and the Borrowers
or any of
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its Controlled Group Members fails to correct such Accumulated Funding
Deficiency prior to the end of the taxable period within the meaning of
Code ss.4971(c)(3); or
(iii) any Employee Pension Plan loses its
tax-qualified status; provided that, in the case of clauses (i), (ii),
and/or (iii) of this Section 7.1(g), no Event of Default shall be
deemed to have occurred under this Section 7.1(g) unless the Borrowers
have incurred or could reasonably be expected to incur liability
involving an amount which exceeds One Hundred Thousand Dollars
($100,000) in the aggregate.
(h) Default Under Other Documents. An "Event of
Default" or similar event shall have occurred and be continuing under any other
Loan Document.
(i) Material Adverse Change. The Lenders in good
faith believe that the prospect of timely repayment of the Obligations to be
materially impaired by reason of any event, condition, fact, law change, or
circumstance which could reasonably be expected to have a Material Adverse
Effect.
(j) Unenforceability. (i) Any material provision of
any of the Loan Documents shall at any time for any reason cease to be a valid
and binding obligation of any of the Borrowers, or shall be declared to be null
and void and, in either such event, of the Borrowers cannot or will not enter
into substantially identical documents which in the judgment of the Agent will
constitute binding obligations of the Borrowers, or (ii) the validity or
enforceability thereof shall be contested by any of the Borrowers or any
governmental agency or authority, or any of the Borrowers shall deny that it has
any further liability or obligation under any Loan Document to which it is a
party.
(k) Security Interests. Any Security Document shall,
for any reason, fail or cease to create a valid and perfected and, except to the
extent permitted by the terms hereof or thereof, a first-priority Lien on or
security interest in any of the Collateral purported to be covered thereby.
(l) Judgments. A final judgment or judgments in
excess of Five Hundred Thousand Dollars ($500,000) (other than judgments, the
Borrowers' liability with respect to which has been acknowledged in writing by
the Borrowers' insurance company as being unconditionally covered by insurance),
either singly or in the aggregate, for the payment of money shall be rendered by
a court of record against any of the Borrowers and the Borrowers shall not
discharge such judgment or provide its discharge in accordance with its terms,
or procure a stay of execution thereof, within thirty (30) days from the date of
the entry of the judgment and within such period of thirty (30) days, the
execution of such judgment shall have been stayed, appeal therefrom shall have
been made by the Borrowers and the execution thereof shall have been stayed
during such appeal period.
(m) Change in Executive Officers. Without limiting
the generality of Section 5.17, the Agent shall have the right to declare an
Event of Default under this Section 7.1(m) in the event that (i) George G. Meyer
is no longer the Chief Executive Officer of CSC, or (ii) Albert T. Sabol is no
longer the Chief Financial Officer of CSC.
(n) Reserves; Loss Contingencies. The Borrowers are
required, at any time, to accrue, reflect, or reserve, as a liability, expense,
and/or charge on their financial statements, an amount in excess of Five Million
Dollars ($5,000,000), whether individually or in the aggregate, as a result of
any event, circumstance, occurrence, or Loss Contingency (including, without
limitation, litigation involving any of the Borrowers), whether such event,
circumstance, occurrence, or Loss Contingency existed or arose prior to or after
the Closing Date.
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7.2 Acceleration.
(a) Upon the occurrence of an Event of Default
specified in Sections 7.1(a) through 7.1(d), and 7.1(g) through 7.1(n), the
Agent shall, upon the request and direction of the Required Lenders, by written
notice to Borrowers, terminate immediately and irrevocably the Revolving Credit
Facility, the Revolving Credit Commitment, and any other obligation of the
Lenders to make any Advances to or for the account of the Borrowers or any of
their Affiliates, and declare the Revolving Credit Note, and all other
instruments evidencing the Obligations to be due and payable, whereupon the
principal amount of the Revolving Credit Note and all outstanding Obligations,
together with accrued interest thereon and all other amounts payable thereunder,
shall become immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the documents evidencing the same to the contrary
notwithstanding.
(b) Upon the occurrence of an Event of Default
specified in Sections 7.1(e) or 7.1(f), the Revolving Credit Facility and the
Revolving Credit Commitment, and any other obligation of the Lenders to make any
advances to or for the account of the Borrowers or any of their Affiliates,
shall automatically and immediately terminate and the unpaid principal balances
of, all accrued, unpaid interest on, and all other sums payable with regard to,
the Revolving Credit Note and all instruments evidencing the Obligations shall
automatically and immediately become due and payable, in all cases without any
action on the part of the Lenders.
7.3 Exercise of Rights and Remedies by Agent. Subject in all
respects to the provisions of Section 8, the Agent shall take such action with
respect to any Default or Event of Default as shall be reasonably directed in
writing by the Required Lenders provided that, unless and until the Agent shall
have received such directions, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall reasonably deem advisable in the best
interest of the Lenders.
7.4 Right of Setoff. Upon the occurrence of a Default or an
Event of Default, the Lenders shall have the right, in addition to all other
rights and remedies available to them, to set off against the unpaid balance of
the Obligations, any debt owing to the Borrowers by the Lenders and any funds in
any deposit account maintained by the Borrowers with the Lenders.
7.5 No Marshalling, Etc., Required. If an Event of Default
shall have occurred and be continuing, neither the Agent nor the Lenders shall
be required to marshal any present or future security for, or guarantees of, the
Obligations or to resort to any such security or guarantee in any particular
order and the Borrowers waive, to the fullest extent that they lawfully can, (a)
any right they might have to require the Lenders to pursue any particular remedy
before proceeding against them, and (b) any right to the benefit of, or to
direct the application of the proceeds of any of the Collateral until the
Obligations have been paid in full.
7.6 Remedies Cumulative. The Agent and the Lenders may
exercise any of their rights and remedies set forth in this Agreement and the
other Loan Documents. The remedies of the Agent and the Lenders shall be
cumulative and concurrent, and may be pursued singly, successively, or together,
at their sole discretion, and may be exercised as often as the occasion
therefore shall occur; and the failure to exercise any such right or remedy
shall in no event be construed as a waiver or release thereof.
7.7 Allocation of Payments After Event of Default.
Notwithstanding any other provision of this Agreement, after the occurrence and
during the continuance of an Event of Default, all amounts collected or received
by the Agent or any Lender on account of amounts outstanding under any of the
Loan Documents shall be paid over or delivered as follows:
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FIRST, to the payment of all out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) of
the Agent in connection with enforcing the rights of the Agent and the
Lenders under the Loan Documents and any protective advances made by
the Agent with respect to the Collateral under or pursuant to the
Security Documents or this Agreement;
SECOND, to the payment of all reasonable
out-of-pocket costs and expenses (including, without limitation,
reasonable attorneys' fees) of each of the Lenders in connection with
enforcing its rights under the Loan Documents;
THIRD, to payment of any unpaid Agent's Fees;
FOURTH, to the payment of all other accrued Fees and
interest payable, pro rata to the Lenders in accordance with each
Lender's Commitment;
FIFTH, to the payment of the outstanding principal
amount of the Revolving Credit Facility, pro rata to the Lenders in
accordance with each Lender's Commitment;
SIXTH, to all other Obligations which shall have
become due and payable under the Loan Documents and not repaid pursuant
to clauses "FIRST" through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to
whoever may be lawfully entitled to receive such surplus.
7.8 Sharing of Payments. The Lenders agree among themselves
that, except to the extent otherwise provided herein, in the event that any
Lender shall obtain payment in respect of any of the Obligations through the
exercise of a right of setoff, banker's lien or counterclaim, or otherwise under
any applicable bankruptcy, insolvency or other law, or by any other means, in
excess of its pro rata share of such payment as provided for in this Agreement,
such Lender shall promptly pay in cash or purchase from the other Lenders a
participation in such Obligations in such amounts, and make such other
adjustments from time to time, as shall be equitable to ensure that all Lenders
share such payment in accordance with their respective ratable shares as
provided for in this Agreement. The Lenders further agree among themselves that
if payment to a Lender obtained by such Lender through the exercise of a right
of setoff, banker's lien, counterclaim or other event, as aforesaid, shall be
rescinded or must otherwise be restored, each Lender which shall have shared the
benefit of such payment shall, by payment in cash or a repurchase of a
participation theretofore sold, return its share of that benefit (together with
its share of any accrued interest payable with respect thereto) to each Lender
whose payment shall have been rescinded or otherwise restored. The Borrowers
agree that any Lender so purchasing such a participation may, to the fullest
extent permitted by law, exercise all rights of payment, including setoff,
banker's lien or counterclaim, with respect to such participation as fully as if
such Lender were a holder of such Obligation in the amount of such
participation.
7.9 Interest on Overdue Amounts. Except as otherwise provided
in this Agreement, any amounts due from any Lender to the Agent or from one
Lender to another Lender which are not paid when due shall, until paid, bear
interest at the Federal Funds Rate.
SECTION 8. AGENCY PROVISIONS.
8.1 Appointment. Each Lender hereby designates and appoints
CoreStates Bank, N.A. as the Agent of such Lender to act as specified herein and
the other Loan Documents, and each such Lender hereby authorizes the Agent, as
the administrative agent for such Lender, to take such action on its behalf
under the provisions of this Agreement and the other Loan Documents and
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to exercise such powers and perform such duties as are expressly delegated by
the terms hereof and of the other Loan Documents, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere herein and in the other Loan Documents, the Agent shall
not have any duties or responsibilities, except those expressly set forth herein
and therein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be implied from any provision of or read into this Agreement or any of the other
Loan Documents, or shall otherwise exist against the Agent. The provisions of
this Section 8.1 (other than Section 8.9) are solely for the benefit of the
Agent and neither the Lenders and nor any of the Borrowers shall have any rights
as a third party beneficiary of the provisions hereof (other than Section 8.9).
In performing its functions and duties under this Agreement and the other Loan
Documents, Agent shall act solely as an agent of the Lenders and does not assume
and shall not be deemed to have assumed any obligation or relationship of agency
or trust with or for any Borrower. The use of the term "agent" in this Agreement
with reference to the Agent is not, in any manner or respect, intended to
connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable law. Instead, such term is used merely as a
matter of market custom and is intended to create or reflect only an
administrative relationship between independent contracting parties.
8.2 Delegation of Duties. Agent may discharge any of its
duties hereunder or under the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
8.3 Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(a) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection herewith or in connection with any of the other
Loan Documents (except for its or such Person's own gross negligence or willful
misconduct), or (b) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by any of the Borrowers
contained herein or in any of the other Loan Documents or in any certificate,
report, document, financial statement or other written or oral statement
referred to or provided for in, or received by Agent under or in connection
herewith or in connection with the other Loan Documents, or enforceability or
sufficiency therefor of any of the other Loan Documents, or for any failure of
any of the Borrowers to perform or satisfy any of the Obligations hereunder or
thereunder. The Agent shall not be responsible to any Lender for the
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Agreement, or any of the other Loan Documents or for any
representations, warranties, recitals or statements made herein or therein or
made by any of the Borrowers in any written or oral statement or in any
financial or other statements, instruments, reports, certificates or any other
documents in connection herewith or therewith furnished or made by Agent to the
Lenders or by or on behalf of any of the Borrowers to the Agent or any Lender or
be required to ascertain or inquire as to the performance or observance of any
of the terms, conditions, provisions, covenants or agreements contained herein
or therein or as to the use of the proceeds of the Advances or of the existence
or possible existence of any Default or Event of Default or to inspect the
properties, books or records of the Borrowers. The Agent is not a trustee for
the Lenders and owes no fiduciary duty to the Lenders.
8.4 Reliance on Communications. The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
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statements of legal counsel (including, without limitation, counsel to any of
the Borrowers, independent accountants and other experts selected by the Agent
with reasonable care). The Agent may deem and treat the Lenders as the owner of
its interests hereunder for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Agent in
accordance with Section 9.6. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or under any of the other Loan
Documents unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred, by it by reason of taking or continuing to take any such action.
The Agent shall in all cases be fully protected in acting, or in refraining from
acting, hereunder or under any of the other Loan Documents in accordance with a
request of the Required Lenders (or to the extent specifically provided in
Section 9.7(b), all of the Lenders) and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders (including
their successors and assigns).
8.5 Notice of Default. Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless Agent has received notice from a Lender or a Borrower referring
to the Loan Document, describing 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 of default, the Agent shall give prompt notice thereof to the
Lenders. The Agent shall take such action with respect to such Default or Event
of Default as shall be reasonably directed by the Required Lenders.
8.6 Non-Reliance on Agents and Other Lenders. Each Lender
expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Agent or any
Affiliate thereof hereinafter taken, including any review of the affairs of any
of the Borrowers, shall be deemed to constitute any representation or warranty,
express or implied, by the Agent to any Lender. Each Lender represents to the
Agent that it has, independently and without reliance upon the Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Borrowers and made its own decision to make its
Commitment hereunder and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit analyses, appraisals and decisions
in taking or not taking action under this Agreement, and to make such
investigation as it deems necessary to inform itself as to the business, assets,
operations, property, financial and other conditions, prospects and
creditworthiness of the Borrowers. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility, express or
implied, to provide any Lender with any credit or other information concerning
the business, operations, assets, property, financial or other conditions,
prospects or creditworthiness of the Borrowers which may come into the
possession of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
8.7 Indemnification. The Lenders agree to indemnify Agent in
its capacity as such (to the extent not promptly reimbursed by the Borrowers and
without limiting the obligation of the Borrowers to do so), ratably according to
their respective Commitment Percentages, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may at
any time (including, without limitation, at any time following payment in full
of the Obligations) be imposed on, incurred by or asserted against Agent in its
capacity as such in any way relating to or arising out of this
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Agreement or the other Loan Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements, if and to the extent any of
the foregoing results from the gross negligence or willful misconduct of the
Agent. If any indemnity furnished to the Agent for any purpose shall, in the
opinion of the Agent, be insufficient or become impaired, the Agent may require
that it be furnished with additional indemnity satisfactory to it and cease, or
not commence, to do the acts indemnified against it until such additional
indemnity is furnished; provided that, notwithstanding the foregoing proviso,
Agent shall not be indemnified for any event caused by its gross negligence or
willful misconduct. The agreements in this Section 8.7 shall survive the
repayment and satisfaction of the Obligations and all other amounts payable
hereunder and under the other Documents.
8.8 Agent in Its Individual Capacity. Agent and its Affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with any of the Borrowers as though the Agent were not the Agent
hereunder. With respect to Advances made and all obligations owing to it, Agent
shall have the same rights and powers under this Agreement as any Lender and may
exercise the same as though it was not the Agent, and the terms "Lender" and
"Lenders" shall include the Agent in its individual capacity.
8.9 Successor Agent. Agent may, at any time, resign upon thirty (30)
days written notice to the Lenders. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor Agent. If no successor Agent
shall have been so appointed by the Required Lenders, and shall have accepted
such appointment, within forty-five (45) days after the notice of resignation,
then the retiring Agent shall select a successor Agent provided such successor
is a Lender hereunder or a commercial bank organized under the laws of the
United States of America or of any State thereof and has a combined capital and
surplus of at least $100,000,000. Upon the acceptance of any appointment as an
Agent hereunder by a successor, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations as an Agent, as appropriate, under this Agreement and the other Loan
Documents and the provisions of this Section 8.9 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was an Agent under
this Agreement. So long as no Default or Event of Default has occurred, any
successor Agent shall be subject to the prior approval of the Borrowers' Agent,
which approval shall not be unreasonably withheld, conditioned, or delayed.
There shall at all times be a Person servicing as Agent hereunder.
SECTION 9. MISCELLANEOUS.
9.1 No Waiver; Cumulative Remedies. No failure or delay on the
part of the Agent of the Lenders in exercising any right, power or privilege
hereunder or under the other Loan Documents shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege
hereunder or thereunder preclude or require any other or further exercise
thereof or the exercise of any other right, power or privilege. The Agent and
the Lenders shall not be deemed, by any act of omission or commission, to have
waived any of their rights or remedies hereunder unless such waiver is in
writing and signed by the Agent, and then only to the extent specifically set
forth in writing. A waiver with respect to one event shall not be construed as
continuing or as a bar to or a waiver of any right or remedy with respect to a
subsequent event. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.
9.2 Notices. Except as otherwise expressly provided herein,
all notices and other communications shall have been duly given and shall be
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effective (a) when delivered, (b) when transmitted via telecopy (or other
facsimile device) to the number set forth below, (c) the Business Day following
the day on which the same has been delivered prepaid to a reputable national
overnight air courier service, or (d) the third Business Day following the day
on which the same is sent by certified or registered mail, postage prepaid, in
each case to the respective parties at the address or telecopy numbers set forth
below or on Schedule "A" (with respect to the Lenders), or at such other address
as such party may specify by written notice to the other parties hereto.
The Borrowers: Central Sprinkler Corporation
451 North Cannon Avenue
Lansdale, PA 19446
Telecopy No.: (215) 362-5385
Attention: Mr. Albert T. Sabol,
Executive Vice President of
Finance and Administration
with a copy to: Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Telecopy No.: (215) 963-5299
Attention: Thomas J. Sharbaugh,
Esquire
The Agent: CoreStates Bank, N.A.
2240 Butler Pike
Plymouth Meeting, PA 19462-1302
Telecopy No.: (610) 834-2069
Attention: Mr. William Johnston,
Vice President
with a copy to: Stevens & Lee, P.C.
One Glenhardie Corporate Center
1275 Drummers Lane
P.O. Box 236
Wayne, PA 19087
Telecopy No: (610) 687-1384
Attention: Steven M. Tyminski,
Esquire
The Lenders: See Schedule "A"
9.3 Payment of Expenses; Indemnification. The Borrowers agree
to: (a) pay all reasonable out-of-pocket costs and expenses of (i) the Agent in
connection with (A) the negotiation, preparation, execution and delivery and
administration of this Agreement and the other Loan Documents and the documents
and instruments referred to therein (including, without limitation, the
reasonable fees and expenses of Stevens & Lee, P.C., special counsel to the
Agent but not the fees and expenses of any other Lender's counsel), (B)
recording, filing, and related fees and costs in connection with perfecting
Liens granted to the Agent under the Security Documents, and (C) any amendment,
waiver or consent relating hereto and thereto including, but not limited to, any
such amendments, waivers or consents resulting from or related to any work-out,
renegotiation or restructure relating to the performance by the Borrowers under
this Agreement and (ii) the Agent and the Lenders in connection with (A)
enforcement of the Loan Documents and the documents and instruments referred to
therein, including, without limitation, in connection with any such enforcement,
the reasonable fees and disbursements of counsel for the Agent and each of the
Lenders, and (B) any bankruptcy or insolvency proceeding of any of the Borrowers
of any of its Subsidiaries and (b) indemnify Agent and each Lender, its
officers, directors, employees,
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representatives and agents from and hold each of them harmless against any and
all losses, liabilities, claims, damages or expenses incurred by any of them as
a result of, or arising out of, or in any way related to, or by reason of, any
investigation, litigation or other proceeding (whether or not Agent or any
Lender is a party thereto) related to (i) the entering into and/or performance
of any Loan Document or the use of proceeds of any Advance (including other
extensions of credit) hereunder or the consummation of any other transactions
contemplated in any Loan Document, including, without limitation, the reasonable
fees and disbursements of counsel incurred in connection with any such
investigation, litigation or other proceeding (but excluding any such losses,
liabilities, claims, damages or expenses to the extent incurred by reason of
gross negligence or willful misconduct on the part of the Person to be
indemnified), and (ii) any claims for Taxes.
9.4 Payment of Expenses and Taxes. In addition to payment of
the expenses and counsel fees provided for in Section 9.3, the Borrowers agree
to pay, and to save the Agent and the Lenders harmless from any delay in paying,
stamp and other similar taxes, if any, including, without limitation, all
levies, impositions, duties, charges or withholdings, together with any
penalties, fines or interest thereon or other additions thereto, which may be
payable or determined to be payable in connection with the execution and
delivery of this Agreement and the Loan Documents or any modification of any
thereof or any waiver or consent under or in respect of any thereof.
9.5 Survival of Indemnification and Representations and
Warranties. All indemnities set forth herein and all representations and
warranties made herein shall survive the execution and delivery of this
Agreement, the making of the Advances, and the repayment of the Obligations and
the termination of the Commitments hereunder.
9.6 Benefit of Agreement.
(a) Generally. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that none of the Borrowers may
assign and transfer any of their interests hereunder without the prior written
consent of all of the Lenders; and provided further that the rights of each
Lender to transfer, assign or grant participations in its rights and/or
obligations hereunder shall be limited as set forth below in Sections 9.6(b) and
9.6(c).
(b) Assignments. Each Lender may, with the prior
written consent of the Borrowers and the Agent (provided that no consent of the
Borrowers shall be required during the existence and continuation of a Default
or Event of Default), which consent shall not be unreasonably withheld,
conditioned, or delayed, assign all or a portion of its rights and obligations
hereunder pursuant to an Assignment Agreement to one or more Eligible Assignees;
provided that (i) any such assignment shall be in a minimum aggregate amount of
Five Million Dollars ($5,000,000) of the Revolving Credit Commitment and in
integral multiples of One Million Dollars ($1,000,000) if in excess thereof (or
the remaining amount of such Lender's Commitment), (ii) each such assignment
shall be of a constant, not varying, percentage of all of the assigning Lender's
rights and obligations under the Revolving Credit Commitment being assigned. Any
assignment hereunder shall be effective upon satisfaction of the conditions set
forth above and delivery, to the Agent of a duly executed Assignment Agreement
together with a non-refundable transfer fee of Three Thousand Five Hundred
Dollars ($3,500) payable to the Agent for its own account; and (iii) if an
Eligible Assignee is not incorporated under the laws of the United States or a
State thereof, such Eligible Assignee shall deliver to the Borrowers and the
Agent the documentation required pursuant to the provisions of Section 2.15 as a
condition to any assignment hereunder. Notwithstanding the foregoing, it is
understood and agreed that (i) the prior written consent of the Borrowers and
the Agent and (ii) the payment of a transfer fee shall not be required in
connection with any assignment which otherwise complies with this
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Section 9.6(b) and is made by a Lender to another member of the consolidated
group of corporations of which such Lender is a member provided at least fifteen
(15) days' prior written notice thereof is furnished to the Agent and Borrowers.
Upon the effectiveness of any such assignment, the Eligible Assignee shall
become a "Lender" for all purposes of this Agreement and the other Loan
Documents and, to the extent of such assignment, the assigning Lender shall be
relieved of its obligations hereunder to the extent of the Commitment being
assigned. By executing and delivering an Assignment Agreement in accordance with
this Section 9.6(b), the assigning Lender thereunder and the assignee thereunder
shall be deemed to confirm to and agree with each other and the other parties
hereto as follows: (i) such assigning Lender warrants that it is the legal and
beneficial owner of the interest being assigned thereby free and clear of any
adverse claim and the assignee warrants that it is an Eligible Assignee; (ii)
except as set forth in clause (i) above, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, any of the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any of the
other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto or the financial condition of any Borrower or the performance
or observance by any of the Borrowers of any of its obligations under this
Agreement, any of the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; (iii) such assignee represents and
warrants that it is legally authorized to enter into such Assignment Agreement;
(iv) such assignee confirms that it has received a copy of this Agreement, the
other Loan Documents and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment Agreement; (v) such assignee will independently and without reliance
upon the Agent, such assigning Lender or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents; (vi) such assignee appoints and
authorizes the Agent to take such action on its behalf and to exercise such
powers under this Agreement, or any other Loan Document as are delegated to the
Agent by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all the obligations which by the terms of
this Agreement and the other Loan Documents are required to be performed by it
as a Lender.
(c) Participations. Each Lender may sell, transfer,
grant or assign participations in all or any part of such Lender's interests and
obligations hereunder; provided that (i) such selling Lender shall remain a
"Lender" for all purposes under this Agreement (such selling Lender's
obligations under the Loan Documents remaining unchanged) and the participant
shall not constitute a Lender hereunder, and (ii) no such participant shall
have, or be granted, rights to approve any amendment or waiver relating to this
Agreement or the other Credit Documents except to the extent any such amendment
or waiver would (A) reduce the principal of or rate of interest on or Fees in
respect of any Advances in which the participant is participating or increase
any Commitment with respect thereto, or (B) extend, renew, or postpone the
Termination Date, or (C) postpone the date fixed for any payment of interest or
Fees in which the participant is participating. In the case of any such
participation, the participant shall not have any rights under this Agreement or
the other Loan Documents (the participant's rights against the selling Lender in
respect of such participation to be those set forth in the participation
agreement with such Lender creating such participation) and all amounts payable
by the Borrowers hereunder shall be determined as if such Lender had not sold
such participation.
(d) Registration. The Agent, acting for this purpose
solely on behalf of the Borrowers, shall maintain a register (the "Register")
for the recordation of the names and addresses of the Lenders and the principal
amount of the Advances owing to each Lender from time to time. The
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entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrowers, the Agent and the Lenders shall treat each Person whose name
is recorded in the Register as the owner of a Commitment or other obligation
hereunder for all purposes of this Agreement and the other Loan Documents,
notwithstanding notice to the contrary. Any assignment of any part of the
Revolving Credit Commitment or other obligation hereunder shall be effective
only upon appropriate entries with respect thereto being made in the Register.
The Register shall be available for inspection by the Borrowers or any Lender at
any reasonable time and from time to time upon reasonable prior notice.
9.7 Amendments, Waivers and Consents.
(a) Except as provided under Sections 9.7(b) and
9.7(c), neither this Agreement nor any other Loan Document nor any of the terms
hereof or thereof may be amended, changed, waived, discharged or terminated
unless such amendment, change, waiver, discharge or termination is in writing
and signed by the Required Lenders and the Borrowers.
(b) Notwithstanding the provisions of Section 9.7(a),
no amendment, change, waiver, discharge, or termination of this Agreement or any
other Loan Document shall, without the consent of all of the Lenders:
(i) extend or renew the Termination Date
(including, without limitation, any extension pursuant to Section 2.1
(d) hereof);
(ii) reduce the rate of interest or extend
or postpone the time for the payment of interest, principal, or Fees
hereunder;
(iii) subject to Section 2.1(c), increase or
reduce the Commitment of a Lender;
(iv) (A) release any of the Borrowers from
any of its obligations under the Loan Documents, or (B) release any of
the Collateral;
(v) amend, modify or waive any provision of
(A) the provisions of this Section 9.7(b), or (B) the Financial
Covenants;
(vi) reduce any percentage specified in, or
otherwise modify, the definition of Required Lenders; or
(vii) consent to the assignment or transfer
by any of the Borrowers of any of its rights and obligations under (or
in respect of) the Loan Documents.
(c) Notwithstanding the provisions of
Section 9.7(a), no amendment, change, or waiver of or to any provision
of Section 8 may be made without the written consent of the Agent.
9.8 Construction. This Agreement, all Loan Documents, and the
rights and obligations of the parties hereunder and thereunder, shall be
governed by and construed and interpreted in accordance with, the domestic
internal laws of the Commonwealth of Pennsylvania without regard to its rules
pertaining to conflict of laws. The Section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.9 Severability. Any provision contained in this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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9.10 Confidentiality. Each Lender agrees that it will use its
reasonable efforts to keep confidential any non-public information from time to
time furnished or made available to it under any Loan Document; provided,
however, that nothing herein shall affect the disclosure of any such information
to (i) the extent such Lender in good faith believes is required by statute,
rule, regulation or judicial process, (ii) counsel for such Lender or to its
accountants, (iii) bank examiners or auditors or comparable Persons, (iv) any
Affiliate of such Lender, (v) any other Lender, or any assignee, transferee or
participant, or any potential assignee, transferee or participant, of all or any
portion of any Lender's rights under this Agreement who is notified of the
confidential nature of the information and agrees to be bound by this provision
or provisions reasonably comparable hereto, or (vi) any other Person in
connection with any litigation to which any one or more of the Lenders is a
party; and provided further that no Lender shall have any obligation under this
Section 9.10 to the extent any such information becomes available on a
non-confidential basis from a source other than the Borrowers or its
Subsidiaries or that any information becomes publicly available other than by a
breach of this Section 9.10. Each Lender agrees it will use all confidential
information exclusively for the purpose of evaluating, monitoring, selling,
protecting or enforcing the Obligations and other rights under the Loan
Documents.
9.11 Defaulting Lender. Each Lender understands and agrees
that if such Lender is a Defaulting Lender then notwithstanding the provisions
of Section 9.7 it shall not be entitled to vote on any matter requiring the
consent of the Required Lenders or to object to any matter requiring the consent
of all of the Lenders adversely affected thereby; provided, however, that all
other benefits and obligations under the Loan Documents shall apply to such
Defaulting Lender.
9.12 Waiver of Trial by Jury; Jurisdiction.
(a) Each party to this Agreement agrees that any
suit, action, or proceeding, whether claim or counterclaim, brought or
instituted by either party hereto or any successor or assign of any party on or
with respect to this Agreement or any other Loan Document or which in any way
relates, directly or indirectly, to the Advances or any event, transaction, or
occurrence arising out of or in any way connection with the Advances, or the
dealings of the parties with respect thereto, shall be tried only by a court and
not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY
IN ANY SUCH SUIT, ACTION, OR PROCEEDING. THE PARTIES HERETO ACKNOWLEDGE AND
AGREE THAT THIS SECTION 9.12 IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT
AMONG THE PARTIES AND THAT THE LENDERS WOULD NOT EXTEND THE ADVANCES TO THE
BORROWERS IF THIS WAIVER OF JURY TRIAL SECTION WERE NOT A PART OF THIS
AGREEMENT.
(b) For the purpose of any suit, action or proceeding
arising out of or relating to this Agreement, the Revolving Credit Note or the
Advances, the Borrowers hereby irrevocably consent and submit to the
jurisdiction and venue of any of the Courts of the Commonwealth of Pennsylvania
including, without limitation, the Court of Common Pleas of Chester County and
the Federal District Court for the Eastern District of Pennsylvania. The
Borrowers irrevocably waive any objection which they may now or hereinafter have
to the laying of the venue of any suit, action or proceeding brought in such
court and any claim that such suit, action or proceeding brought in such a court
has been brought in an inconvenient forum. The provisions of this Section 9.12
shall not limit or otherwise affect the right of the Agent or the Lenders to
institute and conduct action in any other appropriate manner, jurisdiction or
court.
9.13 Actions Against Lenders; Release.
(a) Any action brought by the Borrowers or any
Subsidiary against the Agent or the Lenders which is based, directly or
indirectly, or on this Agreement or any other Loan Document or any matter in or
related to this
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Agreement or any other Loan Document, including but not limited to the making of
the Advances or the administration or collection thereof, shall be brought only
in the courts of the Commonwealth of Pennsylvania. The Borrowers may not file a
counterclaim against the Agent or the Lenders in a suit brought by the Agent or
the Lenders against the Borrowers in a state other than the Commonwealth of
Pennsylvania unless under the rules of procedure of the court in which the Agent
or the Lenders brought the action the counterclaim is mandatory and will be
considered waived unless filed as a counterclaim in the action instituted by the
Agent or the Lenders.
(b) Upon full payment and satisfaction of the
Advances and the interest thereon, as provided in Section 2 hereof, and the
termination of the Revolving Credit Facility, the parties shall thereupon
automatically each be fully, finally, and forever released and discharged from
any further claim, liability or obligation in connection with the Advances
except as expressly set forth herein, except to the extent any payment received
by the Agent or the Lenders is determined to be a preference or similar voidable
transfer.
9.14 Performance by Lenders. If the Borrowers shall fail to
observe or perform any of the terms, agreements or covenants contained in this
Agreement or in any other Loan Document, the Agent may (with the consent of the
Required Lenders), in its discretion, but without any obligation or duty to do
so, and without waiving any Default, or Event of Default, perform any of such
terms, agreements or covenants, in part or in whole, and any money advanced or
expended by the Agent in or toward the fulfillment of such terms, agreements or
covenants, shall be due on demand and become a part of and be added to the
indebtedness due under the Revolving Credit Note with interest thereon at the
Default Rate from the date of the respective advance or expenditure.
9.15 Counterparts. This Agreement may be executed in any
number of counterparts with the same effect as if the signatures thereto and
hereto were upon the same instrument, but all of such counterparts taken
together shall be deemed to constitute one and the same instrument.
9.16 Further Actions. The Borrowers shall execute and deliver
such documents and instruments, and take such other actions, as the Agent deems
necessary to consummate the transactions described in this Agreement.
9.17 Entire Agreement. This Agreement and the Loan
Documents represent the entire agreement between the Lenders, the Agent, and the
Borrowers with respect to the financing transactions to which they relate, and
55
<PAGE>
cannot be changed or amended except by an agreement in writing signed by the
party against whom enforcement of the change or amendment is sought.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
CENTRAL SPRINKLER CORPORATION
By /s/ Albert T. Sabol
---------------------------------------
Albert T. Sabol,
Vice President of Finance
and Administration
Attest: /s/ Jennifer Cemini
----------------------------------
Jennifer Cemini,
Secretary
CENTRAL SPRINKLER COMPANY
By /s/ Albert T. Sabol
---------------------------------------
Albert T. Sabol,
Vice President of Finance
and Administration
Attest: /s/ Jennifer Cemini
----------------------------------
Jennifer Cemini,
Secretary
CENTRAL CASTINGS CORPORATION
By /s/ Albert T. Sabol
---------------------------------------
Albert T. Sabol,
Vice President of Finance
and Administration
Attest: /s/ Jennifer Cemini
----------------------------------
Jennifer Cemini,
Secretary
CENTRAL CPVC CORPORATION
By /s/ Albert T. Sabol
---------------------------------------
Albert T. Sabol,
Vice President of Finance
and Administration
Attest: /s/ Jennifer Cemini
----------------------------------
Jennifer Cemini,
Secretary
56
<PAGE>
CENTRAL SPRINKLER EXPORT CORPORATION
By /s/ Albert T. Sabol
---------------------------------------
Albert T. Sabol,
Vice President of Finance
and Administration
Attest: /s/ Jennifer Cemini
----------------------------------
Jennifer Cemini,
Secretary
("Borrowers")
CORESTATES BANK, N.A., in its capacity as
Agent
By /s/ William Johnston
---------------------------------------
William Johnston,
Vice President
("Agent")
57
<PAGE>
CORESTATES BANK, N.A., individually in its
capacity as a Lender
By /s/ William Johnston
---------------------------------------
William Johnston,
Vice President
58
<PAGE>
LaSALLE NATIONAL BANK, as a Lender
By /s/ Steve Cohen
---------------------------------------
Steve Cohen, First
Vice President
59
<PAGE>
NATIONAL CITY BANK OF PENNSYLVANIA, as a
Lender
By /s/ Richard D. Barnes
---------------------------------------
Richard D. Barnes,
Vice President
60
<PAGE>
SCHEDULES:
- ----------
3.1 Subsidiaries
3.5 Litigation
3.6 Title to Assets
3.7 Licenses; Intellectual Property
3.10(a) Loss Contingencies
3.11 ERISA Matters
3.17 Transactions With Affiliates
3.20 Collateral Locations
3.21 Fictitious Names
6.1(d) Permitted Debt
6.1(e) Existing Inter-Company Debt
6.2(c) Permitted Liens
6.7(a) Guaranty Obligations
EXHIBITS:
=========
A - Form of Notice of Borrowing
B - Compliance Certificate Form
C - Form of Joinder
61
<PAGE>
Dated: October 28, 1997
SCHEDULE A
LENDERS' COMMITMENTS
<TABLE>
<CAPTION>
Percentage Interest
Lender and Address Commitment in Advances
------------------ ---------- -------------------
<S> <C> <C>
CoreStates Bank, N.A. $25,000,000 45.45454%
2240 Butler Pike
Plymouth Meeting, PA 19462-1302
Attention: Mr. William
Johnston, Vice President
Telecopy No. 610-834-2069
LaSalle National Bank $15,000,000 27.27272%
135 South LaSalle Street
Chicago, IL 60603
Attention: Mr. Steve Cohen,
First Vice President
Telecopy No. 312-904-6242
National City Bank of $15,000,000 27.27272%
Pennsylvania
National City Center
20 Stanwix Street
Locater #25-192
Pittsburgh, PA 15222-4802
Attention: Mr. Richard D.
Barnes, Vice President
Telecopy No. 412-644-6224
</TABLE>
62
<PAGE>
EXHIBIT "A"
FORM OF BORROWING NOTICE
CoreStates Bank, N.A.
2240 Butler Pike
Plymouth Meeting, PA 19462-1302
Attention: Mr. William Johnston, Vice President
Ladies and Gentlemen:
The undersigned, Central Sprinkler Company ("Central Sprinkler"),
refers to the Credit Agreement dated October 28, 1997 (as it may be amended,
modified, extended or restated from time to time, the "Credit Agreement"), among
Central Sprinkler Corporation and its Subsidiaries (including Central
Sprinkler), the Lenders party thereto, and CoreStates Bank, N.A., as Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement. The undersigned, as
Borrowers' Agent, hereby gives you notice that it requests an Advance in
accordance with the provisions of Section 2.1 and Section 2.3 of the Credit
Agreement, and in that connection sets forth below the terms on which such
Advance is requested to be made:
REQUEST FOR REVOLVING CREDIT ADVANCE
(A) Date of Borrowing
(which is a Business Day) ______________________
(B) Principal Amount of
Advance(1) ______________________
(C) Interest rate basis(2) ______________________
(D) Interest Period and the last
day thereof if a LIBOR Loan(3) _____________________
Upon acceptance of any or all of the Advances made by the Lenders in
response to this request, the Borrowers shall be deemed to have represented and
warranted that the conditions to lending specified in Section 4.2 of the Credit
Agreement have all been satisfied.
Very truly yours,
CENTRAL SPRINKLER COMPANY, on behalf of
all Borrowers
By_______________________________________
Title:___________________________________
________________
(1) A minimum of $1,000,000 for LIBOR Loans and $250,000 for Base
Rate Loans (or the remaining amount available under the
Revolving Credit Facility, if less).
(2) LIBOR Loan or Base Rate Loan.
(3) Subject to the provisions and definitions of the Credit
Agreement, but generally one, two, three, or six months'
duration.
63
<PAGE>
EXHIBIT "B"
FORM OF COMPLIANCE CERTIFICATE
In accordance with the provisions of Section 5.1(c) of the
Credit Agreement (the "Credit Agreement") dated October 28, 1997, by and among
Central Sprinkler Corporation, Central Sprinkler Company, Central Castings
Corporation, Central CPVC Corporation, and Central Sprinkler Export Corporation
(together with any other Borrowers identified therein from time to time, the
"Borrowers"), CoreStates Bank, N.A. (in its capacity as Agent for the Lenders),
and the Lenders identified therein, the undersigned, ___________________, being
the Executive Vice President of Finance and Administration and authorized
officer of Borrowers, does hereby certify to the Agent and Lenders that, to best
of the undersigned's knowledge, information, and belief (based upon all
financial and related information available to the undersigned):
a. The representations and warranties made by the Borrowers in
Section 3 of the Credit Agreement are true and complete in all material respects
as on and as of the date hereof as if made on and as of this date;
b. The Borrowers have, as of the date hereof, performed all
covenants and agreements required to be performed by them under the Credit
Agreement and related Loan Documents;
c. No Default or Event of Default has occurred, [except
and to the extent specifically set forth on Exhibit "A" attached hereto and made
a part hereof]; and
d. The Borrowers are in compliance with the Financial
Covenants set forth below.
Actual Required
--------- ---------
o Adjusted Current Ratio ____:1.00 1.00:1.00
(Section 5.09)
o Funded Debt to Total ____:1.00 .65:1.00
Capitalization
(Section 5.10)
o Minimum Cash and $______ $10 million
Investments
(Section 5.11)
o Tangible Net Worth $______ $______
(Section 5.12)
e. By reason of the ratio of the Borrowers' Funded Debt to
Total Capitalization, the Applicable Margin for LIBOR Loans is in Pricing
Category ___ and shall be ___ basis points.
f. Borrowers are in compliance with the provisions of
Section 6.1(c) and 6.1(g).
64
<PAGE>
g. The following information is herewith submitted with
respect to Collateral value (in accordance with GAAP consistently applied), as
at the close of the fiscal quarter ending __________:
Amount
------
i) Qualified Accounts(1) x 80% $__________
ii) Qualified Inventory(2) x 50% $__________
iii) Net Fixed Assets of Secured $__________
Borrowers x 50%(3)
iv) Collateral Value (the sum of (i), $
(ii), and (iii) above) ==========
Any capitalized terms which are used in this Certificate and
which are not defined herein, but which are defined in the Credit Agreement,
shall have the meanings given to those terms in the Credit Agreement.
IN WITNESS WHEREOF, I have executed this Certificate the ____
day of _______________.
By__________________________(SEAL)
Executive Vice President of Finance and
Administration of the Borrowers
- -----------
(1) Domestic accounts receivable of the Secured Borrowers less
than 90 days past due.
(2) Raw materials and finished goods inventory of the Secured
Borrowers.
(3) As reflected on the balance sheet of Secured Borrowers.
65
<PAGE>
EXHIBIT "C"
FORM OF JOINDER AGREEMENT
THIS JOINDER AGREEMENT (the "Joinder"), dated as of ______________,
199_, is entered into between _____________________, a _______________ (the "New
Subsidiary") and CORESTATES BANK, N.A., in its capacity as administrative agent
(the "Agent") under that certain Credit Agreement dated October 28, 1997 by and
among CENTRAL SPRINKLER CORPORATION, CENTRAL SPRINKLER COMPANY, CENTRAL CASTINGS
CORPORATION, CENTRAL CPVC CORPORATION, and CENTRAL SPRINKLER EXPORT CORPORATION
(collectively, the "Borrowers"), the Lenders which are a party thereto, and the
Agent (as modified and amended from time to time, the "Credit Agreement"). Any
capitalized terms used in this Joinder which are not so defined, but which are
defined in the Credit Agreement, shall have the meanings ascribed to them in the
Credit Agreement.
The New Subsidiary and the Agent, for the benefit of the Lenders,
hereby covenant and agree as follows:
1. The New Subsidiary hereby acknowledges, agrees and confirms that, by
its execution of this Joinder, the New Subsidiary will be deemed to be a
Borrower under the Credit Agreement, the Revolving Credit Note, the
Subordination Agreement, and related Loan Documents as if it had executed and
been an original party to the Credit Agreement, the Revolving Credit Note, and
such related Loan Documents. The New Subsidiary hereby ratifies, as of the date
hereof, and agrees to be bound by, all of the terms, provisions, and conditions
contained in the Credit Agreement, including, without limitation, (a) all of the
representations and warranties of the Borrowers set forth in Section 3 of the
Credit Agreement, and (b) all of the affirmative and negative covenants set
forth in Sections 5 and 6 of the Credit Agreement.
2. Concurrently with the execution hereof and as contemplated by
Section 5.15 of the Credit Agreement, the New Subsidiary shall execute and
deliver to the Agent a joinder to the Security Agreement, in form and substance
satisfactory to the Agent, pursuant to which the New Subsidiary shall join in
and become a party as debtor to the Security Agreement for the purposes therein
set forth as if it had been an original party thereto.
3. The address of the New Subsidiary for purposes of Section 9.2 of the
Credit Agreement is as follows:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
4. This Joinder may be executed in any number of counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument.
5. THIS JOINDER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
IN WITNESS WHEREOF, the New Subsidiary has caused this Joinder to be
duly executed by its authorized officer(s), and the Agent, for the benefit of
the Lenders, has caused the same to be accepted by its authorized officer, as of
the day and year first above written.
[NEW SUBSIDIARY]
By________________________________
Name:
Title:
66
<PAGE>
ACKNOWLEDGED AND ACCEPTED:
CORESTATES BANK, N.A., as Agent
By________________________________
Name:
Title:
67
<PAGE>
CENTRAL SPRINKLER DISCLOSURE SCHEDULES
TO
CREDIT AGREEMENT BETWEEN AND AMONG
CENTRAL SPRINKLER CORPORATION, CENTRAL SPRINKLER COMPANY,
CENTRAL CASTINGS CORPORATION, CENTRAL CPVC CORPORATION,
CENTRAL SPRINKLER EXPORT CORPORATION AND THE LENDERS
IDENTIFIED THEREIN,
DATED __________, 1997
The following are the disclosure schedules to the Credit Agreement, dated as of
______________, 1997 (the "Credit Agreement") between and among Central
Sprinkler Corporation ("CSC"), Central Sprinkler Company, Central Castings
Corporation ("Central Castings Corp."), Central CPVC Corporation ("Central CPVC
Corp." or "CPVC"), Central Sprinkler Export Corporation ("Central Sprinkler
Export Corp.") and the Lenders identified therein. Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to them in the
Credit Agreement. The inclusion of any information in any of the schedules shall
not be deemed to be an admission or acknowledgment, in and of itself, that such
information is material or outside the ordinary course of business, as
applicable, for the purpose of this Credit Agreement. Any disclosure contained
in these Schedules which refer to a document are qualified in their entirety by
the reference to the text of such document.
<PAGE>
CORPORATE STRUCTURE
SCHEDULE 3.1
<TABLE>
<S> <C> <C> <C>
-----------------------
| |
| CENTRAL SPRINKLER |
| CORPORATION |
| |
-----------------------
|
|
----------------------------------------|---------------------------------------
| | |
| | |
--------------------- ----------------------- -----------------------
| | | | | |
| CENTRAL SPRINKLER | | CSC FINANCE COMPANY | | SPRAYSAFE AUTOMATIC |
| COMPANY | | | | SPRINKLERS LTD. |
| | | | | |
--------------------- ----------------------- -----------------------
| | |
| | |
----------------------------- | |
| | | | |
| | | | |
- ---------------- | -------------------- ------------------ --------------------- | -----------------------
| | | | | | | | | | | |
| CENTRAL CPVC | | | CENTRAL CASTINGS | | CSC INVESTMENT | | CENTRAL SPRAYSAFE | | | SPRAYSAFE AUTOMATIC |
| | | | | | | | COMPANY PTE LTD | | | SPRINKLERS LIMITED |
| CORPORATION | | | CORPORATION | | COMPANY | | SINGAPORE | | | CHINA |
| | | | | | | | | | | |
- ---------------- | -------------------- ------------------ --------------------- | -----------------------
| |
| |
| |
----------------------- -------------------------------
| | | |
| CENTRAL SPRINKLER | | CENTRAL SPRAYSAFE COMPANY |
| | | LMITED (H.K.) |
| EXPORT CORPORATION | | HONG KONG |
| | | |
----------------------- -------------------------------
</TABLE>
<PAGE>
SCHEDULE 3.5
Litigation
As disclosed in the SEC Form 10-Q for the period ended July 31, 1997, in August
1997, a lawsuit was filed against CSC in the State of California regarding the
Omega(TM) sprinkler heads. Although the suit has been brought by owners of two
homes, the plaintiffs seek to represent a class of building owners who have
Omega(TM) sprinkler heads installed in their buildings. The court has not
determined whether it will permit the action to go forward as a class action and
the complaint does not specify a dollar amount the plaintiffs are seeking.
Although CSC believes that it has meritorious defenses with respect to the
foregoing matter which it will vigorously pursue, there can be no assurance that
the ultimate outcome of such actions will be resolved favorably to CSC or that
such litigation, or any additional litigation, will not have a Material Adverse
Effect.
<PAGE>
SCHEDULE 3.6
Title to Assets
Existing mortgages and liens are listed on Schedule 6.1(d) Permitted Debt and
Schedule 6.2(c) Permitted Liens.
<PAGE>
SCHEDULE 3.7
Licenses: Intellectual Property
Central Sprinkler is a party to patent licensing agreements, copies of which
agreements are attached hereto.
Central Sprinkler also is party to a license agreement with CSC Finance Company,
a copy of which is attached hereto.
<PAGE>
ASSIGNMENT
THIS ASSIGNMENT is made by Central Sprinkler Corporation as of the 1st
day of November 1988 pursuant to the terms set forth below:
Background
The Assignor has certain rights to the tradenames and trademarks shown
on Exhibit A hereto, and the Assignor desires to assign all of such rights (the
"Rights") to CSC Finance Company (the "Assignee") in connection with a proposed
Trademark License Agreement (the Agreement").
NOW, THEREFORE, the Assignor, intending to be legally bound hereby and
in consideration of the Agreement and other good and valuable consideration, the
receipt of which is hereby acknowledged, hereby assigns to the Assignee all of
its right, title and interest in and to the Rights.
The Assignor agrees to take such further action and execute such
additional documents as the Assignee may deem necessary in order to carry out
the actions contemplated by this Assignment.
IN WITNESS WHEREOF, this Assignment is executed and delivered by the
undersigned as of the date first written above.
CENTRAL SPRINKLER CORPORATION
By:
--------------------------
<PAGE>
TRADEMARK LICENSE AGREEMENT
Trademark License Agreement made as of the 16th day of May, 1984
between CSC Holding Corporation, a corporation organized under the laws of the
State of Pennsylvania, U.S.A. ("Licensor") and Central Sprinkler Corporation, a
corporation organized under the laws of the State of Pennsylvania, U.S.A.
("Licensee").
WHEREAS, Licensor has acquired Licensee and the trademarks and trade
names (and applications and registrations therefor) set forth in Schedule A
hereto, together with the goodwill of the business associated therewith (the
"Trademarks"); and
WHEREAS, Licensor desires to promote the manufacture, distribution,
sale and use of goods and services bearing such Trademarks ("Products") by
licensing the continued use of the Trademarks to Licensee; and
WHEREAS, the Trademarks are significant to the manufacture,
distribution, sale and use of Products and to the conduct of the business
contemplated by the Licensee in the Territory (as hereinafter defined) and,
therefore, Licensee desires to obtain such license;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties agree:
1. Exclusive Rights. Licensor hereby grants Licensee the exclusive
right. to use the Trademarks in connection with Products in the United States
(the "Territory.")
2. Royalty. Licensee shall pay Licensor, as a royalty for the right to
use the Trademarks, three percent (3%) of Licensee's Sales Receipts,
excluding taxes, from sales of any and all Products sold by Licensee. For
purposes of this Section 2, "Sales Receipts" shall mean the amount actually
billed by Licensee on sales of Products after deducting sales returns. The
noyalty shall be paid in arrears on a calendar quarter basis within thirty days
after the end of each calendar quarter or at such time as the parties otherwise
agree in writing. The royalty shall be paid in United States Dollars. A detailed
computation of the basis for and amount of the royalty paid shall accompany each
payment. Licensor shall have the right at any time to inspect the books and
records of Licensee to verify proper computation and payment of the royalty.
-1-
<PAGE>
3. Manufacture and Sale. Licensee shall use its best efforts to further
the production and sale of Products under the Trademarks in the Territory and to
maintain an efficient organization for the production and sale of high quality
Products under the Trademarks. Subject to the provisions of Section 4 hereof,
the manufacture, pricing, sale and promotion of Products under the Trademarks
shall be controlled by the Licensee.
4. Supervision of Licensee. For the purpose of protecting and
maintaining the standards of quality established by Licensor for Products sold
under the Trademarks:
A. Licensor shall have the right to supervise the production
and packaging of Products and to inspect and test all Products produced and
offered for sale by Licensee on which, or in connection with which, the
Trademarks are used.
B. Licensee agrees to permit Licensor's authorized personnel
to enter Licensee's premises at all reasonable times, with or without advance
notice, to inspect Licensee's production and packaging facilities and
operations, and to inspect and test all Products produced for sale under the
Trademarks for the purpose of determining the quality of such Products.
C. Licensee agrees to furnish samples of Products and of all
related literature, packaging and labels, to Licensor not less than yearly, and
at more frequent intervals at the request of Licensor, for inspection, testing
and review.
5. Maintenance of Trademarks; No Sublicense. Licensor will use its best
efforts to register and maintain, or cause to be registered and maintained, the
Trademarks in the Territory to enable Products to be distributed and sold in the
Territory under the Trademarks as provided herein. Licensor will not permit any
other person to use Trademarks in the Territory in connection with Products.
Licensee shall not, directly or indirectly, license or attempt to license,
whether orally or in writing, any other person to use the Trademarks without the
prior approval in writing of the Licensor.
6. Indemnity. Licensor assumes no liability to Licensee or third
parties with respect to the efficacy, safety or performance characteristics of
Products manufactured or sold by Licensee under the Trademarks, and Licensee
will indemnify Licensor against all costs, losses and expenses arising as a
result of claims of third persons against Licensor involving the manufacture or
sale of Products under the Trademarks.
7. Ownership of Trademarks. Licensee acknowledges Licensor's exclusive
right, title, and interest in and to the Trademarks and will
-2-
<PAGE>
not at any time do or cause to be done any act or thing contesting or in any way
impairing or tending to impair any part of such right, title and interest. In
connection with the use of the Trademarks, Licensee shall not in any manner
represent that it has any ownership in the Trademarks, and Licensee acknowledges
that use of the Trademarks shall not create in Licensee's favor any right, title
or interest in or to the Trademarks. Upon termination of this Agreement in any
manner provided herein, Licensee will cease and desist from all use of the
Trademarks in any way (and will deliver up to the Licensor, or its duly
authorized represenatives, all material and papers upon which the Trademarks
appear) and furthermore the Licensee will at no time adopt or use, without the
Licensor's prior written consent, any word or mark which is likely to be similar
to or confusing with the Trademarks.
8. Termination. This Agreement shall be subject to termination by the
mutual consent of the parties or by either party upon default by the other party
in the performance of any of the terms, conditions and covenants of this
Agreement and failure to remedy such default within 30 days after notice or
demand. If Licensee makes any assignment of assets or business for the benefit
of creditors, or if a trustee or receiver is appointed to administer or conduct
its business or affairs, or if it is adjudged in any legal proceeding to be
either a voluntary or involuntary bankrupt, then the rights granted herein shall
forthwith cease and terminate without prior notice or legal action by Licensor.
9. Term of License. This Agreement shall, unless otherwise terminated,
exist,for a term of ten years from the date hereof, but shall be renewable for
additional ten-year terms at the option of the Licensee by giving Licensor
written notice of such intent on or before six months prior to the expiration of
each and every ten-year term.
10. Governing Law. This Agreement shall be construed in accordance with
the laws of the United States of America and the State of Pennsylvania.
11. Amendments. The provisions of this Agreement may be amended,
modified, supplemented or changed, but only upon the written consent of both
parties hereto.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Trademark License
Agreement as of the date first above written.
Central Sprinkler Corporation Central Sprinkler Company
(Formerly (Formerly
CSC Holding Corporation) Central Sprinkler Corporation)
By /s/ William J. Meyer By /s/ George G. Meyer
------------------------------- --------------------------------
William J. Meyer, President George G. Meyer, President
ATS/bsd249
-4-
<PAGE>
Exhibit A
Trademark License Agreement
Listing of Trade Names and Trademarks
"Central"
"Central Sprinkler"
"CSC"
"Omega"
"Flow Control"
"Protector"
"Prohibitor"
"Ident-A-Fire"
"GB"
"Mini"
"SprinkCad"
<PAGE>
AMENDMENT TO EXCLUSIVE PATENT LICENSING AGREEMENT
This Amendment entered into this 5TH day of April, 1982, by and between
U. S. FIRE CONTROL CORP., a corporation of the Commonwealth of Massachusetts,
with its principal office at Rochdale, Massachusetts, (hereinafter called the
"Licensor") and CENTRAL SPRINKLER CORP. a Pennsylvania corporation, with its
principal office at 4th Street and Cannon Avenue, Lansaale, Pennsylvania, 19446,
(hereinafter called the "Licensee").
W I T N E S S E T H:
WHEREAS, Licensor And Licensee entered into an Exclusive Patent
Licensing Agreement (hereinafter called the "Agreement") dated November 28,
1977; and,
WHEREAS, the parties since that time have continually operated
underneath the Agreement and by duplicate certified letters #P234489311 and
#P234489312 Licensee gave Licensor notice, in accordance with the Agreement, of
Licensee's election to exercise its option with respect to the "Other Product"
presented by Licensor to Licensee which Licensor refers to as its "Straight-On"
sprinkler (hereinafter called the "Straight-On Sprinkler"); and,
WHEREAS, Licensor has filed a patent application in the United States
Patent Office with respect to said Straight-On Sprinkler which patent
application bears Serial No. 06/310,897 and was filed in the United States
Patent Office by Licensor on October 13, 1981; and,
<PAGE>
WHEREAS, it has been Licensor's interpretation of Paragraphs 4a and 4b
of the Agreement that on the Straight-On Sprinkler Licensee had to pay Licensor
Five Thousand Dollars ($5,000.00) a month for each month from the date Licensee
exercised its option under Paragraph 5a with respect to such Straiqht-On
Sprinkler until Licensee had initially sold and shipped such Straight-On
Sprinkler at which time Licensee was obligated to pay Licensor Three Thousand
Dollars ($3,000.00) a month or five percent (5%) of the net sales price of each
such Straight-On Sprinkler, whichever is greater; and,
WHEREAS, Paragraph 4a specifically spoke only in terms of Licensed
Products and Licensee has interpreted the Agreement to mean that the Five
thousand Dollars ($5,000.00) under Paragraph 4a applied only to the initial
Licensed Product and not to the Straight-On Sprinkler or any "Other Products"
and that the Three Thousand Dollars ($3,000.00) a month minimum royalty called
for in Paragraph 3b was an aggregate minimum royalty which covered both the
"Licensed Products" and "Other Products" including the Straiqht-On Sprinkler;
and,
WHEREAS, the Licensor and Licensee have settled their disagreement and
difference's in interpretation and desire to set forth the basis of that
settlement.
NOW THEREFORE IN CONSIDERATION OF THE PREMISES, Licensor and Licensee
hereby agree as follows:
1. The obligation of Licensee to pay a license fee on the Straight-On
Sprinkder under Paragraph 4 of the Agreement Is fully satisfied by Licensee
-2-
<PAGE>
paying to Licensor commencing the 1st day of January, 1982, and on the lst day
of each month thereafter (until Licensee elects to cease paying or the
obligation of Licensee to Pay ceases in accordance with the terms of the
Agreement or this Amendment) the sum of Two Thousand Dollars ($2,000.00) or five
percent (5%) of the Net Sales Price of each Straight-On Sprinkler sold the
previous month, whichever is greater. Notwithstanding the provisions in
Paragraph 4 of the Agreement and Licensor's interpretation thereof, no other or
further payment will be due Licensor from Licensee in connection with the
Straight-On Sprinkler except as Set forth in the immediately preceding sentence.
However, the Straight-On Sprinkler will be governed independently by all other
applicable terms, conditions and provisions of the Agreement as provided in
Paragraph 5a thereof.
2. On any "Other Product" unrelated to the on-off concept, Licensee
agrees to pay Licensor Five Thousand Dollars ($5,000.00) a month for each month
from the date Licensee exercises its option under Paragraph 5a with respect to
such "Other Product" until such time as Licensee has initially sold and shipped
such "Other Product" at which time Licensee shall pay the Licensor a minimum
royalty each month of Three Thousand Dollars ($3,000.00) or a sum equal to five
percent (5%) of the Net Sales Price of such "Other Products" sold the previous
month, whichever is greater. the five (5) months' period of time specified in
Paragraph 5a of the Agreement within which Licensee has a right to exercise its
option with respect to such "Other Product" shall not commence running until
Licensor has made a full and prompt disclosure to Licensee of
-3-
<PAGE>
such "Other Product" and Licensor has furnished Licensee its patent application
and any working models, drawings and specifications.
3. At such time, if ever, that Licensee ceases making the payments
called for under Paragraph 1 or Paragraph 2 hereof, then Licensee shall lose its
exclusive right with respect to the Straight-On Sprinkler or "Other Product"
upon which one Licensee elects to cease making the royalty payment and in such
event this Agreement shall not terminate and Licensee shall continue to have its
exclusive rights with respect to the "Licensed Products" and to any other
product on which Licensee is paying the royalties as called for by the Agreement
or this Amendment.
4. As long as Licensee is making the minimum royalty payment called for
by this Amendment or the Agreement, then the Agreement and the rights of the
Licensee, under the Agreement, shall not terminate and this Agreement can only
be terminated by Licensor if Licensee is not paying any minimum royalties on any
Licensed Products or Other Products, including the Straight-On Sprinkler. If
Licensee ceases making payment of the minimum royalty on some but not all
Licensed Products or Other Products, including the Straight-On Sprinkler, then
Licensee shall only lose its exclusive arrangement with respect to any such
Licensed Product or Other Product on which Licensee has ceased paying the
minimum royalty with the overriding proviso that Licensee can continue a
non-exclusive basis to manufacture, sell and distribute each Licensed Product
and Other Product, on which a minimum royalty has not been paid, so long as
-4-
<PAGE>
Licensee pays the five percent (5%) royalty on the Net Sales Price of each such
Licensed Product or Other Product after they have been sold and shipped.
Notwithstanding any of the provisions of this Amendment, Licensor shall maintain
the right to terminate the Agreement in accordance with Paragraph 11b, thereof
in the event that Licensee fails to make the royalty payments for On-Off
sprinkler heads and valves as provided by the Agreement.
6. Except as amended and modified hereby, the terms, provisions and
conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this 5TH day of April, 1982.
U. S. FIRE CONTROL CORP.
By /s/ Raymond E. Shea
------------------------
Raymond E. Shea, President
ATTEST:
- ------------------------
By
------------------------
CENTRAL SPRINKLER CORP.
ATTEST:
- ------------------------
<PAGE>
EXCLUSIVE PATENT LICENSING AGREEMENT
This Agreement entered into this 28th day of November, 1977, effective
as of November 28, 1977, by and between U.S. FIRE CONTROL CORP., a corporation
of the Commonwealth of Massachusetts, with its principal office at 44 Park
Avenue, Worcester, Massachusetts (hereinafter called the "Licensor") and CENTRAL
SPRINKLER CORP., a Pennsylvania corporation, with its principal office at 4th
Street and Cannon Avenue, Lansdale, Pennsylvania, 19446 (hereinafter called the
"Licensee").
WITNESSETH:
WHEREAS, the Licensor is the owner of U.S. Patent Nos. Des. 231,529,
issued April 30, 1974; 3,734,191, issued May 22, 1973; 3,802,510, issued April
9, 1974; 3,877,527, issued April 15, 1975; 3,911,940, issued October 14, 1975;
and 3,991,829, issued November 16, 1976 and of the inventions and improvements
disclosed and claimed therein and owner of the foreign patents and applications
and of the inventions and improvements disclosed and claimed therein which are
listed on Exhibit A attached hereto and made a part hereof.
WHEREAS, the Licensor possesses technical information, know-how and
expertness useful in the manufacture and use of fire protection equipment;
WHEREAS, the Licensee desires, to obtain exclusive rights to the
Licensor's technical information and know-how in the field of fire protection
equipment;
WHEREAS, the Licensee desires to obtain exclusive licenses throughout
the world under the patents owned by the Licensor.
Now, THEREFORE, in consideration of the premises and the faithful
<PAGE>
performunce of the mutual covenants herein contained, the parties hereto agree
as follows:
1. DEFINITION OF TERMS. Whenever in this Agreement the following words
and phrases appear they shall be defined and construed as follows:
a. The words "Licensed Products" shall mean any sprinkler head
or valve covered by the Licensed Patents or patent applications coming
within the scope of this Agreement which has the ability to alternately
change between an On-Off condition in response to the increase and
decrease of environmental temperature.
b. The words "Net Sales Price" shall mean the gross selling
price of all Licensed Products sold by Licensee less transportation
charges, all excise and sales taxes, trade-ins and cash discounts,
allowances, returns, credits, commissions, refunds, rebates and
accounts written off, allowed, paid or absorbed by the Licensee.
c. The words "Other Products" shall mean any product or device
for which patents have already been issued to Licensor or are hereafter
issued to Licensor during the term of this Agreement or on which patent
applications are now filed or hereafter filed by Licensor.
d. The words "Licensed Patents" shall mean U.S. Patents Nos.
Des. 231,529, issued April 30, 1974; 3,734,191, issued May 22, 1973;
3,802,510, issued April 9, 1974; 3,877,527, issued April 15, 1975;
3,911,940, issued October 14, 1975; 3,991,829 issued November 16, 1976
and the foreign patents and applications listed on Exhibit A attached
hereto and all other patents now or hereafter owned by or issued to
Licensor used in connection with the Licensed Products.
<PAGE>
e. For the purposes of computing royalties in this Agreement,
all Licensed Products shall be considered sold when they have been
billed out. If the full amount of any such item is not collected within
twelve (12) months from the date of initial billing, then Licensee
shall receive a credit on the royalty previously paid based on the
amount uncollected at the end of said twelve (12) months.
2. GRANT.
a. Licensor hereby grants to Licensee the sole and exclusive
right and license, to the exclusion of Licensor and all others, to
manufacture, cause to be manufactured, use, market or sell or cause to
be marketed or sold on behalf of the Licensee, any and all Licensed
Products which are the subject matter of this Agreement, throughout the
world.
b. The Licensor hereby grants to the Licensee the right and
option, on payment of the five percent (5%) royalty hereinafter
provided, to acquire exclusively throughout the world all of the
Licensor's patent rights relating to Other Products and to have all
rights thereto as set forth in paragraph 2(a) hereof as though they
were Licensed Products.
c. The Licensor hereby grants to Licensee the exclusive right
to receive and use all of the technical information and know-how of
Licensor relating to said Licensed Products as developed and to said
Other Products after patent applications have been filed and Licensee
has exercised its option under paragraph 2(b) hereof.
3. PRODUCT APPROVAL. The Licensee agrees to attempt to obtain at its
expense Underwriters Laboratories or Factory Mutual aproval of a Licensed
<PAGE>
Product for the sole manufacture and sale thereof by Licensee.
4. LICENSE FEE.
a. The Licensee agrees to pay to the Licensor a monthly fee of
five thousand dollars ($5,000.00) each month of this Agreement until
the month in which the Licensee first sells and ships a Licensed
Product for which approval has been obtained in accordance with
paragraph 3, said monthly fee to be payable on the last day of the
month in which it is due.
b. After the first sale and shipment by the Licensee of a
Licensed Product for which approval has been obtained in accordance
with paragraph 3 (hereinafter called "First Sale Date"), the Licensee
agrees to pay to the Licensor a royalty of five percent (5%) of the
Net Sales Price of Licensed Products, or thirty-six thousand dollars
($36,000.00) per year, whichever is greater, payable as follows:
(i) Three thousand dollars ($3,000.00) minimum
royalty payable on the 15th day of each month.
(ii) The five percent (5%) royalties due on sales of
Licensed Products will be computed each month and any such
amount due in excess of the three thousand dollar ($3,000.00)
minimum royalty for that month will be payable on the last day
of the month following the month in which the sales were made.
(iii) If for any year preceding a yearly anniversary
of this Agreement, royalties are due to the Licensor in excess
of thirty-six thousand dollars ($36,000.00), then any
<PAGE>
portion of such excess either may be retained by the Licensee
to offset any minimum royalties paid in previous years and not
based on sales of Licensed Products, or may be applied as a
credit against any minimum royalties payable in subsequent
years.
c. If two (2) years after the First Sale Date, the payments
made by Licensee under subparagraph b hereof for the preceding twelve
(12) months do not reach seventy-two thousand dollars ($72,000.00),
then in order to retain the exclusive rights to sell outside the United
States and its territories Licensee shall pay Licensor an additional
twelve thousand dollars ($12,000.00) royalty or the difference between
all sums paid by Licensee during said twelve (12) months and
seventy-two thousand dollars ($72,000.00), whichever is less.
d. The parties recognize that the entry into the field of
On-Off sprinkler heads and valves is due to the Licensed Products of
Licensor. In recognition of this, Licensee (subject to paragraph 20
hereof) agrees to pay to Licensor the five percent (5%) royalty of net
sales on all On-Off sprinkler heads and valves (irrespective of whether
they are Licensed Products covered by the Licensed Patents) which are
manufactured and sold by Licensee.
e. Whether or not this Agreement continues in force such
royalty payments called for by immediately preceding subparagraph d
hereof shall continue for the life of the last to expire patent owned
by Licensor and licensed herein with respect thereto as long as said
patent has not been determined invalid by any court of competent
jurisdiction, provided, however, that should any such invalidation be
reversed on appeal, royalty payments shall be resumed retroactive to
the date of the original invalidation.
<PAGE>
f. Improvements made by Licensee on or with respect to such
Licensed Products shall not extend the obligation of Licensee to pay
royalties thereon beyond the time set forth in the immediately
preceding subparagraph e. Improvements made by Licensor shall not
extend the obligation of Licensee to pay royalties beyond the time set
forth in the immediately preceding subparagraph e hereof except that if
Licensee uses improvements made by Licensor in such products then the
royalty payments made thereon shall continue for the last to expire
patent owned by Licensor covering an improvement used by Licensee which
is licensed herein as long as said patent has not been determined
invalid by any court of competent jurisdiction, provided, however, that
should any such invalidation be reversed on appeal, royalty payments
shall be resumed retroactive to the date of the original invalidation.
5. OPTION ON OTHER DEVICES.
a. Should Licensor during the time that this agreement is in
full force and effect invent, improve, modify or acquire any Other
Product on which Licensor has obtained and owns the patent or on which
Licensor has filed a patent application, then the exclusive right to
manufacture, use, market and sell such Other Product must first
be offered by Licensor to Licensee on the same five percent (5%)
royalty basis as set forth in this present agreement with the right in
Licensee within a period of five (5) months following receipt of each
such offer or offers to accept or reject such offers or either of them.
If any such offer is accepted, then the five percent (5%) royalty and
<PAGE>
the other terms, conditions and provisions of this Agremeent will
govern said Other Product, but, if any such offer is rejected, then
Licensor shall thereupon be at liberty to make any other desired
arrangements with relation to and promotion of the Other Product which
is the subject matter of such rejected offer or offers with the sole
exception that Licensor must reoffer said Other Product to Licensee on
the same terms for which a bona fide offer has been received from an
offeree who was offered and accepted said rejected Other Product for
license at more favorable terms than Licensor offered to Licensee and
Licensee has twenty (20) days thereafter to accept or reject said
reoffer. Licensor shall be obligated promptly to make a full and prompt
disclosure to Licensee of any such Other Product, together with its
patent application, working model and drawings and specifications, if
available. Furthermore, should any such Other Product be rejected by
Licensee and should Licensor thereafter improve said Other Product,
then Licensor shall be further obligated to reoffer the same, if not
licensed to another, to Licensee as hereinabove provided. No disclosure
shall be made by Licensor to Licensee or to anyone else until a patent
application shall have been filed therefor and Licensor aqrees to file
promptly each such patent application. The Licensor shall, at its own
expense, obtain patent protection on the Other Products.
b. It is acknowledged and recognized by the parties that
Licensee will only be capable of doing a proper job of manufacturing,
marketing and selling, as contemplated herein, if Licensee concentrates
on certain products, instead of all products presented and offered to
Licensor by
<PAGE>
Licensee. Since Licensee can only assimilate in its operation certain
limited new products during any period of time, Licensor acknowledges
that it would not be proper or equitable to require Licensee to forego
its rights with respect to certain Other Products merely because
Licensee did not exercise its option with respect thereto within the
five (5) month period allotted by the immediately preceding paragraph
a. Licensor also recognizes that Licensor probably will (but is not
obligated to) submit a number of Other Products to Licensee for its
consideration during any five (5) month period of this agreement.
Notwithstanding anything herein which might be construed to the
contrary, it is understood and agreed that a) no Other Products will be
submitted to Licensee until the approvals called for by paragraph 3
hereof have been obtained and b) if Licensee exercises its option with
respect to one or more Other Products within the time allotted, then
Licensee does not and shall not (except by Licensee's own written
rejection) lose any rights or options that Licensee has with respect to
such Other Products submitted within said five (5) month period on
which the option has not been exercised and all rights and options of
Licensee will respect thereto shall be preserved and Licensee at its
election shall have the right at any time to exercise its option with
respect to such Other Products.
6. TECHNICAL ASSISTANCE. The Licensor agrees to provide know-how and
technical assistance to the Licensee as follows:
a. The Licensor shall furnish at no cost to the Licensee all
of the Licensor's know-how, engineering information, designs, drawings,
technical data, and all other information and data relative to the
manufacture
<PAGE>
and use of the Licensed Products and Other Products as may be from time
to time reasonably requested by Licensee.
b. During the first two (2) years of the Agreement the
Licensor shall provide to the Licensee as requestid in writing thereby
the services of any of the Licensor's personnel. The services provided
by the Licensor in any one (1) year shall be limited to a maximum of
six hundred (600) hours and will be paid for by the Licensee at a rate
of twenty dollars ($20.00) per hour and all reasonable out-of-pocket
expenses incurred by the Licensor in the performance of the services
shall be reimbursed by the Licensee.
7. IMPROVEMENTS. Licensor shall make full and prompt disclosure to
Licensee of any invention, improvement or modification made or acquired by
Licensor with respect to any Licensed Products and shall notify Licensee of the
filing of any patent application thereon. The parties agree that any
improvements on the Licensed Products or Other Products made during the term of
this Agreement by the Licensor and Licensee will be handled as follows:
a. The improvements made by Licensor shall be added to the
Agreement as Licensed Products, if Licensee elects to use such
improvements and the Licensor shall have title thereto and the Licensee
shall have all exclusive rights thereto as set forth in paragraph 2
hereof.
b. The Licensor shall whenever possible obtain patent
protection on the improvements and all costs incident thetreto shall be
borne by the Licensor.
c. If the Licensor should elect not to assume the costs of
paragraph 7b, the Licensee may elect to assume the payment of the
<PAGE>
full costs and thereby acquire Licensor's rights in the improvement.
d. In the event the Licensor shall fail or refuse to prepare
and file promptly any patent application, the Licensee shall have the
right to prepare and file the patent application, and said application
and patent shall become the property of Licensee.
e. Licensee in its own discretion and at its own expense may
determine to file patent applications in foreign countries in its own
name, and the Licensor shall execute the necessary papers and documents
therefor.
f. The improvements made by Licensee to the Licensed Products
or Other Products shall be owned by Licensee and Licensee shall have
the exclusive rights with respect thereto including the right to use
such improvements in manufacturing, marketing, selling or using the
Licensed Products, Other Products and the On-Off sprinkler heads and
valves. Royalty payments therein shall be made in accordance with
paragraph 4 hereof and on cessation of royalty payments as provided in
the last sentence of paragraph 4c hereof, Licensee shall continue to
have the right to manufacture, market, sell and use such improvements
without the paymeny of any royalty to Licensor.
8. SUB-LICENSES. During the life of this Agreement, the Licensee may
grant sub-licenses upon the following terms and conditions:
a. No such sub-license shall be granted by the Licensee for a
term beyond or longer than that during which the Licensee continues to
enjoy an exclusive license hereunder.
b. The Licensor shall be entitled to receive royalties at the
same rate of Net Sales Price as provided herein on all sales by
sub-licensees, as and when the Licensee receives its royalty payment
from any sub-licensee.
<PAGE>
9. WARRANTY. Licensor warrants that the Licensed Patents cover all of
Licensor's patents with respect to the Licensed Products and it is the
understanding of this Agreement and the license(s) granted hereby that Licensor
by this Agreement is placing the Licensee in the sole and exclusive position to
manufacture, market and sell all Licensed Products, and Other Products which are
the subject matter of this Agreement free from any outstanding rights or claims
by others, but it is understood the Licensor is not by this proviso warranting
the validity and enforceability of the Licensed Patents.
10. INFRINGEMENT. The parties agree that patent infringement matters
will be handled as follows:
a. The Licensor shall indemify and hold Licensee and its
customers harmless against any and all charges of patent infringement
brought by a third party involving the Licensed Products, or Other
Products unless such patent infringement results from modifications of
the Licensed Products or Other Products made by Licensee during the
term of this Agreement which modifications have not been approved in
writing by Licensor. Beginning with the time such suit for infringement
or declaratory judgment is first filed with respect to a particular
Licensed Product, or Other Product, the Licensee shall thereafter place
all royalties due to the Licensor with respect to such particular
Licensed Products thereafter in an escrow account, and the sums placed
in the escrow account shall be used at the conclusion thereof to pay
the costs of defending or prosecuting the suit in the event Licensor is
successful in such suit and declared to be the rightful owner who can
and
<PAGE>
has granted an exclusive license only to Licensee. Once such suit has
been finally settled or disposed of on the basis that Licensee is and
has the only exclusive license, the remaining balance of the escrow
account shall be paid over to the Licensor. If the suit is finally
settled or disposed of on the basis that Licensee has a non-exclusive
license or the Licensed Product infringes on another patent owned by a
third party, then all sums paid into escrow shall be refunded to
Licensee. Licensee shall have the right to approve counsel selected by
Licensor to represent it in any such suit and to approve any proposed
settlement of such suit.
b. Should the patent rights to the Licensed Products or Other
Products be infringed by a third party, Licensor may attempt to stop
such infringement and if necessary, institute suit for patent
infringement at its own cost. If the Licensor should fail to initiate
action to terminate any such infringement within sixty (60) days after
the alleged infringement shall have been called to its attention by
written notice of Licensee to Licensor or if the Licensor should give
the Licensee written notice of its intention not to so act, thereafter
Licensee may, at its own cost, but in the name of the Licensor, act to
protect its license rights under this Agreement and to select competent
counsel to so act. During the period of such litigation the Licensee
may deduct the amount of its attorneys' fees and all other costs
incurred by Licensee in prosecuting such suit from all royalties which
otherwise would be paid to Licensor and such sums so deducted will be
considered as a royalty payment. Each party agrees to cooperate with
the other in any actions which may be instituted.
<PAGE>
If settlement for infringement is effected with or without suit, the
recovery, if any, shall be distributed, so far as available, as
follows: First, to reimburse either party, pro rata the expenses
incurred in negotiations or in prosecuting legal action; and secondly
to divide and pay over the balance, if any, equally between the
parties hereto. Furthermore, if an improvement is not eventually
patented or a patent application is rejected or a patent suit concerns
any Licensed Product or Other Product or improvement thereof is not
won, the Licensee automatically shall have no further obligation to
Licensor to pay further royalties (i) on the Licensed Product unless
there is another Licensed Patent then outstanding which has not expired
and (ii) on any Other Product unless there is a patent then outstanding
which has not expired and covers said Other Product.
11. TERMINATION. The parties agree that the term of this Agreement
will be as follows:
a. Unless terminated as otherwise provided, this Agreement
shall continue with respect to each Licensed Product or Other Product
for the life of the last to expire patent licensed herein with respect
thereto as long as said patent has not been determined invalid by any
court of competent jurisdiction, provided, however, that should any
such invalidation be reversed on appeal, royalty payments shall be
resumed retroactive to the date of the original invalidation.
b. If the Licensee fails to pay the Licensor the royalties as
herein provided, or fails to submit a monthly statement of Net Sales
Price of Licensed Products or fails to keep accurate records of all
sales of the Licensed Products or refuses to permit Licensor, or its
duly authorized
<PAGE>
representatives, to inspect such records at a reasonable time at
Licensee's principal place of business and Licensee does not cure such
default within thirty (30) days after written notice from Licensor,
Licensor shall have the right to terminate this Agreement on thirty
(30) days' written notice.
c. Licensee shall have the right to terminate this Agrement
upon giving the Licensor written notice of its intention to do so on
any anniversary date of this Agreement.
d. If this Agreement is terminated prior to the termination
date as provided in paragraph lla, Licensee shall at the written
request of Licensor return to Licensor all books, notes, drawings,
writings and other documents, samples and models received by Licensee
from Licensor relating to the Licensed Products and which Licensee has
at the time of the termination and request for such data. Under no
circumstances will Licensee be required to turn over to Licensor trade
secrets, inventions and improvements of Licensee including data
submitted by Licensee to any and all regulatory and approval agencies.
e. In the event that this Agreement is cancelled or terminated
by expiry or otherwise, Licensee may continue to manufacture, use,
market and sell Licensed Products and Other Products which are the
subject matter of this Agreement, upon payment by Licensee to Licensor
of said five percent (5%) royalty thereon for any such then patented
items at the monthly payment dates specified herein, which royalty
payment shall be required to be made by Licensee only for the life of
the last to
<PAGE>
expire patent licensed herein with respect thereto and then only as
long as said patent has not been determined invalid by any court of
competent jurisdiction, provided however, that should any invalidation
be reversed on appeal, royalty payments shall be resumed retroactive to
the date of the original invalidation.
12. PRODUCT MARKING. The parties agree the Licensed Products will be
marked as follows:
a. The Licensee shall apply to all Licensed Products sold such
notice of the patents licensed herein as may be required by law to
establish notice.
b. The Licensee shall have the right to stamp, designate and
advertise the Licensed Products under such names, designs or
appellations as Licensee may determine, which such names, designs or
appellations shall be the property of the Licensee and may not be used
by the Licensor upon termination of this Agreement without the prior
written consent of the Licensee.
13. RECORDS. The Licensee agrees to keep full and accurate records of
all sales of the Licensed Products, and all trade and cash discounts, returns,
refunds, rebates and accounts written off, which records shall be open to
inspection by the Licensor and its duly authorized representatives not more than
once each quarter for the purpose of verifying the Net Sales Price of the
Licensed Products during reasonable business hours.
14. RIGHTS AND REMEDIES. The rights and remedies of Licensor and
Licensee hereunder, and those provided by law, shall be construed as cumulative
and no one of them as exclusive of any other right or remedy hereunder or
<PAGE>
allowed by law, and shall be continuing rights, none of which shall be exhausted
by being exercised on one or more occasions. A waiver by Licensor and Licensee
of any default, breach or failure of the other shall not be construed as a
continuing waiver, or as a waiver of any subsequent or different default, breach
or failure.
15. LICENSOR'S REPRESENTATIONS. The Licensor hereby represents to
Licensee and Licensee hereby relies on such representations that Licensor is the
exclusive owner of all the Licensed Patents and that to the knowledge and best
belief of Licensor none of the Licensed Products infringe any patents owned by
others and Licensor is not aware of any potential infringements by others of the
Licensed Products.
16. FUTURE IMPROVEMENTS. Licensor acknowledges that Licensee not only
manufactures and sells sprinkler devices, but that Licensee is now and has been
for years engaged in the research and development of various products for use
in the fire prevention-sprinkler industry and that Licensee intends to pursue
such research and development in an effort to develop additional products and
improvements for use in the fire protection-sprinkler industry. It is understood
and agreed that any inventions or improvements made by Licensee in or related to
the Licensed Products or Other Products shall be owned by Licensee. Licensor
shall disclose all its data concerning improvements to Licensee with the
understanding that Licensee may unbeknownst to Licensor also be working on the
same or similar improvements. After presentation by Licensor and sufficient
examination thereof by Licensee, Licensee shall advise Licensor if the data
presented by Licensor concerns inventions, ideas, trade secrets or inprovements
which Licensee already had in its possession at the time of disclosure and
<PAGE>
which were not acquired, directly or indirectly, from Licensor and, in such
event, Licensee shall have the right to continue its research and development
in the area of the data concerning such inventions, ideas, trade secrets or
improvements which Licensee may manufacture, sell and patent as its own.
17. ARBITRATICN. Any controversy or claim arising out of or relating to
this Agreement or breach thereof shall be settled by arbitration by arbitrators
to be selected by the American Arbitration Association, and said arbitration
shall be conducted in accordance with the rules of said Association and shall be
final and binding on the parties hereto.
18. PAYMENT OF FEES ON FOREIGN PATENTS. Licensee shall pay all costs
and expenses to those foreign countries for that period of time in which
Licensee desires that foreign payments be maintained. If Licensee elects not to
pay such maintenance costs on any foreign patents, then the rights to such
foreign patents revert back to Licensor, on which the maintenance costs have not
been satisfied by Licensee.
19. NO CONTEST BY LICENSEE. Licensee acknowledges that it has no reason
to believe that the Licensed Patents are not fully valid and enforceable and
Licensee agrees that it will not contest the validity of the Licensed Patents.
20. ROYALTY FEES PAID TO OTHERS. If it is necessary to, and essential
for, the use and operation of the Licensed Products to utilize an item or
product on which a royalty has to be paid by Licensee to a third party (other
than Licensor or an employee or a subsidiary of Licensee) then notwithstanding
the provisions of paragraph 4 hereof, the amount(s) of the royalty so paid to
the third party a) will be deducted from the payment(s) otherwise due Licensor
hereunder and b) shall be credited in favor of Licensee with respect to Licensee
achieving the Minimum royalty as provided in paragraph 4 hereof to the same
extent as though such royalty payment(s) made to such third party had been made
directly to Licensor.
<PAGE>
21. APPLICABLE LAW. This Agreement shall be construed and the legal
relations between the parties determined in accordance with the laws of the
Commonwealth of Massachusetts.
22. SUCCESSORS. This Agreement shall be binding upon the Parties
hereto and their respective successors and assigns.
23. NOTICES. The parties agree that all notices required or permitted
under this Agreement shall be given as follows or as may be changed by written
notice to the other party:
a. Notices to the Licensor shall be addressed to Licensor at
the address for it shown on page 1 hereof unless Licensee has been
notified by it in writing of a different address.
b. Notices to the Licensee shall be addressed to Licensee at
the address for it shown on page 1 hereof unless Licensor has been
notified by it in writing of a different address.
c. All notices hereunder shall be by certified mail, return
receipt requested.
24. MODIFICATION. No modification of this Agreement shall be valid or
binding unless in writing and signed by Licensee and Licensor.
IN WITNESS WHEREOF, the parties hereunto signed and sealed this
Agreement consisting of eighteen (18) pages the day and year first above
written.
U.S. FIRE CONTROL CORP.
BY /s/ Raymond E. Shea
--------------------------
ATTEST: Raymond E. Shea, President
- --------------------------------
CENTRAL SPRINKLER CORP.
BY /s/ XXXXXXXXXXX
ATTEST: --------------------------
<PAGE>
U.S. Fire Control Corporation
Australia:
Patent No. 474,658
Belgium:
Patent No. 788,653
Canada:
Patent No. 977239
Patent No. 1,013,231
France:
Application No. 72 36 067
Germany:
Application No. P-22-46-496.6
Great Britain:
Patent No. 1,396,603
Patent No. 1,409,256
Holland:
Application No. 7210081
<PAGE>
SCHEDULE 3.10(a)
Loss Contingencies
In October 1996, CSC recorded an unusual non-recurring charge to the income
statement. Discussion is presented in footnote #15 of the Annual Report to
Shareholders (a copy of which is attached) and was updated by the following
disclosure made in the SEC Form 10-Q dated July 31, 1997.
(5) Unusual Non-Recurring Omega(TM) Charge
In the fourth quarter of 1996, the Company recorded an unusual
non-recurring charge to cost of sales of $3,750 ($2,362 net of tax or $.72 per
share). For the estimated costs to be incurred by the Company in connection with
Omega(TM) problems. In fiscal 1996, the Company became aware of potential
problems in certain steel pipe systems utilizing Omega(TM) sprinklers. The
addition of stop-leak products or the presence of excessive hydrocarbons has
been found in certain circumstances to affect the operation of such sprinklers.
In order to assess the extent of the problems, the Company has strongly
recommended that a sampling of Omega(TM) sprinklers from each such installed
system be returned to the Company for testing. Based on the results of the
tests, the Company will review each situation with the building owner and
develop an appropriate action plan, if needed. The Company did not install such
sprinklers and installation of the sprinklers is the responsibility of the
building owner. However, the Company's primary concern is to offer the finest
possible fire protection to building owners while working within its sales and
warranty policy to maintain customer goodwill. The Company continues to be an
active participant with building owners in testing sprinklers and remediating
the problem. The Company provides kits to test installed sprinklers and
continues to monitor the results of the tests and costs incurred. As of July 31,
1997, the Company is involved in several governmental and other regulatory
authority inquiries into the Omega(TM) situation. The Company is providing the
authorities with requested information regarding the Omega(TM) sprinklers and
the Company's actions and action plan.
Note: As a result of the Omega(TM) situation, the following have occurred:
(a) Consumer Product Safety Commission (CPSC) Investigation.
(b) Lawsuit as disclosed in the Company's 10-Q for the period ended July
31, 1997 and on Schedule 3.5 of this Credit Agreement.
<PAGE>
SCHEDULE 3.17
Transactions with Affiliates
o Central Sprinkler Company purchases all the CPVC production from
Central CPVC Corporation.
o Central Castings Corporation sells most of their production to Central
Sprinkler Company.
o Central Sprinkler Company pays a royalty to CSC Finance Company,
pursuant to trademark license agreement between Central Sprinkler
Company and CSC Finance Company, attached to Schedule 3.7.
o Central Sprinkler Company pays a commission to Central Sprinkler Export
Corporation on sales made outside the United States.
o Spraysafe purchases some finished goods and raw material from Central
Sprinkler Company for use in their production and resale in the foreign
market.
o Some companies pay management fees to Central Sprinkler Company.
o Various dividends and capital contributions are made between and among
the parent company and subsidiaries as described in Schedule 6.3(f).
There are intercompany receivable and payables and intercompany loans between
the companies (reference Schedule 6.1(e)).
<PAGE>
SCHEDULE 3.18
Environmental Matters
CSC's environmental matters are disclosed in CSC's SEC Form 10-Q for the period
ended July 31, 1997, SEC Form 10-K for the year ended October 31, 1996 and the
Annual Report, footnote 15.
<PAGE>
SCHEDULE 3.20
Collateral Locations
Chief Executive Offices of Central Sprinkler Company, CSC and Export:
- ---------------------------------------------------------------------
451 N. Cannon Avenue
Lansdale, PA 19446
Central Sprinkler Company Locations:
- ------------------------------------
451 N. Cannon Avenue 7th Street
Lansdale, PA 19446 Anniston, AL 36206
W. 2nd & Towamencin Avenue 2660 Old Gadsden Highway
Lansdale, PA 19446 Anniston, AL 36206
245 Swancott Rd.
Madison, AL 35758
Regional Distribution Centers:
- ------------------------------
Atlanta Los Angeles
3080 N. Lanier Parkway 3170 Nasa Street
Decatur, GA 30030 Brea, CA 92621
Baltimore/Washington D.C. Miami
8230-C Preston Court 1500 S.W. 5th Ct., Suite A
Jessup, MD 20794 Pompano Beach, FL 33069
Boston Philadelphia
27R Doherty Avenue 201 King Manor Road
Avon, MA 02322 King of Prussia, PA 19406
Chicago Portland
85 O'Leary Drive 7500 S.W. Tech Center Dr. Ste. 110
Bensenville, IL 60106 Tigard, OR 97223
Cleveland Salt Lake City
12400 Plaza Drive 2915 S. West Temple
Parma, OH 44130 Salt Lake City, UT 84115
Dallas San Francisco
1780 Hurd Drive 2380 Lincoln Avenue
Irving, TX 75038 Hayward, CA 94545
<PAGE>
Regional Distribution Centers (continued):
- ------------------------------------------
Greensboro Seattle
156 Industrial Avenue 19307 70th Avenue South
Greensboro, NC 27406 Kent, WA 98032
Glass Bulb Manufacturing:
Glinecke Glass Company
94 Walker Lane
Newtown, PA 18940
Contract Manufacturing (Steel Pipe):
Youngstown Tube
301 Andrews Avenue
Youngstown, OH 44505
Consignment of Inventory:
Atlantic American Fire Equipment Co.
121 Titus Avenue
Warrington, PA 18976
<PAGE>
SCHEDULE 3.21
Fictitious Names of Secured Borrowers
The following are fictitious names of Central Sprinkler Company:
Sprink Cad
Glinecke Glass Company
CSC Bulb Company
<PAGE>
SCHEDULE 6.1(d)
Permitted Debt
All items disclosed in the July 31, 1997 financial statements included with Form
10-Q and the notes thereto and October 31, 1996 financial statements included
with Form 10-K and the notes thereto, as well as the following (certain of
which may be included in such financial statements and notes).
<TABLE>
<CAPTION>
Company 9-24-97 Maturity
Limit Description Lender Balance Date
<S> <C> <C> <C> <C>
1. $30,000,000 Line of Credit CoreStates $27,471,000 on going(l)
2. 10,000,000 Line of Credit First Union 10,000,000 on going(l)(2)
3. 7,275,000 Term Note Central ESOP 6,782,000 10-31-07
4. 1,100,000 Mortgage Loan CoreStates 329,878 02-01-02
5. 10,000,000 Term Loan First Union 6,500,000 04-01-04
6. 10,000,000 Term Loan CoreStates 6,500,000 03-01-04
7. 688,000 Mortgage Loan CoreStates 619,200 08-01-96
8. 11,000,000 L/C - IRB First 10,450,000 11-01-15
Union/CoreStates
Central CPVC Corp.
1. 7,500,000 Term Note Brown Brothers $7,500,000 on going
Spraysafe Ltd.
1. 4,223,700 Line of Credit National Westminster 2,140,700 on going
2. 1,110,000 Term Note National Westminster 932,000 7 years
</TABLE>
Other:
- ------
Miscellaneous secured obligations for various autos, trucks, equipment, etc.
that in the aggregate are not above permitted levels of the existing loan
covenants of $3 million.
(1) To be repaid with proceeds from Revolving Credit Facility at closing.
(2) As permitted under Section 6.1(g) of the Revolving Credit Facility.
<PAGE>
SCHEDULE 6.1(e)
Existing Inter-Company Debt
Central Sprinkler Corporation Employee Stock Ownership Plan has a promissory
note payable to CSC. At September 30, 1997, the balance on the promissory note
will be $6,726,000. Refer to footnote #13 of the October 31, 1996 Annual Report
to Shareholders for discussion.
Central Sprinkler Company, a Pennsylvania Corporation (maker) promised to pay to
the order of CSC Finance Company, a Delaware Corporation (payee) the amount of
$11,750,000 with interest per annum equal to prime rate charged by CoreStates
Bank, N.A. principal and interest to be paid as the holder of note may direct
entered into December 21, 1994.
Other balances payable to or receivable from Central Sprinkler Company as of
9/24/97(1) are:
<TABLE>
<CAPTION>
Receivable From Amount Payable To Amount
<S> <C> <C> <C>
Central Castings Corp. $4,899,600 Central CPVC Corp. $10,486,200
CSC $85,000
Central Sprinkler Export Corp. $369,500
CSC Finance Co $3,658,100
</TABLE>
- ----------
(1) These accounts arise because Central Sprinkler Company pays all payables on
behalf of its Subsidiaries and CSC and retains all collections, transacts all
intercompany transactions, as more fully described on Schedule 3.17, including
but not included to: royalty payments, dividends and contributions of capitals,
management fees, commissions and sales of inventory, raw material and
production. The net amount of these transactions give rise to the above
described intercompany receivables and payables.
<PAGE>
SCHEDULE 6.2(c)
Permitted Liens
Central Sprinkler Company:
1. Mortgage Lien - CoreStates Security Interest on
451 North Cannon Avenue
Lansdale, PA
2. All Equipment and Warehouse Leases - contractually obliged to grant
security interest to Landlord upon equipment and property held at warehouse
if rents are unpaid.
3. All Auto and Truck Leases - lien upon autos and trucks under lease.
4. All Auto and Truck Loans - lien upon autos and trucks subject to loan.
5. Lien of First Union National Bank ("First Union") in and to any property,
credits, securities or monies of Central Sprinkler Company in the
possession of First Union from time to time, as provided in Section 6.02 of
the First Union Term Loan Agreement, upon event of default.
6. Mortgage Lien - CoreStates Security Interest on
90 North Towamencin Street
Lansdale, PA
7. Cannon Financial Services - lien upon copiers under lease.
8. AT&T Capital Corporation - lien upon one copier under lease.
9. Pitney Bowes Credit Corp.- lien upon Pitney Bowes equipment under lease.
10. Deere Credit, Inc. - lien upon Manlift under lease.
11. Crown Credit Co.- lien upon Crown Lift trucks.
12. Orix Credit Alliance - lien upon equipment under lease.
13. Judgement Lien related to case #92-07079 and filed April 3, 1992 in the
amount of $80,799.65.
<PAGE>
CSC
---
1. Lien of First Union in and to any property, credits, securities or monies
of CSC in the possession of First Union from time to time, as provided in
Section 5 of the Guaranty, dated April 5, 1994 of the First Union Term Loan
Agreement, upon event of default
Central CPVC Corporation:
-------------------------
<TABLE>
<S> <C> <C>
1. Mortgage Lien - Brown Bros. Security Interest on property and equipment
245 Swancott Road
Huntsville, AL
2. Lien given in connection with All assets
Term Loan - Brown Brothers
Central Castings Corporation:
1. Mortgage Lien - First Union Security interest on property and equipment
and CoreStates 2660 Old Gadsen Highway
Anniston, AL
2. Lien given in connection with All assets
the Internal Revenue Bond - Letter
of Credit - First Union
3. Chemical Bank Furniture, furnishings, machinery and equipment
(assignee of Calhoun County
Economic Development Council)
4. All Auto and Truck Leases Lien upon autos and trucks under lease or loan
5. Tennant Company Lien upon leased equipment
</TABLE>
<PAGE>
SCHEDULE 6.3(f)
Capital Contributions
At CSC's fiscal year end, capital contributions may be made to Subsidiaries of
CSC, which Subsidiaries are also Borrowers, to the extent that such Borrower has
an intercompany payable to Central Sprinkler Company. Accordingly, for each
capital contribution made from a Borrower, there will be a corresponding capital
contribution made to a different Borrower. As a whole, the total equity of the
consolidated Borrowers will not decrease due to any such capital contribution.
<PAGE>
SCHEDULE 6.7(a)
Guarantees
All items disclosed in the July 31, 1997 financial statements included with Form
10-Q and the notes thereto and October 31, 1996 financial statements included
with Form 10-K and the notes thereto, as well as the following (certain of which
may be included in such financial statements and notes).
Company Obligation Maturity
Limit Beneficiary Balance Guaranteed Date
1. $98,644 Yong An Valve 98,644 Letter of Credit 9-30-97
2. 19,288 Bldrs United Corp. 19,288 Letter of Credit 9-30-97
3. 44,482 FuSan Machinery 44,482 Letter of Credit 9-30-97
CSC and Central Sprinkler Company guarantee all debt of Spraysafe, Central
Castings Corp. and Central CPVC Corp., as well as warehouse leases, auto and
truck and various equipment leases of these entities.
Additionally, Export guarantees all debt of Central Castings Corp., Central CPVC
Corp, as well as warehouse leases, auto and truck and various equipment leases
of these entities.
Castings guarantees the obligations of Central Sprinkler under both the First
Union Term Loan and the CoreStates Term Loan.
<PAGE>
REVOLVING CREDIT NOTE
$55,000,000 October 28, 1997
FOR VALUE RECEIVED, CENTRAL SPRINKLER COMPANY, a Pennsylvania
corporation (the "Maker"), CENTRAL SPRINKLER CORPORATION, a Pennsylvania
corporation ("CSC"), CENTRAL CASTINGS CORPORATION, an Alabama corporation
("Castings"), CENTRAL CPVC CORPORATION, an Alabama corporation ("CPVC"), and
CENTRAL SPRINKLER EXPORT CORPORATION, a Barbados corporation ("Export") (CSC,
Castings, CPVC, and Export being collectively referred to herein as the
"Co-Makers" and the Maker and the Co-Makers being collectively referred to
herein as the "Makers"), jointly and severally promise to pay to the order of
CORESTATES BANK, N.A., a national banking association in its capacity as Agent
for CORESTATES BANK, N.A., LaSALLE NATIONAL BANK, and NATIONAL CITY BANK OF
PENNSYLVANIA as the Lenders in accordance with their respective Commitment
Percentage under the Credit Agreement (in such capacity as Agent, the "Payee")
the principal sum of Fifty-Five Million Dollars ($55,000,000) or such greater
or lesser amount as shall be shown on the records of the Payee as the unpaid
principal balance of this Note, in lawful money of the United States of America,
(i) on the sooner of: (A) the Termination Date; or (B) upon written demand by
Payee after the occurrence of any Event of Default; or (ii) immediately and
automatically upon the occurrence of any Event of Default as defined and
described in Sections 7.1(e) or 7.1(f) of the Credit Agreement, with interest,
on the terms and conditions described below.
1. Interest.
(a) The Makers also promise to pay interest on the Advances
evidenced by this Note at the rates and times provided in Section 2.3 of the
Credit Agreement.
(b) Interest shall be due and payable hereunder as follows:
(i) with respect to Base Rate Loans evidenced by this
Note, interest shall be payable monthly commencing on November 1, 1997,
and continuing on the same day each month thereafter until the
Termination Date; and
(ii) with respect to LIBOR Loans evidenced by this
Note, at the expiration of the LIBOR Period applicable thereto;
provided, however, for LIBOR Loans having a LIBOR Period in excess of
three (3) months, interest shall be payable at the expiration of each
three (3) month period during the LIBOR Period and at the expiration of
the LIBOR Period.
2. Default Rate. Notwithstanding the provisions of Paragraph 1
hereof, upon the occurrence of any Default or Event
1
<PAGE>
of Default, this Note shall immediately and automatically begin to bear interest
at the Default Rate.
3. Post-Judgment Interest. The interest rates provided in this
Note shall apply to the indebtedness evidenced hereby before, on and after the
date or dates on which the Payee enters judgment on this Note.
4. Prepayments. The prepayment of principal on this Note shall
be governed by Section 2.13 of the Credit Agreement.
5. Loan Agreement. This Note is the Revolving Credit Note
referred to in Section 2.2 of the Credit Agreement dated the date hereof by and
among the Makers, the Payee, and the Lenders identified therein (as that Credit
Agreement may be modified, amended, supplemented, or restated from time to time,
the "Credit Agreement"). This Note is issued to the Agent for the pro-rata
benefit of the Lenders in accordance with each Lender's Commitment Percentage
pursuant to the Credit Agreement. This Note is issued subject to the terms and
conditions of the Credit Agreement and is entitled to all the benefits contained
in the Credit Agreement. Any capitalized terms used herein that are not defined
herein, but which are defined in the Credit Agreement, shall have the meanings
given to such terms in the Credit Agreement. The Credit Agreement is
incorporated herein by reference thereto.
6. Security. This Note is secured by those properties, assets
and other rights in which liens, security interests, pledges, and assignments
are granted under and pursuant to the Security Agreement and other Security
Documents. This Note is issued subject to terms and conditions of, and is
entitled to all of the rights, remedies, and benefits contained in, the Credit
Agreement, the Security Documents, and all other Loan Documents.
7. Events of Default; Rights, Remedies.
(a) On the occurrence of any Event of Default, Payee may
exercise any and all rights and remedies set forth in the Loan Documents or
otherwise available under applicable law.
THE FOLLOWING PARAGRAPH SETS FORTH A WARRANT OF ATTORNEY TO CONFESS JUDGMENT
AGAINST THE MAKERS. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT
AGAINST THE MAKERS, EACH OF THE MAKERS KNOWINGLY, INTELLIGENTLY AND VOLUNTARILY,
AND, ON THE ADVICE OF COUNSEL, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS EACH OF
THE MAKERS MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE
RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH OF
PENNSYLVANIA.
(b) AFTER THE OCCURRENCE OF ANY EVENT OF DEFAULT, EACH OF
THE MAKERS AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD OF
PENNSYLVANIA OR ELSEWHERE TO APPEAR FOR AND
2
<PAGE>
ENTER JUDGMENT AGAINST THEM FOR THE UNPAID PRINCIPAL AMOUNT OF THIS NOTE,
TOGETHER WITH ALL ACCRUED, UNPAID INTEREST AND LATE CHARGES THEREON (THE
"DEBT"), PLUS COSTS OF SUIT AND ATTORNEYS' FEES IN AN AMOUNT EQUAL TO THREE
PERCENT (3%) OF THE DEBT, WITH OR WITHOUT DECLARATION OR STAY OF EXECUTION, AND
WITH RELEASE OF ERRORS, FOR WHICH THIS NOTE OR A COPY HEREOF SHALL SERVE AS A
SUFFICIENT WARRANT. THIS POWER TO ENTER JUDGMENT BY CONFESSION SHALL NOT BE
EXHAUSTED BY ANY EXERCISE AND SHALL CONTINUE UNTIL FULL PAYMENT OF ALL AMOUNTS
DUE UNDER THIS NOTE. TO THE EXTENT THE ATTORNEYS' FEES AND OTHER COSTS AND
EXPENSES DEMANDED BY PAYEE FROM ANY OF THE MAKERS UNDER SECTIONS 9.3 OR 9.4 OF
THE CREDIT AGREEMENT EXCEED THREE PERCENT (3%) OF THE DEBT, EACH OF THE MAKERS
HEREBY AUTHORIZES PAYEE TO PETITION THE COURT FOR AN AWARD OF ADDITIONAL FEES
AND EXPENSES AND EACH OF THE MAKERS AGREES NOT TO OPPOSE SUCH PETITION.
8. Joint and Several Obligation. All references herein to the
"Makers" shall be deemed to refer to each and every person defined herein as one
of the "Makers" individually, and to all of them, collectively, jointly and
severally, as though each were named whenever the term "Makers" is used, and
this Note shall be a joint and several obligation of all of them.
9. Waivers. The Makers and all guarantors of and sureties for
this Note waive presentment for payment, demand, notice of dishonor, protest,
and notice of protest with regard to this Note, all errors, defects and
imperfections in any proceedings instituted by Payee under the terms of this
Note, or of the Credit Agreement, and all benefit that might accrue to the
Makers by virtue of any present or future laws exempting any property, real or
personal, or any part of the proceeds arising from any sale of any such
property, from attachment, levy, or sale under execution, or providing for any
stay of execution, exemption from civil process, or extension of time for
payment; and Makers agree that any real estate that may be levied upon pursuant
to a judgment obtained by virtue hereof, on any writ of execution issued
thereon, may be sold upon any such writ in whole or in part in any order desired
by Payee.
10. Unconditional Liability. Makers and all endorsers,
sureties and guarantors hereby jointly and severally waive all other notices in
connection with the delivery, acceptance, performance, default, or enforcement
of the payment of this Note, and they agree that the liability of each of them
shall be unconditional, without regard to the liability of any other party, and
shall not be affected in any manner by any indulgence, extension of time,
renewal, waiver or modification granted or consented to by Payee, and consent to
any and all extensions of time, renewals, waivers, or modifications that may be
granted by Payee with respect to the payment or other provisions of this Note,
and to the release of any part of any of the Collateral, with or without
substitution, and agree that additional makers, endorsers, guarantors, or
sureties may become
3
<PAGE>
parties hereto without notice to them or affecting their
liability hereunder.
11. Construction. This Note shall be construed and enforced in
accordance with the domestic, internal law, but not the law of conflict of laws,
of the Commonwealth of Pennsylvania.
12. Severability. Any provision contained in this Note which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
4
<PAGE>
13. Successors and Assigns. The provisions of this Note shall
bind and inure to the benefit of Makers and Payee and their respective
successors and permitted assigns.
IN WITNESS WHEREOF, Makers, intending to be legally bound
hereby, have caused this Note to be duly executed the day and year first above
written.
CENTRAL SPRINKLER CORPORATION
By /s/ Albert T. Sabol
-------------------------------
Albert T. Sabol,
Vice President of Finance
and Administration
CENTRAL SPRINKLER COMPANY
By /s/ Albert T. Sabol
-------------------------------
Albert T. Sabol,
Vice President of Finance
and Administration
CENTRAL CASTINGS CORPORATION
By /s/ Albert T. Sabol
-------------------------------
Albert T. Sabol,
Vice President of Finance
and Administration
CENTRAL CPVC CORPORATION
By /s/ Albert T. Sabol
-------------------------------
Albert T. Sabol,
Vice President of Finance
and Administration
CENTRAL SPRINKLER EXPORT
CORPORATION
By /s/ Albert T. Sabol
-------------------------------
Albert T. Sabol,
Vice President of Finance
and Administration
5
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF CHESTER :
On this 28th day of October, 1997, before me, a notary public,
the undersigned officer, personally appeared ALBERT T. SABOL, who acknowledged
himself to be the Vice President of Finance and Administration of CENTRAL
SPRINKLER CORPORATION, a Pennsylvania corporation, and that he as such officer,
being authorized to do so, executed the foregoing instrument for the purposes
therein contained by signing the name of the corporation by himself as such
officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
/s/ Michele Gottier
----------------------------------
Notary Public
NOTARIAL SEAL
MICHELE A. GOTTIER, Notary Public
Wayne, Chester County
My Commission Expires Nov. 2, 1998
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF CHESTER :
On this 28th day of October, 1997, before me, a notary public,
the undersigned officer, personally appeared ALBERT T. SABOL, who acknowledged
himself to be the Vice President of Finance and Administation of CENTRAL
SPRINKLER COMPANY, a Pennsylvania corporation, and that he as such officer,
being authorized to do so, executed the foregoing instrument for the purposes
therein contained by signing the name of the corporation by himself as such
officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
/s/ Michele Gottier
----------------------------------
Notary Public
NOTARIAL SEAL
MICHELE A. GOTTIER, Notary Public
Wayne, Chester County
My Commission Expires Nov. 2, 1998
6
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF CHESTER :
On this 28th day of October, 1997, before me, a notary public,
the undersigned officer, personally appeared ALBERT T. SABOL, who acknowledged
himself to be the Vice President of Finance and Administration of CENTRAL CPVC
CORPORATION, an Alabama corporation, and that he as such officer, being
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
/s/ Michele Gottier
----------------------------------
Notary Public
NOTARIAL SEAL
MICHELE A. GOTTIER, Notary Public
Wayne, Chester County
My Commission Expires Nov. 2, 1998
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF CHESTER :
On this 28th day of October, 1997, before me, a notary public,
the undersigned officer, personally appeared ALBERT T. SABOL, who acknowledged
himself to be the Vice President of Finance and Administration of CENTRAL
CASTINGS CORPORATION, an Alabama corporation, and that he as such officer, being
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
/s/ Michele Gottier
----------------------------------
Notary Public
NOTARIAL SEAL
MICHELE A. GOTTIER, Notary Public
Wayne, Chester County
My Commission Expires Nov. 2, 1998
7
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF CHESTER :
On this 28th day of October, 1997, before me, a notary public,
the undersigned officer, personally appeared ALBERT T. SABOL, who acknowledged
himself to be the Vice President of Finance and Administration of CENTRAL
SPRINKLER EXPORT CORPORATION, a Barbados corporation, and that he as such
officer, being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing the name of the corporation by himself as
such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
/s/ Michele Gottier
----------------------------------
Notary Public
NOTARIAL SEAL
MICHELE A. GOTTIER, Notary Public
Wayne, Chester County
My Commission Expires Nov. 2, 1998
8
<PAGE>
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (the "Agreement") made and entered
into this 28th day of October, 1997, by and among CENTRAL SPRINKLER CORPORATION
("CSC"), a Pennsylvania corporation, CENTRAL SPRINKLER COMPANY ("Central
Sprinkler"), a Pennsylvania corporation, CENTRAL SPRINKLER EXPORT CORPORATION
("Export"), a Barbados corporation (CSC, Central Sprinkler, and Export being
each individually referred to herein as a "Debtor" and being collectively
referred to herein as the "Debtors"), and CORESTATES BANK, N.A., a national
banking association in its capacity as agent for the Lenders under the Credit
Agreement (in such capacity, the "Agent").
BACKGROUND
----------
A. Pursuant to the terms and subject to the conditions of that
certain Credit Agreement dated the date hereof (as modified, amended,
supplemented, and restated from time to time, the "Credit Agreement") by and
among the Debtors, Central CPVC Corporation ("CPVC"), Central Castings
Corporation ("Castings"), the Lenders identified therein, and the Agent, the
Lenders agreed to make certain credit facilities available to the Debtor, CPVC,
and Castings (collectively, the "Borrowers").
B. As a condition precedent to the Lenders' agreement to
extend credit to the Borrowers under the Credit Agreement, the Credit Agreement
requires the Debtors to grant in favor of the Agent a perfected security
interest in certain of their properties and assets as security for the
Obligations, on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises contained
herein and intending to be legally bound hereby, the parties hereto covenant and
agree as follows:
SECTION 1. DEFINITIONS.
1.1 Incorporation of Background. The Background provisions of
this Agreement (including, without limitation, the defined terms therein set
forth) are incorporated herein by reference thereto as if fully set forth in
this Agreement.
1.2 Incorporation of Defined Terms; Incorporation of Credit
Agreement. Any capitalized terms used herein or in the Background provisions
hereof which are not so defined, but which are defined in the Credit Agreement,
shall have the meanings ascribed to them in the Credit Agreement. The Credit
Agreement is incorporated herein by reference thereto.
1.3 Defined Terms. As used herein, the following terms shall
have the meanings indicated unless the context otherwise requires:
"Accounts," "Chattel Paper," "Equipment,"
"Instruments," "Inventory," and "Products" shall each have the meaning ascribed
to them in the UCC.
"Collateral" shall have the meaning ascribed to it in
Section 2.1 hereof.
"Inter-Company Accounts" shall mean, collectively,
all of the Accounts, Instruments, Documents, General Intangibles, Chattel Paper,
drafts, acceptances, notes, receivables, and choses in action, now existing or
hereafter created or acquired, and all Proceeds and Products thereof, and all
rights thereto of any Debtor arising from the sale or lease of or the providing
of inventory, goods or services, or otherwise, by and between or by and among
any of the Debtors or other Borrowers, as well as all other rights, contingent
or non-contingent, of any kind of any Debtor to receive payment, benefit, or
credit from any other Debtor or Borrower, including obligations
1
<PAGE>
arising from the inter-company advances, loans or extensions of credit between
and among any Debtor or Borrower or any of their Subsidiaries.
"Event of Default" shall have the meaning ascribed to
it in the Credit Agreement.
"Obligations" shall have the meaning ascribed to it
in the Credit Agreement and shall include all of the Debtors' duties,
obligations, and liabilities with respect to the Revolving Credit.
"Other Agreements" shall mean, collectively, the
Credit Agreement, the Loan Documents, and any other agreements, pledges,
instruments, documents, assignments, leases, suretyship agreements or contracts
(including amendments, modifications or supplements thereto and restatements
thereof) now or at any time or times hereafter executed and delivered by or on
behalf of any Debtor to the Agent.
"Proceeds" shall mean, collectively, whatever is
received when any of the Collateral is sold, exchanged, leased, collected, or
otherwise disposed of, including cash, insurance proceeds, negotiable
Instruments and other Instruments for the payment of money, Chattel Paper,
security agreements, other documents, and other noncash proceeds.
"Revolving Credit" shall mean the revolving credit
facility made available by the Lenders to the Borrowers under the Credit
Agreement in the maximum principal amount of Fifty-Five Million Dollars
($55,000,000).
"UCC" shall mean the Pennsylvania Uniform Commercial
Code, as amended from time to time.
1.4 Other Terms. All other terms which are used in this
Agreement and which are not otherwise defined in or by reason of Sections 1.1
through 1.3 hereof, but which are defined or are used in the UCC, shall have the
meanings ascribed to them in the UCC to the extent that such terms are used or
defined therein.
SECTION 2. SECURITY INTERESTS, ASSIGNMENT, AND ADDITIONAL
COLLATERAL.
2.1 Grant of Security Interest and Assignment of
Accounts. To secure the payment to the Lenders and the prompt performance of the
Obligations, (i) each Debtor hereby grants to the Agent a security interest in
all of its presently owned or hereafter acquired Accounts (including, without
limitation, Inter-Company Accounts, Equipment, and Inventory and all Products
and Proceeds of the same (collectively, the "Collateral"), and (ii) each Debtor
hereby assigns, transfers and sets over to the Agent all of its presently owned
and hereafter acquired Accounts and Proceeds thereof. Each Debtor agrees that
the aforesaid grant of security interests is intended as a contemporaneous
exchange for value given to such Debtor.
2.2 Perfection of Security Interests. Each Debtor shall, at
its cost and expense, execute and deliver to the Agent, concurrently with the
execution of this Agreement, and at any time or times hereafter at the request
of the Agent or any Lender, all assignments, certificates of title, conveyances,
assignment statements, financing statements, renewal financing statements,
security agreements, affidavits, notices and all other agreements, instruments
and documents that the Agent or such Lender may reasonably request, in form and
substance satisfactory to the Agent, and shall take any and all other steps
reasonably requested by the Agent or such Lender, in order to perfect and
maintain the security interest and liens granted herein by the Debtors to the
Agent and in order to fully consummate all of the transactions contemplated
herein and under any Other Agreements.
2.3 Power of Attorney. Upon acceleration of the
Obligations by the Agent pursuant to Section 7.2 of the Credit Agreement, each
Debtor does
2
<PAGE>
hereby irrevocably make, constitute and appoint the Agent and any of its
officers, employees or agents as its true and lawful attorneys with power to:
(a) sign the name of such Debtor on any financing
statement, renewal financing statement, notice or other similar document which,
in the Agent's or any Lender's opinion, must be filed in order to perfect or
continue perfected the interests granted in this Agreement or any Other
Agreements;
(b) receive, endorse, assign and deliver, in the name
of such Debtor or in the name of the Agent, all checks, notes, drafts and other
instruments relating to any Collateral including, but not limited to, receiving,
opening and properly disposing of all mail addressed to such Debtor concerning
its Accounts and to notify postal authorities to change the address for delivery
of mail to such address as the Agent may designate;
(c) sign the name of such Debtor on any invoice or
bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, notices of assignment, verifications of
accounts and notices to account debtors;
(d) take or bring at such Debtor's cost, in its name
or in the name of the Agent or the Lenders, all steps, actions and suits deemed
by the Agent necessary or desirable to effect collections of Accounts, to
enforce payment of any Account, to settle, compromise, sell, assign, discharge
or release, in whole or in part, any amounts owing on Accounts, to prosecute any
action or proceeding with respect to Accounts, to extend the time of payment of
any and all Accounts, and to make allowances and adjustments with respect
thereto;
(e) secure credit in the name of any Debtor or in the
name of the Agent; and
(f) do all other things necessary to carry out this
Agreement and all Other Agreements.
Neither the Agent nor any attorney will be liable for any act
of commission or omission nor for any error of judgment or mistake of fact or
law, except and to the extent that such act of commission or omission
constitutes gross negligence or willful misconduct. This power, being coupled
with an interest, is irrevocable so long as any of the Obligations remain unpaid
or unsatisfied.
SECTION 3. PRIORITY OF SECURITY INTERESTS.
3.1 Lien Status. The Debtors jointly and severally represent
and warrant to the Agent and the Lenders that the security interests and other
rights granted to the Agent hereunder, when properly perfected by filing, shall
at all times constitute valid and perfected first-priority security interests
vested in the Agent in and upon all of the Collateral, that such Collateral,
except for the Permitted Encumbrances, is free and clear of all security
interests, liens, encumbrances and claims of all other Persons, and that such
security interests and other rights granted to the Agent hereunder shall not
become subordinate or junior to the security interests, liens, encumbrances or
claims of any other Person including, without limitation, the United States or
any department, agency or instrumentality thereof, or any state, county or local
governmental agency.
3.2 Other Liens. Except to the extent expressly permitted
under Section 6.2 of the Credit Agreement, the Debtors shall not grant (without
the prior written approval of the Agent) a security interest in or permit a lien
or encumbrance upon any of the Collateral to anyone except the Agent.
3
<PAGE>
SECTION 4. LOCATION OF COLLATERAL.
4.1 Location of Collateral, Records. The Debtors jointly and
severally represent, warrant and covenant that the Collateral and all of its
records, ledger sheets, correspondence and invoice documents and instruments
relating to or evidencing the Collateral shall be kept on those premises of the
Debtors described on Schedule 3.20 to the Credit Agreement, such records to be
kept in appropriate containers in safe places. Without limiting the generality
of the Agent's rights under the Credit Agreement, the Agent, at all reasonable
times, shall have full access to and the right to audit each Debtor's books and
records in order to confirm and verify all Accounts, Equipment, and Inventory
assigned to the Agent and to do whatever else the Agent reasonably deems
necessary to protect the security interests of the Lenders.
4.2 Delivery of Records. Each Debtor covenants and agrees
that, upon demand by the Agent, it shall immediately deliver to the Lender all
of such Debtor's books, records, documents and instruments referred to in
Section 4.1 hereof.
SECTION 5. ACCOUNTS.
5.1 Representations and Warranties. Each Debtor represents and
warrants that:
(a) it is now and at all times hereafter shall be the
absolute owner, free and clear of all liens, encumbrances and security interests
of its Accounts, except for (i) the liens and security interests granted herein,
and (ii) the Permitted Encumbrances; and
(b) (i) every Account will be a good and valid
Account representing an undisputed bona fide indebtedness of a debtor to such
Debtor, (ii) there are and will be no defenses, setoffs, or counterclaims of any
nature whatsoever against any Account, except for defenses, set-offs, or
counterclaims which arise in the ordinary course of its business and which are
not, either singly or in the aggregate, material in amount, and (iii) no
agreement, under which any deduction, discount, allowance or special terms of
payment may be claimed, has been or will be made with the debtor on any Account,
except for discounts which arise in the ordinary course of its business and any
other special agreements which have been disclosed by the Debtors to the Agent
prior to the date hereof.
5.2 Collections. Each Debtor may collect its Accounts but only
in the ordinary course of its business. Upon the occurrence of an Event of
Default which is not waived in writing by the Required Lenders, the Agent shall
have the right (a) to notify all account debtors and obligors of Accounts of the
Debtors that the Agent has a security interest therein and that such Accounts
have been assigned to Agent, and (b) to direct all such account debtors to make
payments to the Agent of all sums owing by them to the Debtors. Any and all
disbursements for costs and expenses incurred or paid by the Agent or any Lender
with respect to the enforcement, collection or protection of its interest in the
Collateral, or against the Debtors, whether by suit or otherwise, or
notification of account debtors and obligors, including reasonable attorneys'
fees, court costs and similar expenses, if any, shall become a part of the
Obligations secured by the Collateral and payable on demand and, until paid,
shall bear interest at the Default Rate.
5.3 Inspection of Documents. The Debtors, at such intervals as
the Agent may determine, shall permit representatives of the Agent to inspect
all invoices and other documents relating to Accounts; provided, however, that
such inspections shall not interfere unreasonably with the Debtors' operations.
The Debtors shall promptly inform the Agent of (a) any disputes with any account
debtor or obligor relating to Collateral, and (b) any claimed offset and
counterclaim which may be asserted with respect to the Collateral
4
<PAGE>
which, either singly or in the aggregate, exceeds One Hundred Thousand Dollars
($100,000).
5.4 Segregation of Funds. After exercise by the Agent of its
power to revoke the Debtors' right of collection of Accounts pursuant to Section
5.2 hereof:
(a) each Debtor shall keep all collections separate
and apart from all other funds and property. Such funds shall be delivered to
the Agent at the time and in the form designated by the Agent;
(b) all collections of Accounts shall be set forth on
itemized schedules, showing the name of the account debtor, the amount of each
payment, and such other information as the Agent may request; and
(c) the Proceeds of the collections when received by
any Debtor shall be deposited into an account designated by the Agent. This
account shall be subject to the sole and exclusive control of the Agent and the
Agent shall have the right at all times in its sole discretion to apply all or
part of the monies in said account on payment of the Obligations. The Agent, in
its sole discretion, may (but shall have no obligation to) release to the
Debtors all or any part of the monies held in such account.
SECTION 6. EQUIPMENT AND INVENTORY.
6.1 Representations. Each Debtor represents and warrants that
it is now, and at all times hereafter shall be, the sole owner, free and clear
of all liens, encumbrances and security interests, except the security interests
granted or permitted herein and the Permitted Encumbrances, of indefeasible
title to its Equipment and Inventory.
6.2 Maintenance of Equipment. Except for depreciation and
obsolescence, each Debtor will keep its Equipment in good repair and maintained
in a state of high operating efficiency, and will make all necessary repairs,
replacements of and renewals so that the value and operating efficiency thereof
shall at all times be maintained and preserved in a manner consistent with good
management.
SECTION 7. TAXES AND INSURANCE.
7.1 Payment of Taxes. Each Debtor shall promptly pay, when
due, all sales, use, excise, personal property, income, withholding, corporate
franchise and all other taxes, assessments and governmental charges upon and in
relation to its ownership or use of any of its assets, income or gross receipts
for which such Debtor is or may be liable, except to the extent any such
liabilities are being contested in good faith and with due diligence by such
Debtor and the amount of such liabilities, or the contest thereof, could not, in
the Agent's reasonable discretion, reasonably be expected to have a Material
Adverse Effect or adversely affect the security interests of the Agent in the
Collateral or the priority thereof.
7.2 Discharge of Tax Liens. The Debtors shall not permit, or
suffer to remain, and will promptly discharge, any lien arising from any unpaid
tax, assessment, levy or governmental charge unless the Debtors contest such
lien or liens in good faith, provide the Agent with all facts concerning the
lien and provide adequate reserves on their books to protect against such loss
or deposits adequate cash with Agent, in such amount as Agent may require, as a
reserve for the payment thereof, such contest operates to suspend enforcement of
the tax, assessment, levy, or charge, and does not adversely affect the security
interests of the Agent in the Collateral or the priority thereof.
7.3 Authority to Pay Taxes. In the event Debtors shall fail to
pay any such tax, assessment, levy or governmental charge or to discharge any
such lien or contest the same in good faith and comply with Section 7.2
5
<PAGE>
hereof, the Agent, without waiving or releasing any obligation or default of the
Debtors hereunder, may at any time or times thereafter, but shall be under no
obligation to do so, make such payment, settlement, compromise or release or
cause to be released any such lien, and take any other action with respect
thereto which the Agent deems advisable. All sums paid by Agent in satisfaction
of, or on account of any tax, levy or assessment or governmental charge, or to
discharge or release any lien, and any expenses, including reasonable attorneys'
fees, court costs and other charges relating thereto, shall become a part of the
Obligations secured by the Collateral and payable on demand and, until paid,
shall bear interest at the Default Rate.
7.4 Insurance. The Debtors shall keep all of the Collateral
insured, at its expense, pursuant to and in accordance with the provisions of
Section 5.7 of the Credit Agreement, the provisions of which are incorporated
herein by reference thereto as if fully set forth herein.
7.5 Policies; Proceeds. The Debtors shall deliver to Agent on
demand certified copies of all such insurance policies (or, at the option of
Agent certificates evidencing coverage) evidencing insurance required to be
maintained by the Debtors pursuant to Section 7.4 hereof, with loss payable
clauses in a form satisfactory to Agent naming the Agent as lender loss payee
with the other secured creditors of the Debtors which are parties to the
Intercreditor Agreement. Subject to the provisions of the Intercreditor
Agreement, all proceeds payable under any of such policies shall be payable in
all events to Agent, but at the option of Agent any such proceeds may be
released to the Debtors. The Debtors hereby grant to the Agent a continuing
security interest in and to all such policies and the Proceeds thereof to secure
the repayment of the Obligations and agree that the Agent shall have the right,
in the name of the Debtors or in the name of the Agent, to file claims under any
insurance policies, to receive, receipt and give acquittance for any payments
that may be made thereunder, and to execute any and all endorsements, receipts,
releases, assignments, reassignments or other documents that may be necessary to
effect the collection, compromise or settlement of any claims under any such
insurance policies.
7.6 Authority to Obtain Insurance. If the Debtors shall fail
at any time or times hereafter to obtain and maintain any of the policies of
insurance required hereby, or fail to pay any premium in whole or in part
relating to any such policies, then the Agent may, but it shall have no
obligation to do so, obtain and cause to be maintained any or all of such
policies, and pay any part or all of the premiums due thereunder, without
thereby waiving any default by the Debtors, and any sums so disbursed by Agent
shall become a part of the Obligations secured by the Collateral, payable on
demand and, until paid, shall bear interest at the Default Rate.
SECTION 8. REMEDIES.
8.1 Remedies. Upon the occurrence of an Event of Default, the
Agent and Lenders shall have, in addition to any other rights and remedies
contained in this Agreement or in any Other Agreements, all the rights and
remedies of a secured party under the UCC, all of which shall be cumulative to
the extent permitted by law. In addition to all such rights and remedies, the
Agent may sell, lease or otherwise dispose of the Collateral, or any part
thereof, at public or private sale, for cash, credit or any combination thereof.
The Agent shall have the right to bid and purchase at such sale or sales. The
Proceeds of any sale or other disposition of all or any part of the Collateral
upon which Agent has a security interest, after payment of all costs and
expenses of sale, including retaking, holding, preparing for sale, selling and
the like and also including reasonable attorneys' fees and legal expenses
incurred by the Agent, shall be applied by the Agent to the then outstanding
balance of any of the Obligations and any surplus shall be paid by the Agent to
the Debtors. The Debtors shall be liable to the Agent for any deficiency.
6
<PAGE>
8.2 Legal Costs. If at any time or times hereafter the Agent
employs counsel to prepare or consider approvals, waivers or consents, or to
intervene, file a petition, answer, motion or other pleading in any suit or
proceeding relating to this Agreement or any Other Agreements, or relating to
any Collateral, or to protect, take possession of, or liquidate any Collateral,
or to attempt to enforce any security interest or lien in any Collateral, or to
enforce any rights of Agent or liabilities of any Debtor's account debtors, or
any other Person which may be obligated to Agent by virtue of this Agreement or
any Other Agreements, instrument or document now or hereafter delivered to Agent
by or for the benefit of the Debtors, then in any of such events, all of the
attorneys' fees arising from such services, and any expenses, costs and charges
relating thereto, shall become a part of the Obligations secured by the
Collateral, payable on demand and, until paid, shall bear interest at the
Default Rate.
8.3 Right of Entry. Upon the occurrence of an Event of Default
which is not waived in writing by the Required Lenders, the Agent shall have the
right to enter and remain upon the various premises of the Debtors without cost
or charge to Agent, and to use the same, together with materials, supplies,
books and records of the Debtors, for the purpose of preparing for and
conducting the sale of Collateral, whether by foreclosure, auction or otherwise.
In addition, the Agent may remove from such premises the Collateral and any
records with respect thereto, to the premises of the Agent or any designated
agent of the Agent for such time as the Agent may desire, in order to
effectively collect or liquidate the Collateral.
8.4 Notice. Any notice required to be given by the Agent of a
sale, lease or other disposition of or other intended action by Agent with
respect to any of the Collateral shall be deposited in the United States mails
(certified or registered mail, return receipt requested, deliver to addressee
only), postage prepaid and duly addressed to the Debtors at the address of the
Debtors set forth in the Credit Agreement, at least five (5) calendar days prior
to such proposed action. Such notification shall constitute fair and reasonable
notice to the Debtors of such action.
8.5 No Waiver. The Agent's failure at any time or times
hereafter to require strict performance by the Debtors of any of the provisions,
warranties, terms and conditions contained in this Agreement or any Other
Agreements shall not waive, affect or diminish any right of the Agent at any
time or times hereafter to demand strict performance therewith and with respect
to any other provisions, warranties, terms and conditions contained in this
Agreement or any Other Agreements, and any waiver of any Event of Default shall
not waive or affect any other Event of Default, whether prior or subsequent
thereto, and whether of the same or a different type. None of the warranties,
conditions, provisions and terms contained in this Agreement or any Other
Agreements shall be deemed to have been waived by any act or knowledge of Agent,
its agents, officers or employees, except by an instrument in writing signed by
an officer of the Agent and directed to the Debtors specifying such waiver.
SECTION 9. MISCELLANEOUS
9.1 Application of Payments. Upon the occurrence of an Event
of Default, the Debtors irrevocably waive the right to direct the application of
any and all payments (including Proceeds of Collateral) at any time or times
thereafter which may be received by the Agent by or for the benefit of the
Debtors.
9.2 Legal Effect. This Agreement and any Other Agreements,
instruments and documents executed and delivered pursuant hereto or to
consummate the transactions contemplated hereunder shall be binding upon and
inure to the benefit of the successors and assigns of the parties hereto.
9.3 Construction. The domestic internal laws (but not the law
of conflicts of law) of the Commonwealth of Pennsylvania shall govern and
7
<PAGE>
control the construction, enforceability, validity and interpretation of this
Agreement and any Other Agreements.
9.4 Waiver. The Debtors waive demand, protest, notice of
protest, notice of default, release, compromise, settlement, extension or
renewal of all commercial paper, accounts, contract rights, instruments,
guarantees, and otherwise, at any time held by the Agent on which the Debtors
may in any way be liable, notice of nonpayment at maturity of any and all
Accounts, and notice of any action taken by the Agent unless expressly required
by this Agreement.
9.5 Representations. All representations and warranties of the
Debtors and all terms, provisions, conditions and agreements to be performed by
the Debtors contained in this Agreement, and in any Other Agreements, instrument
or document executed heretofore or concurrently herewith by the Debtors and
delivered to the Agent, shall be true and satisfied at the time of the execution
of this Agreement, and shall survive the execution and delivery of this
Agreement and all Other Agreements.
9.6 Choice of Remedies. To the extent that any of the
Obligations are now or hereafter secured by property other than the Collateral,
or by a guaranty, endorsement or property of any other Person, then the Agent
shall have the right to proceed against such other property, guaranty or
endorsement upon the any Debtor's default in the payment of any of the
Obligations or in any of the terms, covenants or conditions contained in this
Agreement or in any Other Agreement, and the Agent shall have the right, in the
Agent's sole discretion, to determine which rights, security, liens, security
interests or remedies the Agent shall at any time pursue, relinquish,
subordinate, modify or take any other action with respect thereto, without in
any way modifying or affecting any of them or any of the Agent's rights or the
Obligations under this Agreement or under any Other Agreements.
9.7 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any
8
<PAGE>
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, this Agreement has been duly executed on
the day and year first above written.
CENTRAL SPRINKLER CORPORATION, a
Pennsylvania corporation
By /s/ Albert T. Sabol
--------------------------------
Albert T. Sabol, Vice
President of Finance and
Administration
Attest: /s/ Jennifer Cemini
---------------------------
Jennifer Cemini,
Secretary
CENTRAL SPRINKLER COMPANY, a Pennsylvania
corporation
By /s/ Albert T. Sabol
--------------------------------
Albert T. Sabol, Vice
President of Finance and
Administration
Attest: /s/ Jennifer Cemini
---------------------------
Jennifer Cemini,
Secretary
CENTRAL SPRINKLER EXPORT CORPORATION, a
Barbados corporation
By /s/ Albert T. Sabol
--------------------------------
Albert T. Sabol, Vice
President of Finance and
Administration
Attest: /s/ Jennifer Cemini
---------------------------
Jennifer Cemini,
Secretary
("Debtors")
CORESTATES BANK, N.A., a national banking
association, in its capacity as Agent for
the Lenders
By /s/ William Johnston
--------------------------------
Name: William Johnston
Title: Vice President
("Agent")
9
<PAGE>
$7,500,000 TERM LOAN
from
BROWN BROTHERS HARRIMAN & CO.
to
CENTRAL CPVC CORPORATION
-----------
May 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS AND ACCOUNTING TERMS.............................................................. 1
1.01. Defined Terms and Accounting Terms................................................... 1
2. AMOUNT AND TERMS OF THE LOANS................................................................. 6
2.01. Loan................................................................................. 6
2.02. Conversion of Loan................................................................... 6
2.03. Term Loan Conversion to IRB.......................................................... 7
2.04. Note................................................................................. 7
2.05. Maturity Date........................................................................ 7
2.06. Default Interest..................................................................... 7
2.07. Optional Prepayments................................................................. 8
2.08. Mandatory Prepayments................................................................ 8
2.09. Method of Payment.................................................................... 8
2.10. Illegality........................................................................... 9
2.11. Disaster............................................................................. 9
2.12. Increased Cost....................................................................... 10
2.13. Bank's Determinations Conclusive; Notice of
Amounts Due........................................................................ 11
3. CONDITIONS TO LENDING......................................................................... 11
3.01. Conditions Precedent................................................................. 11
4. REPRESENTATIONS AND WARRANTIES................................................................ 12
4.01. Good Standing........................................................................ 12
4.02. Capital Stock........................................................................ 13
4.03. Indebtedness......................................................................... 13
4.04. Authority............................................................................ 13
4.05. No Action, Notice, Claim, Litigation or
Proceeding......................................................................... 13
4.06. Compliance with Laws, Regulations.................................................... 14
4.07. Title................................................................................ 14
4.08. Taxes................................................................................ 14
4.09. Financial Statements................................................................. 14
4.10. Indebtedness......................................................................... 14
4.11. Solvency, Capital.................................................................... 15
4.12. Information.......................................................................... 15
4.13. Margin Stock......................................................................... 15
4.14. Untrue Statement..................................................................... 15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
5. COVENANTS......................................................................................... 15
5.01. Financial Statements, Reports........................................................ 15
5.02. Indebtedness, Taxes, Insurance, etc.................................................. 16
5.03. Ownership............................................................................ 17
5.04. Management........................................................................... 18
5.05. Securities and Exchange Commission................................................... 18
5.06. Maintenance of Account............................................................... 18
5.07. Litigation, Violation of Laws, etc................................................... 18
5.08. ERISA................................................................................ 18
5.09. Liens................................................................................ 18
5.10. Indebtedness......................................................................... 20
5.11. Guarantees........................................................................... 21
5.12. Loan, Advance, Investment, Sale of Assets,
Merger............................................................................. 21
5.13. Financial Covenants.................................................................. 21
5.14. Subsequent Credit Terms.............................................................. 21
6. EVENTS OF DEFAULT AND REMEDIES................................................................ 22
6.01. Events of Default and Remedies....................................................... 22
6.02. Set-Off.............................................................................. 23
7. NOTICES....................................................................................... 24
7.01. Notices.............................................................................. 24
8. MISCELLANEOUS................................................................................. 25
8.01. Governing Law; Consent to Jurisdiction;
WAIVER OF RIGHT TO TRIAL BY JURY................................................... 25
8.02. Entire Agreement..................................................................... 25
8.03. Fees, Costs and Expenses............................................................. 25
8.04. Severability......................................................................... 26
8.05. Survival............................................................................. 26
8.06. Binding Effect....................................................................... 26
8.07. Modification or Waiver............................................................... 26
8.08. Cumulative Effect.................................................................... 26
8.09. Counterparts......................................................................... 26
</TABLE>
<PAGE>
EXHIBITS AND SCHEDULES
Exhibits
- --------
Exhibit A Form of Term Loan Note
Schedules
- ---------
Schedule 4.09 Loss Contingencies
Schedule 5.09 Liens
Schedule 5.10 Indebtedness
Schedule 5.11 Guarantees
<PAGE>
TERM LOAN AGREEMENT (this "Agreement"), dated May 30, 1997,
among BROWN BROTHERS HARRIMAN & CO., as lender ("Bank"); CENTRAL CPVC
CORPORATION, as borrower ("Borrower"); and CENTRAL SPRINKLER CORPORATION (the
"Company"), CENTRAL SPRINKLER COMPANY and CENTRAL CASTINGS CORPORATION
("Castings"), as guarantors.
1. DEFINITIONS AND ACCOUNTING TERMS.
---------------------------------
1.01. Defined Terms and Accounting Terms. (a) As used in this
Agreement, the following terms have the following meanings (terms defined in the
singular to have the same meaning when used in the plural and vice versa):
"Account" has the meaning assigned to it in Section 5.06.
"Additional Costs" has the meaning assigned to it in Section
2.12.
"Additional Secured Indebtedness" has the meaning assigned to
it in Section 5.10(f).
"Agreement" has the meaning assigned to it in the first
paragraph hereof.
"Bank" has the meaning assigned to it in the first paragraph
of this Agreement.
"Base Rate" means the rate of interest determined from time to
time by Lender as its "base rate."
"Base Rate Loan" means the Loan when and to the extent the
interest rate therefor is determined by reference to the Base Rate.
"Borrower" has the meaning assigned to it in the first
paragraph of this Agreement.
"Business Day" means any day other than a Saturday, Sunday, or
other day on which commercial banks in Philadelphia, Pennsylvania, are
authorized or required to close under the laws of the Commonwealth of
Pennsylvania, if the applicable day relates to a LIBOR Loan or notice with
respect to a LIBOR Loan, a day on which dealings in Dollar deposits are also
carried on in the London interbank market and banks are open for business in
London, England.
"Castings" has the meaning assigned to it in the first
paragraph of this Agreement.
"Company" has the meaning assigned to it in the first
paragraph hereof.
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"Compliance Certificate" has the meaning assigned to it in
section 5.01(a).
"Consolidated Funded Indebtedness" means all obligations of
the Company and its consolidated Subsidiaries for borrowed money, including,
without limitation (and without duplication): (a) all obligations, contingent or
otherwise, of the Company and its consolidated Subsidiaries in connection with
all letter of credit facilities (whether or not drawn), acceptance facilities,
or other similar facilities issued for the account of the Company and its
consolidated Subsidiaries; (b) all obligations of the Company and its
consolidated Subsidiaries evidenced by bonds, debentures, or other similar
instruments; (c) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by the
Company and its consolidated Subsidiaries; (d) all capital lease obligations of
the Company and its consolidated Subsidiaries; (e) all guarantees, endorsements
(other than for collection or deposit in the ordinary course of business); and
(f) all debt referred to in clause (a) through (e) above secured by (or for
which the holder of such debt has existing rights, contingent or otherwise, to
be secured by) any lien, security interest, or other charge or encumbrance upon
or in property (including, without limitation, accounts and contract rights)
owned by such person; provided, however that trade indebtedness, tax and other
accruals, tax deferrals, and deferred compensation occurring in the ordinary
course of the Borrower's business shall be specifically excluded from the
foregoing definition.
"Current Assets" means all assets that would be classified as
current assets in accordance with GAAP.
"Current Liabilities" means all liabilities that would be
classified as current liabilities in accordance with GAAP.
"Default Rate" has the meaning assigned to it in Section 2.06.
"Dollars" and "$" mean lawful money of the United States of
America.
"Environmental Laws" means any presently existing or hereafter
enacted or decided federal, state or local statutory or common laws relating to
pollution or protection of the environment, including without limitation, any
common law of nuisance or trespass, and any law or regulation relating to
emissions, discharges, releases or threatened release of pollutants,
contaminants or chemicals or industrial, toxic or hazardous substances or wastes
into the environment (including without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or chemicals, or industrial,
toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute, together with all
rules and regulations in connection therewith.
2
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"Event of Default" means any of the events specified in
Section 6.01, provided that any requirement for the giving of notice, the lapse
of time, or both, or any other condition has been satisfied.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in
effect from time to time in the United States, consistently applied.
"Guarantors" means, individually, and "Guarantors" means,
collectively, jointly and severally, the Company, Central Sprinkler Company and
Castings.
"Guaranty" means the guaranty agreement of even date herewith,
executed and delivered by the Guarantors in favor of the Bank, as amended,
supplemented or modified.
"Interest Expense" means, for any period, the aggregate amount
of interest accrued (whether or not paid) by the Company and its consolidated
Subsidiaries during such period in respect of indebtedness.
"Interest Period" means (1) for Base Rate Loans, any period of
time during which the Base Rate applies to the Loan and (2) for LIBOR Loans,
each period of one month, two months, three months, six months or one year, as
designated by the Borrower by notice to the Bank prior to the first day of the
Interest Period, during which the interest rate on the Note will be determined
and calculated by reference to LIBOR. Notwithstanding anything herein to the
contrary, the Borrower may designate a single Interest Period which shall apply
to the entire principal amount of the Note or, alternatively, may designate two
(but not more than two) separate Interest Periods which may apply to separate
portions of the principal amount of the Note; provided that the principal amount
of the Loan bearing interest at the LIBOR Rate for each designated Interest
Period shall be at least $1,000,000.
"Investments" means (1) direct obligations of the United
States or any agency thereof and direct obligations of any state of the United
States or the District of Columbia or any political subdivision, agency or
instrumentality of any such state that, in each case, (a) have a remaining term
(to maturity or to the redemption date established by the issuer of such
obligations pursuant to the terms of such obligations) of three years or less
from the date of acquisition or (b) permit the holder, in its sole discretion,
to tender such obligations to the issuer for purchase within three years from
the date of acquisition and require the issuer to purchase such obligations upon
tender at a purchase price equal to at least 100% of the principal amount
thereof plus accrued interest to the date of purchase; (2) commercial paper of a
United States domestic issuer rated at least "A-1" by Standard & Poor's
Corporation or "A1-P1," by Moody's Investors Service, Inc.; (3) certificates of
deposit or foreign time deposits with maturities of three years or less from the
date of acquisition issued by any commercial bank having capital and surplus in
excess of One Hundred Million
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Dollars ($100,000,000); and (4) money market preferred stock of a United States
domestic issuer rated at least "BBB" by Standard & Poor's Corporation or "Baa1"
by Moody's Investors Service, Inc.
"LIBOR" means the London Inter-Bank Offered Rate for the
applicable Interest Period, determined by the Bank as of the opening of business
on the first day of each Interest Period, by reference to market reporting
services available to banks and financial institutions.
"LIBOR Adjustment" means three-quarters of one percent
(0.75%).
"LIBOR Rate" means LIBOR plus the LIBOR Adjustment.
"LIBOR Loan" means the Loan when and to the extent the
interest rate therefor is determined by reference to the LIBOR Rate.
"Liens" has the meaning assigned to it in Section 5.09.
"Loan" has the meaning assigned to it in Section 2.01 and
includes Base Rate and LIBOR Loans.
"Loan Documents" means this Agreement, the Note, the Security
Agreement, the Mortgage, the Guaranty and all other documents, instruments and
agreements executed or delivered in connection herewith or therewith.
"Material Adverse Effect" means (i) an adverse effect on the
business, properties, assets, results of operations or condition, financial or
otherwise, of the Borrower and its Subsidiaries, taken as a whole, in an amount
(which shall be determined in accordance with GAAP, consistently applied) equal
to or greater than 2% of the Net Worth of the Company and its consolidated
Subsidiaries, (ii) the material impairment of the power or authority of the
Borrower to perform its obligations under this Agreement, or (iii) the material
impairment of the right of the Bank to enforce any of such obligations.
"Maturity Date" has the meaning assigned to it in Section 2.05
of this Agreement.
"Mortgage" means a certain mortgage and security agreement of
even date herewith, as amended, supplemented or modified, from the Borrower, as
mortgagor, to the Bank, as mortgagee, covering certain property described
therein.
"Net Income" means, for any period, the net income (or net
loss) of the Company and its consolidated Subsidiaries for such period excluding
extraordinary items, determined in accordance with GAAP.
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<PAGE>
"Net Worth" means (a) the aggregate amount of all assets as
may be properly classified as such, less (b) the aggregate amount of all
liabilities, all determined in accordance with GAAP, consistently applied.
"Note" has the meaning assigned to it in Section 2.04 of this
Agreement.
"Obligors" means the Borrower and the Guarantors.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority, or other entity of whatever nature.
"Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve System as amended or supplemented from time to time.
"Regulatory Change" has the meaning assigned to it in Section
2.12.
"Security Agreement" means a certain security agreement of
even date herewith, as it may hereafter be amended, supplemented or modified,
pursuant to which Borrower grants to Bank a security interest in all equipment,
machinery, furniture and fixtures financed with the Loan.
"Subsidiary" means, as to any Person, any corporation the
shares of stock of which having ordinary voting power (other than stock having
such power only by reason of the happening of a contingency) to elect a majority
of the board of directors or other managers of such corporation are at the time
owned, or the management of which is otherwise controlled by such Person,
directly or indirectly through one or more intermediaries or both.
"Tangible Net Worth" means (a) the aggregate amount of all
assets as may be properly classified as such, other than (i) all assets which
are properly classified as intangible assets including, without limiting the
generality of the foregoing, franchises, licenses, permits, patents, patent
applications, copyrights, trademarks, trade names, goodwill, experimental or
organizational expense and other like intangibles and (ii) the amount of all
loans to shareholders, officers and employees in excess of $300,000 in the
aggregate, less (b) the aggregate amount of all liabilities, all determined in
accordance with GAAP, consistently applied.
(b) All accounting terms not specifically defined herein shall be
construed in accordance with GAAP consistent with those applied in the
preparation of the financial statements referred to in Section 5.01, and all
financial data submitted pursuant to this Agreement shall be prepared in
accordance with such principles.
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<PAGE>
2. AMOUNT AND TERMS OF THE LOANS
-----------------------------
2.01. Loan. The Bank agrees, on the terms and conditions set forth in
this Agreement, to make a term loan (the "Loan") to the Borrower on the date
hereof in the original principal amount of $7,500,000.
2.02. Interest on the Loan. (a) The Borrower shall pay interest to the
Bank on the outstanding and unpaid principal amount of the Loan made under this
Agreement at a rate per annum equal to the Base Rate or the LIBOR Rate for such
Interest Period, as Borrower may choose. In the absence of Borrower's
designation, the Loan shall be made and maintained as a Base Rate Loan. Such
interest, calculated on the basis of a 360-day year for the actual number of
days elapsed, shall accrue daily in each Interest Period and shall be payable
quarterly in arrears on the first day of each January, April, July and October,
commencing July 1, 1997, and on the Maturity Date hereof (each an "Interest
Payment Date"), to the Bank. Interest shall be paid in such manner as the
Borrower and the Bank shall agree. The Borrower may elect from time to time to
convert the Loan from a LIBOR Loan to a Base Rate Loan and vice versa by giving
the Bank notice of the proposed conversion before the beginning of the proposed
Interest Period.
2.03. Term Loan Conversion to IRB. Borrower intends to, and shall use
best efforts to, convert the Loan to a tax exempt Industrial Revenue Bond
("IRB") pursuant to the terms of a Financing Agreement to be entered into by and
between Borrower, the Bank and Industrial Development Board of the City of
Huntsville. Borrower shall execute all documents required in connection with the
issuance of the IRB, which documents shall be in form reasonably satisfactory to
the Bank. The Loan will become immediately due and payable upon conversion of
the Note to the IRB, however the proceeds from the issuance of the IRB may be
used to pay the Loan.
2.04. Note. The Loan made by the Bank under this Agreement shall be
evidenced by, and repaid with interest in accordance with a term loan note
delivered by the Borrower to the Bank, dated as of the date of this Agreement
(the "Note"), substantially in the form of Exhibit A attached hereto, as
amended, supplemented or modified.
2.05. Maturity Date. The Loan shall mature and be repayable in full on
that date (the "Maturity Date") which is the earlier of (a) conversion of the
Loan to an IRB; (b) May 31, 2000 or (c) that date which is eighteen (18) months
from the date on which Bank makes written demand for repayment in full under
Section 2.08.
2.06. Default Interest. At any time after the occurrence of an Event of
Default hereunder, the Bank may at its option begin to charge and accrue
interest on the unpaid principal balance of the Note, on any amounts outstanding
hereunder or thereunder and, to the extent permitted by law, on any overdue
interest thereon until paid in full, payable on demand, at a rate per annum (the
"Default Rate") equal to (a) during the then current Interest Period, the
interest rate per annum then in effect for the Loan plus 2.00% and (b)
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<PAGE>
from and after the end of the then current Interest Period for the Loan, the
Base Rate plus 1.50%.
2.07. Optional Prepayments. (a) The Borrower may, at its option,
prepay the Note in whole or in part, as follows:
(1) for a Base Rate Loan, on any Business Day, with unpaid
accrued interest to the date of such prepayment on the amount prepaid, provided
that each partial prepayment shall be in a principal amount of not less than
$100,000 or integral multiples of $5,000 in excess thereof.
(2) for a LIBOR Loan, on the last day of the applicable
Interest Period, in whole or in part (but if in part, in the principal amount of
$100,000 or integral multiples of $5,000 in excess thereof) at a prepayment
price equal to the principal amount so prepaid, together with unpaid accrued
interest to the date of prepayment.
If Borrower voluntarily elects to repay all or any portion of
principal of the Loan before the expiration of any LIBOR Interest Period, the
Borrower shall simultaneously pay to the Bank such amount as shall be sufficient
to compensate the Lender for any loss, cost or expense that the Bank reasonably
determines to be directly attributable to the prepayment, including costs,
losses and expenses incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by the Bank to make or maintain its investment
in the Loan at a LIBOR based fixed interest rate. The Bank shall provide the
Borrower with evidence of the calculation of any such loss, cost or expense.
The Borrower shall provide the Bank with notice of any
optional prepayment pursuant to this paragraph and the principal amount of the
Note to be redeemed, sent at least one (1) day before such prepayment date. On
each such prepayment date, payment of the prepaid principal having been made to
Bank as provided herein, the Note or the portion thereof prepaid shall become
due and payable on the prepayment date and interest shall cease to accrue
thereon from and after the prepayment date.
2.08. Mandatory Prepayments. Not later than eighteen (18) months
following written demand by Bank, Borrower shall prepay such portion (even if
all) of the outstanding principal of the Loan, together with unpaid accrued
interest, as the Bank may specify in its sole discretion.
2.09. Method of Payment. Each payment under this Agreement and under
the Note shall be due not later than 2:00 p.m. Philadelphia time on the date
when due and shall be made in lawful money of the United States to the Bank in
immediately available funds. The Borrower hereby authorizes the Bank, and the
Bank shall, debit the Account for the amount of each payment under this
Agreement and under the Note not later than 2:00 p.m. Philadelphia time on the
date such payment becomes due under this Agreement or the Note. The foregoing
rights of the Bank to debit the Account shall be in addition to, and not in
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<PAGE>
limitation of, any rights of set-off that the Bank may have under the Loan
Documents and any other rights and remedies of the Bank under the Loan Documents
or law and do not in any manner limit the provisions of Section 6.01. Whenever
any payment to be made under this Agreement or under the Note shall be stated to
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of the payment of interest.
2.10. Illegality. Notwithstanding any other provision in this
Agreement, if the adoption of any applicable law, rule, or regulation, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive (whether or not having the force of law) of any such
authority, central bank, or comparable agency shall make it unlawful or
impossible for the Bank to make or maintain any LIBOR Loan, then upon notice to
the Borrower by the Bank the LIBOR Loan shall be converted to a Base Rate Loan
either (1) immediately upon demand of the Bank if such change or compliance with
such request, in the reasonable judgment of the Bank, requires immediate
conversion; or (2) upon the earlier of (i) the expiration of the Interest Period
for such LIBOR Loan and (ii) the effective date of any such change or request.
2.11. Disaster. Notwithstanding anything to the contrary herein, if
the Bankm determines (which determination shall be conclusive) that:
(1) quotations of interest rates for the relevant deposits
referred to in the definition of LIBOR Rate are not being provided in the
relevant amounts or for the relative maturities for purposes of determining the
rate of interest on a LIBOR Loan as provided in this Agreement; or
(2) the relevant rates of interest referred to in the
definition of LIBOR Rate upon the basis of which the rate of interest, for such
type of Loan is to be determined do not accurately cover the cost to the Bank of
making or maintaining such type of Loan,
then the Bank shall give notice thereof to the Borrower whereupon until the Bank
notifies the Borrower that the circumstances giving rise to such suspension no
longer exist, (a) the obligation of the Bank to maintain a LIBOR Loan shall be
suspended immediately or, if the Loan is then outstanding as a LIBOR Loan, from
the last day of the Interest Period for such LIBOR Loan; and (b) if the Loan is
then outstanding as a LIBOR Loan, the Borrower shall convert such LIBOR Loan to
a Base Rate Loan on the last day of the Interest Period for such LIBOR Loan.
2.12. Increased Cost. The Borrower shall pay to the Bank from time to
time such amounts as the Bank may determine to be necessary to compensate the
Bank for any costs incurred by the Bank which the Bank determines are
attributable to its making or maintaining the Loan as a LIBOR Loan hereunder or
its obligation to make or maintain the Loan as a
8
<PAGE>
LIBOR Loan hereunder, or any reduction in any amount receivable by the Bank
under this Agreement or the Note in respect of any such Loan or such obligation
(such increases in costs and reductions in amounts receivable being herein
called "Additional Costs"), resulting from any change after the date of this
Agreement in United States federal, state, municipal, or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives or requirements applying to a class of banks
including the Bank of or under any United States federal, state, municipal, or
any foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof ("Regulatory Change"), which: (a) changes the basis of
taxation of any amounts payable to the Bank under this Agreement or the Note in
respect of any of such Loan (other than taxes imposed on the overall net income
of the Bank or its partners for any of such Loans by the jurisdiction where the
Bank is located); or (b) imposes or modifies any reserve, special deposit, or
similar requirements relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, the Bank; or (c) imposes any other
condition affecting this Agreement or the Note (or any of such extensions of
credit or liabilities).
2.13. Bank's Determinations Conclusive; Notice of Amounts Due.
--------------------------------------------------------
(1) Determination by the Bank of Additional Costs pursuant to
Section 2.12 shall be conclusive absent manifest error.
(2) The Bank will notify the Borrower of any event occurring
after the date of this Agreement that will entitle the Bank to compensation
pursuant to Section 2.12 as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation. Said notice shall be in
writing and shall specify the applicable Section or Sections of this Agreement
to which it relates and shall set forth the amount or amounts then payable
pursuant to Section 2.12 and the Bank's calculation of such amount or amounts.
The Borrower shall pay the Bank the amount shown as due on any such notice
within 10 days after its receipt of the same.
(3) Failure on the part of the Bank to demand compensation for
Additional Costs with respect to any period pursuant to Section 2.12 shall not
constitute a waiver of the Bank's right to demand compensation with respect to
such period or any other period.
3. CONDITIONS TO LENDING.
----------------------
3.01. Conditions Precedent. The obligation of the Bank to make
the Loan is subject to the conditions precedent that the Bank shall have
received on or before the date hereof, all of the following, in form and
substance satisfactory to the Bank:
(a) A copy, certified in writing by the Secretary or an
Assistant Secretary of Borrower, of (1) resolutions of the Board of Directors of
Borrower evidencing approval of this Agreement, the Note, the Loan Documents and
the other matters contemplated hereby
9
<PAGE>
and (2) each document evidencing any other necessary corporate action with
respect to this Agreement, the Note, the Loan Documents and other matters
contemplated hereby;
(b) A written certificate by the Secretary or an Assistant
Secretary of Borrower as to the names and signatures of the officers of Borrower
authorized to sign this Agreement, the Note and the other documents or
certificates of Borrower to be executed and delivered pursuant hereto. The Bank
may conclusively rely on, and be protected in acting upon, such certificate
until it shall receive a further certificate by the Secretary or an Assistant
Secretary of Borrower amending the prior certificate;
(c) A copy, certified in writing by the Secretary or an
Assistant Secretary of each Guarantor, of (1) resolutions of the Board of
Directors of such Guarantor evidencing approval of this Agreement, the Guaranty,
the other Loan Documents to which such Guarantor is a party and the other
matters contemplated hereby and (2) each document evidencing any other necessary
corporate action with respect to this Agreement, the Guaranty, the other Loan
Documents to which such Guarantor is a party and other matters contemplated
hereby;
(d) A written certificate by the Secretary or an Assistant
Secretary of each Guarantor as to the names and signatures of the officers of
such Guarantor authorized to sign this Agreement, the Guaranty and the other
documents or certificates of Guarantors to be executed and delivered pursuant
hereto. The Bank may conclusively rely on, and be protected in acting upon, such
certificate until it shall receive a further certificate by the Secretary or an
Assistant Secretary of each Guarantor amending the prior certificate;
(e) Original executed counterparts of this Agreement, the
Security Agreement, the Mortgage, the Guaranty, the Note and other appropriate
documents;
(f) A certificate (dated the date of this Agreement) of an
Executive Vice President of Borrower certifying that the representations and
warranties in this Agreement are true and correct as of the date of this
Agreement and that no condition exists or event has occurred as of the date of
this Agreement that would constitute an Event of Default (whether upon the
giving of notice, passage of time or both);
(g) A certificate (dated the date of this Agreement) of an
Executive Vice President of each Guarantor certifying that the representations
and warranties in this Agreement are true and correct as of the date of this
Agreement and that no condition exists or event has occurred as of the date of
this Agreement that would constitute an Event of Default (whether upon the
giving of notice, passage of time or both);
(h) A favorable opinion of Morgan, Lewis & Bockius LLP,
counsel for Borrower and the Guarantors, in substantially the form approved by
Bank and as to such matters as Bank may reasonably request;
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<PAGE>
(i) The counsel fees of Bank in accordance with Section 8.03
of this Agreement;
(j) A certified copy of the minutes of the public hearing and
special meeting of the Board of Directors of the Industrial Development Board of
the City of Huntsville, held May 21, 1997, pursuant to which the Board of
Directors was authorized to execute and deliver to the Bank the Mortgage and
such other documents necessary for the Loan; and
(k) Such other approvals, opinions or documents as Bank may
reasonably request.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
The Obligors hereby make the following representations and warranties
to Bank:
4.01. Good Standing. The Obligors and each of their Subsidiaries are
corporations duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation; are duly qualified or
authorized to do business in each other jurisdiction in which they are required
to be so qualified or authorized because of the nature of their respective
business or properties, except where failure to be qualified or authorized to do
business could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on their financial condition or business;
and have the power to carry on their respective business and own their
respective properties as now conducted and owned.
4.02. Capital Stock. All of the issued and outstanding capital stock of
the Borrower is owned by Central Sprinkler Company. All of the issued and
outstanding capital stock of Central Sprinkler Company is owned by the Company.
The Borrower has no Subsidiaries. The Company's Common Stock, $.01 par value per
share, is registered pursuant to Section 12(g) of the Exchange Act and is
authorized for quotation in the National Association of Securities Dealers, Inc.
Automated Quotation System/National Market System.
4.03. Indebtedness. Neither the Obligors nor any of their Subsidiaries
are in default with respect to any of their existing indebtedness, and the
making and performance of their respective obligations under the Loan Documents
will not:
(a) (1) violate the provisions of their charter documents, or
(2) violate any applicable laws, ordinances, statutes, rules, regulations,
orders, injunctions, writs, or decrees of any governmental or political
subdivision or agency thereof, or of any court or similar entity established by
any thereof the sanctions and penalties resulting from which violations could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, or (3) be in conflict with, result in a breach of or result
(immediately, with
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<PAGE>
the passage of time, or with the giving of notice and the passage of time) in a
default under any indenture, contract, agreement, or instrument to which they
are a party or by which it or any of their property is bound, which conflicts,
breaches or defaults could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;
(b) result in the creation or imposition of any security
interest in, or lien or encumbrance upon, any of their assets other than as
contemplated by the Loan Documents; or
(c) require the consent or approval of or registration with
any governmental body, agency, authority, bureau, commission or court.
4.04. Authority. The Obligors have the power and authority to enter
into and perform the Loan Documents executed or to be executed by them, to incur
the obligations herein and therein provided for and have taken all proper and
necessary action to authorize the execution, delivery and performance of each of
said Loan Documents.
4.05. No Action, Notice, Claim, Litigation or Proceeding. There is no
action, notice, claim, litigation or proceeding before any court, governmental
instrumentality or administrative agency pending or, to the knowledge of the
officers of the Obligors, threatened against the Obligors or any of their
Subsidiaries, the outcome of which could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
4.06. Compliance with Laws, Regulations. The Obligors and each of their
Subsidiaries, to the best of the Obligors' knowledge, have complied with all
laws, regulations or other requirements pertaining to the respective businesses
they conduct, including all Environmental Laws, except to the extent that the
failure to so comply could not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect and except as described in the
footnotes of the Company's consolidated financial statements for the fiscal year
ending October 31, 1996, copies of which have been delivered to the Bank.
4.07. Title. The Obligors and each of their Subsidiaries have good and
marketable title to all of their respective properties and assets reflected in
the respective consolidating balance sheets of the Company and its consolidated
Subsidiaries for the fiscal year ended October 31, 1996, heretofore furnished to
the Bank, and to all properties and assets acquired since the date of said
financial statements.
4.08. Taxes. The Obligors and each of their Subsidiaries have filed or
have caused to be filed all tax returns and reports required by law to be filed,
and all taxes, assessments and other governmental charges (other than those
presently payable without penalty or interest and those for which the sanctions,
penalties and interest resulting from a failure to timely make payment could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect) upon them or any of their assets or income which are due and
payable, have been paid. Any charges, accruals and reserves on their books with
12
<PAGE>
respect to federal income taxes for all fiscal periods to date are considered
adequate. There is no unpaid assessment against either of them for additional
federal income tax for any fiscal period (or any basis for a material unpaid
assessment) known to any of them.
4.09. Financial Statements. The consolidated balance sheets of the
Company and its consolidated Subsidiaries as of October 31, 1996, and October
31, 1995, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the fiscal years in the three-year period
ended October 31, 1996, were prepared in accordance with GAAP, consistently
applied, and fairly and accurately present the financial condition of the
Company and its consolidated Subsidiaries as of October 31, 1996 and October 31,
1995, and the results of their operations for the each of the fiscal years in
the three-year period ended October 31, 1996. Since October 31, 1996, there has
been no material adverse change in the financial condition or operations of the
Company and its Subsidiaries taken as a whole, except as otherwise disclosed to
the Bank in writing prior to the date hereof. Except as disclosed on Schedule
4.09, the Company and its consolidated Subsidiaries do not possess any "loss
contingency" (as that term is defined in Financial Accounting Standards Board,
Statement of Financial Accounting Standards No. 5 - "FASB 5") which is not
accrued, reflected, or reserved against in their balance sheet or disclosed in
the footnotes to such balance sheet.
4.10. Indebtedness. Neither the Obligors nor any of their Subsidiaries
are liable to any Person for indebtedness for money borrowed other than as
disclosed in the consolidated balance sheet of the Company and its consolidated
Subsidiaries as of October 31, 1996, the notes thereto or as otherwise disclosed
to the Bank in writing prior to the date hereof.
4.11. Solvency, Capital. After giving effect to the transactions
contemplated by this Agreement, (a) the present fair salable value of the assets
of the Obligors are in excess of the amount that will be required by them to pay
their probable liability on their existing debts as such debts become absolute
and matured, (b) the property remaining in the hands of the Obligors is not an
unreasonably small amount of capital, and (c) the Obligors are able to pay, and
do not intend to take or fail to take any action such that they will be unable
to pay, their debts as they mature.
4.12. Information. All information heretofore furnished by the Obligors
to the Bank orally or in writing for purposes of or in connection with the Loan
Documents or the borrowing contemplated thereby is true and accurate in every
material respect or based upon reasonable estimates on the date as of which such
information is stated or certified.
4.13. Margin Stock. The Borrower does not intend to use any of the
proceeds of the Loan to purchase or carry "margin stock" as that term is defined
in Regulation U published by the Board of Governors of the Federal Reserve
System (12 CFR ss. 221).
4.14. Untrue Statement. No representation or warranty contained
herein or in any certificate or other document furnished by any Obligor pursuant
to this Agreement or the
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Guaranty contains any untrue statement of material fact or omits to state a
material fact necessary to make such representation or warranty not misleading
in light of the circumstances under which it was made.
5. COVENANTS.
----------
The Obligors, for themselves and in certain cases for their
Subsidiaries, hereby make the following covenants for the benefit of the Bank:
5.01. Financial Statements, Reports. The Obligors will furnish to
the Bank:
(a) Within 90 days after the end of each of the first three
fiscal quarters of each fiscal year of the Company and its consolidated
Subsidiaries, internally prepared consolidated financial statements of the
Company and its consolidated Subsidiaries, including consolidated balance sheets
and related consolidated statements of income, shareholders' equity and cash
flows of the Company and its consolidated Subsidiaries, certified by the Chief
Financial Officer of the Company as having been prepared in accordance with
GAAP, consistently applied, together with a certificate of the Chief Financial
Officer of the Company, dated as of the date of submission of such financial
statements to the Bank, (i) to the effect that such officer has re-examined the
terms and provisions of the Loan Documents and that at the date of such
certificate, during the periods covered by such financial statements and as of
the end of such periods, the Borrower or such Guarantor, as the case may be, is
not, or was not, in default in the fulfillment of any of the terms, covenants,
provisions and conditions of the Loan Documents and that no default or Event of
Default is occurring or has occurred as of the date of such certificate, during
such periods and as of the end of such periods, or if the signer is aware of any
default or Event of Default, such officer shall disclose in such statement the
nature thereof, its period of existence and what action, if any, the Borrower or
such Guarantor, as the case may be, has taken or proposes to take with respect
thereto and (ii) stating whether the Borrower or such Guarantor, as the case may
be, is in compliance with Sections 5.01 through 5.14, as applicable, and setting
forth, in sufficient detail, the information and computations required to
establish such compliance during the period covered by the financial statements
then being furnished and as of the end of such period (a "Compliance
Certificate"); and (iii) a management-prepared consolidating worksheet for the
Company and its consolidated Subsidiaries;
(b) Within 120 days after the close of each fiscal year of the
Company and its consolidated Subsidiaries, consolidated financial statements of
the Company and its consolidated Subsidiaries, including consolidated balance
sheets and related consolidated statements of income, shareholders' equity and
cash flows, all in reasonable detail, together with all supporting schedules and
notes, and prepared in accordance with GAAP consistently applied, and
accompanied by an opinion thereon by independent certified public accountants
acceptable to the Bank and a Compliance Certificate of the Chief Financial
Officer of the Company; and
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(c) With reasonable promptness, such other information
relating to the business or financial condition of the Borrower and each
Guarantor as the Bank may reasonably request from time to time.
5.02. Indebtedness, Taxes, Insurance, etc. The Obligors will, and
will cause each of their Subsidiaries to:
(a) pay all of their indebtedness and obligations promptly and
in accordance with the terms thereof, except where the failure to pay any
indebtedness or obligation (other than to the Bank) could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect;
(b) promptly pay and discharge all taxes, assessments, and
governmental charges or levies imposed upon it or upon their income and profits,
upon any of their property, real, personal or mixed, or upon any part thereof,
before the same shall become in default, as well as all lawful claims for labor,
materials and supplies or otherwise, which, if unpaid, might become a lien or
charge upon such property or any part thereof; provided, however, that they need
not pay and discharge any such indebtedness, obligation, tax, assessment,
charge, levy or claim so long as the validity thereof shall be contested in good
faith by appropriate proceedings and they shall have set aside on their books
adequate reserves with respect to any such indebtedness, obligation, tax,
assessment, charge, levy or claim;
(c) do all things reasonably necessary to preserve and keep in
full force and effect their corporate existence, material rights and franchises,
comply with all applicable laws and maintain and enforce all of their licenses,
patents and trademarks;
(d) conduct and operate their business substantially as
conducted and operated during the present and preceding calendar years;
(e) reasonably preserve all of their business and property,
keep the same in good repair, working order and condition, and make from time to
time all proper repairs, renewals, replacements, betterments and improvements
thereto so that the business carried on in connection therewith may be properly
and advantageously conducted at all times;
(f) at all times keep their insurable properties adequately
insured (in amounts and for such risks as may be required by law or as may be
customary for businesses of a similar nature under similar circumstances), and
maintain necessary workmen's compensation insurance, and maintain such other
insurance as may be required by law or as may be customary for businesses of a
similar nature under similar circumstances;
(g) keep books and records reflecting all of their business
affairs and transactions in accordance with GAAP consistently applied and permit
the Bank, or their agents, employees or representatives, on twenty-four (24)
hours prior notice, to inspect their
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books and records at any reasonable time during regular business hours; provided
that the Bank shall keep all information obtained from such inspections
confidential and, except as required by law, will not disclose it to any Person
unless the prior written consent of the Borrower or the Guarantor, as
applicable, is obtained or unless such information is otherwise publicly
available; and
(h) comply with all laws, rules, regulations and orders
applicable to it or their properties, including Environmental Laws, except to
the extent that the failure to comply with any laws, rules, regulations and
orders or the sanctions and penalties resulting from such failure, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
5.03. Ownership. The Company will continue to own directly or
indirectly all of the issued and outstanding capital stock of the Central
Sprinkler Company and Central Sprinkler Company will continue to own directly or
indirectly all of the issued and outstanding capital stock of the Borrower,
provided that (a) Central Sprinkler Company may transfer all of the outstanding
shares of the capital stock of the Borrower to the Company and (b) so long as no
Event of Default has occurred and is continuing, Castings may merge or
consolidate with Central Sprinkler Company or the Company.
5.04. Management. The Company will continue to be actively managed by
George G. Meyer as Chief Executive Officer; but in the event that George G.
Meyer shall cease to function in such capacity, he shall be replaced within 90
days by an individual selected by the Company and reasonably satisfactory to the
Bank.
5.05. Securities and Exchange Commission. The Company shall
simultaneously file with the Securities and Exchange Commission and the Bank all
reports required to be filed by the Company pursuant to the Exchange Act and the
rules and regulations promulgated thereunder as and when due.
5.06. Maintenance of Account. The Borrower shall maintain a deposit
account (the "Account") at the Bank continuously until all obligations of the
Borrower under this Agreement and the Note have been satisfied in full.
5.07. Litigation, Violation of Laws, etc. The Obligors shall, and shall
cause each of their Subsidiaries to, promptly notify the Bank of (a) any
litigation or administrative proceeding to which it is a party or of which it or
its property is subject, if it involves a claim for an amount or could
reasonably be expected to result in a loss equal to or greater than $5,000,000
and (b) any business development (including labor disputes and changes in
condition, financial or otherwise), any violation of any law, rule, regulation
or order applicable to it or its property, and any defaults under any indenture,
contract, agreement or instrument (including, without limitation, this
Agreement) to which it is a party or by which its property is bound, which
developments, violations and defaults could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
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<PAGE>
5.08. ERISA. (a) The Obligors shall, and shall cause each of their
Subsidiaries to, provide the Bank with all pertinent information relating to a
"reportable event" (as defined in section 4043 of ERISA) within 30 days after
the occurrence of such event.
(b) The Obligors will not, and will not cause any of their
Subsidiaries to, incur or suffer to exist any "accumulated funding deficiency"
(as defined in section 302 of ERISA) or any "reportable event" (as defined in
section 4043 of ERISA) under or in respect of any employee defined benefit plan
(as defined in ERISA) established or maintained by any Obligor.
5.09 Liens. The Obligors will not, and will not cause any of their
Subsidiaries to create, incur, assume or suffer to exist any lien, security
interest, mortgage, pledge or other encumbrance (hereinafter referred to as
"Liens") with respect to any of their properties, now owned or hereafter
acquired, without the prior written consent of the Bank, except
(a) Liens in favor of the Bank;
(b) Liens (i) in existence on the date of, and disclosed (A)
in the Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1996; (B) in the Company's Quarterly Report on Form 10-Q for the period
ended January 31, 1997; (C) on Schedule 5.09 attached hereto; or (D) otherwise
to the Bank in writing on or prior to the date of this Agreement; provided
however, that such Liens permitted hereunder shall not include the extension
thereof to other property, but shall include those of such Liens that may be
renewed or maintained in effect to secure indebtedness that is renewed, extended
or refinanced in accordance with Section 5.10(a);
(c) Liens for taxes or assessments or other government charges
or levies if not yet due and payable or, if due and payable, if they are being
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted and for which appropriate reserves are maintained and so
long as no foreclosure, distraint, sale or other similar proceedings shall have
been commenced with respect thereto;
(d) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than thirty (30) days or which are being contested in good
faith by appropriate proceedings promptly initiated and diligently conducted and
for which appropriate reserves have been established and so long as no
foreclosure, distraint, sale or other similar proceedings shall have been
commenced with respect thereto;
(e) Liens under workmen's compensation, unemployment
insurance, social security, or similar legislation;
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<PAGE>
(f) Liens, deposits, or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), or public or statutory
obligations; surety, indemnity, performance, or other similar bonds; or other
similar obligations arising in the ordinary course of business;
(g) judgment and other similar Liens arising in connection
with court proceedings, provided the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings promptly initiated and
diligently conducted and for which adequate reserves have been established;
(h) easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use, and enjoyment of the property or assets encumbered thereby in
the normal course of their business or materially impair the value of the
property subject thereto; or
(i) Liens created to secure Additional Secured Indebtedness
permitted under Section 5.10(f), provided that the book value of the properties
subject to such Liens shall not exceed $10,000,000 in the aggregate at any time
and provided further that no such Liens may encumber the collateral held by the
Bank under the Security Agreement and the Mortgage.
5.10. Indebtedness. The Obligors will not, and will not cause
any of their Subsidiaries to, incur, create or permit to exist any indebtedness
without the prior written consent of the Bank, except that the Borrower may
incur, create or permit to exist the following:
(a) existing indebtedness disclosed in the Company's Form 10-Q
for the period ended January 31, 1997, or listed and described on Schedule 5.10
attached hereto and renewals, extensions and refinancings thereof, provided that
the effective rate of amortization thereof is not increased by any such renewal,
extension or refinancing and any such renewal extension or refinancing shall not
be on terms less favorable to the Obligors and their Subsidiaries than those
provided in the existing agreements for such indebtedness;
(b) indebtedness to the Bank;
(c) indebtedness subordinated to the indebtedness evidenced by
the Loan Documents on terms and conditions satisfactory to the Bank;
(d) indebtedness arising from purchase money mortgages or
capital leases for equipment financing;
(e) acquisition indebtedness provided by the seller in any
transaction, provided that such indebtedness is unsecured and is treated as
current debt for purposes of
18
<PAGE>
compliance with the covenants contained in this Agreement and neither the
Obligors nor any of their Subsidiaries make any covenant (other than to repay
such indebtedness) in incurring such indebtedness;
(f) additional secured indebtedness, provided that such
indebtedness shall not exceed $10,000,000 in the aggregate at any time
("Additional Secured Indebtedness"); and
(g) indebtedness under unsecured lines of credit or unsecured
revolving lines of credit, provided that such indebtedness shall not exceed
$55,000,000 in the aggregate for Obligors and their Subsidiaries at any time;
provided, however, that any indebtedness permitted under this Section 5.10(g)
shall be on terms and conditions reasonably acceptable to Bank. The terms and
conditions set forth in the proposed Commitment from CoreStates Bank, N.A. dated
March 17, 1997, as amended May 23, 1997, are acceptable to the Bank and will
continue to be acceptable so long as they are not changed in a way that is
materially adverse to the Obligors and their Subsidiaries.
5.11. Guarantees. The Obligors will not, and will not cause any of
their Subsidiaries to, guarantee or otherwise become liable or responsible for
indebtedness or other obligations of any other Person, contingent or otherwise,
without the prior written consent of the Bank, except that the Borrower may
incur, create or permit to exist the following:
(a) the existing guarantees disclosed in the Company's Form
10-Q for the period ended January 31, 1997 or listed and described on Schedule
5.11 attached hereto, as such guarantees may be extended or renewed in
connection with the renewal, extension or refinancing of indebtedness in
accordance with Section 5.10(a);
(b) by endorsement of negotiable instruments for deposit in
the normal course of business;
(c) guarantees issued in favor of the Bank;
(d) guarantees executed and delivered in connection with
unsecured lines of credit or unsecured revolving lines of credit permitted under
Section 5.10(g), provided that the amount of the indebtedness guaranteed shall
not exceed $55,000,000 in the aggregate for Obligors and their Subsidiaries at
any time; and
(e) additional unsecured guarantees for indebtedness, provided
that the amount of indebtedness guaranteed shall not exceed $5,000,000 in the
aggregate at any time.
5.12. Loan, Advance, Investment, Sale of Assets, Merger. The Obligors
shall not, and shall not cause any of their Subsidiaries to, without the prior
written consent of the Bank, (a) make any loan, advance or investment, except as
is customary and in the ordinary course of business; (b) sell, discount or
otherwise dispose of notes and accounts receivable
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except for the purpose of collection in the ordinary course of business; (c)
sell, lease, transfer or otherwise dispose of any of their properties or assets,
other than in the ordinary course of business; or (d) consolidate or merge with
or into any other entity, except as permitted by Section 5.03 hereof.
5.13. Financial Covenants.
(a) Tangible Net Worth. The Company and its consolidated
Subsidiaries will maintain at all times a consolidated Tangible Net Worth of at
least $48,000,000, to be measured quarterly in connection with the delivery of
the financial statements pursuant to Section 5.01.
(b) Current Ratio. The Company and its consolidated
Subsidiaries will maintain at all times a ratio of Current Assets to Current
Liabilities of (1) not less than 1.40 to 1.00 from the date of this Agreement
through October 30, 1997 and (2) not less than 1.75 to 1.00 thereafter. The
current ratio is to be measured quarterly in connection with the delivery of the
financial statements pursuant to Section 5.01.
(c) Quick Ratio. The Company and its consolidated Subsidiaries
will maintain at all times (1) a ratio of (A) cash, Investments and accounts
receivable to (B) Current Liabilities of (i) not less than 0.69 from the date of
this Agreement through October 30, 1997, and (ii) not less than 0.87 to 1.00
thereafter, and (2) cash and Investments in an amount not less than $5,000,000;
each to be measured quarterly in connection with the delivery of the financial
statements pursuant to Section 5.01.
(d) Ratio of Funded Indebtedness to Tangible Net Worth. The
Company and its consolidated Subsidiaries will maintain at all times a ratio of
(1) Consolidated Funded Indebtedness, to (2) consolidated Tangible Net Worth of
(A) not greater than 1.37 to 1.00 from the date of this Agreement through
October 30, 1997, and (B) not greater than 1.20 to 1.00 thereafter; to be
measured quarterly in connection with the delivery of the financial statements
pursuant to Section 5.01.
5.14. Subsequent Credit Terms. The Borrower will notify Lender in
writing not less than five (5) Business Days prior to entering into any new
funded debt obligation or amendment or modification of any existing funded debt
obligation, of any new financial covenant entered as a result of the new or
existing funded debt obligation. At Lender's discretion, said covenants will be
included in this Agreement.
6. EVENTS OF DEFAULT AND REMEDIES.
-------------------------------
20
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6.01. Events of Default and Remedies. Each of the following shall
be an event of default ("Events of Default"):
(a) the Borrower shall fail to pay the principal, or interest
on, the Note or any other amount due thereunder or under this Agreement within
five days after the date when such payment was due; or
(b) the Obligors shall fail to observe or perform any term,
covenant or agreement contained in the Loan Documents (other than the Note) and
such failure shall continue uncured for a period of 30 days after the earlier of
(1) the date of which the Bank has given written notice of such failure to the
relevant Obligor, or (2) the date on which an executive officer of any Obligor
otherwise became aware of such failure; or
(c) any representation or warranty made by any Obligor in this
Agreement or the other Loan Documents, or otherwise in writing in connection
with the Loan, shall prove to have been false, incorrect or misleading in any
material respect on the date when made; or
(d) any of the Loan Documents shall cease for any reason to be
in full force and effect or the enforceability thereof shall be challenged or
disputed by any Obligor; or
(e) any Obligor or any of their Subsidiaries becomes insolvent
or makes an assignment for the benefit of creditors, or any petition is filed by
or against any Obligor or any of their Subsidiaries under any provision of any
law or statute alleging that such Person is insolvent or unable to pay its debts
as they mature; or
(f) the entry of any judgment against any Obligor or any of
their Subsidiaries in an amount exceeding $750,000 or the issuing of any
attachment or garnishment against any property of any Obligor or any of their
Subsidiaries in respect of indebtedness of more than $750,000; or
(g) any Obligor or any Subsidiary of any Obligor shall fail to
pay when due (after giving effect to any grace period applicable thereto), any
principal of, premium (if any) on or interest on any other indebtedness of such
Obligor or Subsidiary, or the occurrence of any default under any mortgage,
agreement or other instrument under or pursuant to which such indebtedness is
incurred, secured, or issued, and continuance of such default beyond the period
of grace, if any, allowed with respect thereto; or
(h) any dissolution, merger, consolidation or reorganization
of any Obligor or any of their Subsidiaries, except as expressly permitted by
this Agreement and except that any Subsidiary of the Company may merge into or
consolidate with or transfer assets to any other Subsidiary of the Company; or
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(i) any information furnished in writing to the Bank by any
Obligor in connection with the Loan or the Guaranty shall prove to have been
false, incorrect or misleading in any material respect on the date when made;
then, and in any such event, the Note and all interest thereon and all other
amounts payable under this Agreement shall become and be immediately due and
payable upon declaration to such effect delivered by the Bank to the Borrower;
provided that upon the happening of an Event of Default specified in section
6.01(e), the Note and all interest thereon and all other amounts payable
thereunder shall be immediately due and payable without declaration or other
notice to any Obligor. Thereupon, the Bank shall have the right to charge and
accrue interest at the applicable Default Rate and shall have all of the rights
and remedies available to it under the Loan Documents or otherwise at law or in
equity. The Obligors expressly waive any presentment, demand, protest or further
notice of any kind.
6.02. Set-Off. Without limiting the provisions of Section 6.01, as
security for the payment by the Borrower to the Bank of all amounts due under
the Note and this Agreement, the Borrower hereby grants to the Bank a lien and
security interest upon and in any property, credits, securities or monies
(whether matured or unmatured) of the Borrower which may at any time be
delivered to, or be in the possession of, or held by the Bank in any capacity
whatsoever, including the balance of the Account and all other accounts
maintained by the Borrower with the Bank from time to time. The Borrower
authorizes the Bank, in case of an occurrence of an Event of Default, at the
Bank's option, at any time and from time to time, to apply to the payment of any
or all of the amounts due under the Note and this Agreement any and all monies,
credits, claims or deposit balances now or hereafter in the possession or
control of the Bank belonging to or owned by the Borrower. The rights of the
Bank under this Section 6.02 are in addition to all other rights and remedies
available to the Bank, including other rights of set-off that the Bank may have.
7. NOTICES.
--------
7.01. Notices. Any notices, statements, certificates, consents or other
documents required or permitted by the Loan Documents shall be in writing and
shall be given to such party at its address or telecopy number below or at such
other address or telecopy number as shall be designated by such party in a
notice to the other party complying with the terms of this Section 7.01. Unless
this Agreement specifically provides otherwise, all notices and other
communications will be effective (A) if given by mail, when received, (B) if
given by telecopy, when such telecopy is transmitted to the appropriate telecopy
number and the sender receives confirmation of transmission during normal
business hours, or (C) if given by any other means, when delivered at the
appropriate address.
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If to any Obligor:
Albert T. Sabol
Executive Vice President
Finance & Administration
c/o Central Sprinkler Corporation
451 N. Cannon Avenue
Lansdale, PA 19446
Phone: 215-362-0926
FAX: 215-362-5385
with a copy to:
George D. Pelose, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
Phone: 215-963-5735
FAX: 215-963-5299
If to Brown Brothers Harriman & Co:
Thomas J. Saunders
Brown Brothers Harriman & Co.
1531 Walnut Street
Philadelphia, PA 19102
Phone: 215-864-1818
FAX: 215-864-3989
with a copy to:
George V. Strong, III, Esquire
Drinker Biddle & Reath
Suite 300, 1000 Westlakes Drive
Berwyn, PA 19312-2409
Phone: 610-993-2218
FAX: 610-993-8585
8. MISCELLANEOUS.
--------------
8.01. Governing Law; Consent to Jurisdiction; WAIVER OF RIGHT TO TRIAL
BY JURY. This Agreement and the other Loan Documents shall be governed in all
respects by the law of the Commonwealth of Pennsylvania. The parties consent to
the jurisdiction of
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<PAGE>
the courts of Pennsylvania and of the courts of the United States sitting in
Pennsylvania in any litigation concerning this Agreement and the Loan Documents
and waive any objection based on venue or inconvenient forum. Service of the
summons and complaint and any other process may be served in any such suit,
action or proceeding by sailing or delivering a copy of the process to the
Borrower at its address specified in, or provided to the Bank pursuant to, this
Agreement and in accordance with Section 7.01. The Borrower agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other or
provided by law. The Borrower irrevocably waives the right to trial by jury in
any such suit, action or proceeding and the right to judgment for, and to
collect, damages in any such suit, action or proceeding other than for losses
and expenses actually incurred or paid.
8.02. Entire Agreement. This Agreement and the other Loan Documents
executed and delivered pursuant hereto, constitute the entire agreement between
the parties relating to the subject matter hereof and the transactions
contemplated hereby.
8.03. Fees, Costs and Expenses. The Borrower agrees to pay all
reasonable attorneys fees associated with the preparation in executable form of
the Loan Documents in form satisfactory to the Bank (excluding the preparation
of the IRB and related documents, and fees and expenses relating to the
Mortgage) in the amount of $5,000.00. The Borrower further agrees to pay (a) all
reasonable out of pocket expenses including reasonable counsel fees and
expenses, incurred by the Bank in connection with any negotiation and further
documentation of the Loan Documents; (b) the preparation of the IRB and related
documents; (c) all reasonable out of pocket expenses, including reasonable
attorneys fees and expenses, incurred by the Bank in connection with the
preparation and recording of the Mortgage; (d) all reasonable out of pocket
expenses including reasonable counsel fees and expenses, incurred by the Bank in
connection with the administration of the Loan and in connection with any
amendments to or modifications from time to time of the Loan Documents; (e) all
costs of collection (including reasonable counsel fees) if default is made in
the payment of amounts due under the Note or under the Loan Documents; (f) all
recording and other taxes and all filing fees, if any, on any documents executed
and delivered or transactions effected pursuant to the Loan Documents; and (g)
all Alabama taxes imposed on Bank or its partners if the Loan and the
transactions contemplated hereby require the Bank to qualify to do business in
the State of Alabama and thereby subject the Bank or its partners to taxation by
the State of Alabama.
8.04. Severability. In case any one or more of the provisions contained
in any Loan Document should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby, and any
prohibition or unenforceability of any provision of such Loan Document in any
jurisdiction shall not render unenforceable such provisions in any other
jurisdiction.
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<PAGE>
8.05. Survival. All covenants, agreements, representations and
warranties made herein and in the other Loan Documents and in any certificates
delivered pursuant hereto shall survive the making by the Bank of the Loan(s)
and the execution and delivery to the Bank of the Loan Documents and shall
continue in full force and effect for so long as any amount due under the Note
or any amount due hereunder is outstanding and unpaid.
8.06. Binding Effect. This Agreement and the other Loan Documents shall
be binding upon and inure to the benefit of the Obligors and the Bank and their
respective successors and assigns, except that no Obligor may assign, transfer
or convey any of Documents or its rights thereunder without the prior written
consent of the Bank.
8.07. Modification or Waiver. No modification or waiver of any
provision of this Agreement or any other Loan Document, nor consent to any
departure by any Obligor shall in any event be effective unless the same shall
be in writing, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.
8.08. Cumulative Effect. Each and every right granted to the Bank
hereunder and under the other Loan Documents, or allowed it by law or equity,
shall be cumulative and may be exercised from time to time. No failure on the
part of the Bank to exercise, and no delay in exercising, any right shall
operate as a waiver thereof, nor shall any single or partial exercise by the
Bank of any right preclude any other or future exercise thereof or the exercise
of any other right.
8.09. Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
agreement.
[remainder of page left intentionally blank]
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date above first written.
CENTRAL CPVC CORPORATION
By: /s/ Albert T. Sabol
-------------------------------------
Name: Albert T. Sabol
Title: Executive Vice President
CENTRAL SPRINKLER CORPORATION
By: /s/ Albert T. Sabol
--------------------------------
Name: Albert T. Sabol
Title: Executive Vice President
CENTRAL SPRINKLER COMPANY
By: /s/ Albert T. Sabol
--------------------------------
Name: Albert T. Sabol
Title: Executive Vice President
CENTRAL CASTINGS CORPORATION
By: /s/ Albert T. Sabol
--------------------------------
Name: Albert T. Sabol
Title: Executive Vice President
BROWN BROTHERS HARRIMAN & CO.
By: /s/ Thomas J. Saunders
--------------------------------
Name: Thomas J. Saunders
Title: Deputy Manager
26
<PAGE>
EXHIBIT A
FORM OF TERM LOAN NOTE
TERM LOAN NOTE
--------------
$7,500,000 May 30, 1997
FOR VALUE RECEIVED, the undersigned, CENTRAL CPVC CORPORATION, an
Alabama corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
BROWN BROTHERS HARRIMAN & CO. (the "Bank") (i) the principal sum of $7,500,000
as provided in the Loan Agreement (as hereinafter defined), (ii) interest on the
outstanding principal balance of this Note from the date of this Note, as
provided in Section 2.02 of the Loan Agreement (as hereinafter defined) and
(iii) if required pursuant to Section 2.06 of the Loan Agreement, interest at
the Default Rate on the unpaid principal balance of this Note, any other amounts
owing under the Loan Agreement, and (to the extent permitted by law) on any
overdue installment of interest. Payments of the principal of and interest on
this Note shall be made in lawful money of the United States of America, in
immediately available funds, and in the manner and at the place provided in
Section 2.09 of the Loan Agreement.
This Note is the "Note" referred to in, and is entitled to the benefits
of, the term loan agreement, dated of even date herewith, among the Borrower and
the Bank (said term loan agreement, as it may be hereafter amended, renewed or
extended, is herein referred to as the "Loan Agreement"). Reference is made to
the Loan Agreement for a statement of such benefits. Capitalized terms not
otherwise defined herein have the meanings ascribed to them in the Loan
Agreement. The Loan Agreement, among other things, contains provisions for
acceleration of the maturity of this Note upon the happening of certain stated
events and also for prepayments on account of principal hereof prior to the
maturity of this Note upon the terms and conditions specified in the Loan
Agreement.
This Note shall be governed by the laws of the Commonwealth of
Pennsylvania.
CENTRAL CPVC CORPORATION
By:______________________________
Name: Albert T. Sabol
Title: Executive Vice President
<PAGE>
Schedule 4.09
Loss Contingencies
------------------
In October 1996, the Company recorded an unusual non-recurring charge to the
income statement. Discussion is presented on Schedule 6.6 Contingencies.
Disclosure was made in the SEC Form 10-Q dates July 31, 1996.
5-13
<PAGE>
15. Commitments and Contingent Liabilities:
Unusual Non-Recurring Omega(TM) Charge
The Company has become aware of installation problems in certain steel pipe
systems utilizing Omega(TM) sprinklers. The addition of stop-leak products or
the presence of excessive hydrocarbons has been found in certain circumstances
to impair the operation of such sprinklers. In order to assess the extent of the
problems, the Company has strongly recommended that a sampling of Omega(Tm)
sprinklers from each such installed system be returned to the Company for
testing. Based on the results of the tests, the Company will review each
situation with the building owner and develop an appropriate action plan, as
needed.
The Company did not install such sprinklers and installation of the sprinklers
is the responsibility of the building owner. However, the Company's primary
concern is to offer the finest possible fire protection to building owners while
working within its sales and warranty policy to maintain customer goodwill. In
the fourth quarter of 1996, the Company recorded an unusual non-recurring charge
in cost of sales of $3,750 ($2,362 net of tax or $.72 per share) for the
estimated costs to be incurred by the Company for this program. The Company will
continue to monitor the results of the tests and costs incurred.
<PAGE>
SCHEDULE 5.09
Liens
-----
All items disclosed in the January 31, 1997 financial statements included with
Form 10-Q and the notes thereto and October 31, 1996 financial statements
included with Form 10-K and the notes thereto, as well as the following (certain
of which may be included in such financial statements and notes).
Company:
--------
1. Mortgage Lien - CoreStates Security Interest on
451 North Cannon Avenue
Lansdale, PA
2. All Warehouse Leases - lien upon property held at warehouse
3. All Auto Leases - lien upon autos under lease
4. All Auto Loans - lien upon autos subject to loan
5. Lien of First Union National Bank ("First Union") in and to any property,
credits, securities or monies in the possession of First Union from time to
time, as provided in Section 6.02 of the Term Loan Agreement.
6. Mortgage Lien - CoreStates Security Interest on
90 North Towamencin Street
Lansdale, PA
7. Cannon Financial Services - lien upon one copier under lease
Central CPVC Corporation:
-------------------------
*1. Mortgage Lien - CoreStates Security Interest on
245 Swancott Road
Huntsville, AL
* (to be terminated promptly following repayment from the proceeds of the
Brown Brothers term loan)
5-12
<PAGE>
SCHEDULE 5.10
Indebtedness
------------
All items disclosed in the January 31, 1997 financial statements included with
Form 10-Q and the notes thereto and October 31, 1996 financial statements
included with Form 10-K and the notes thereto, as well as the following (certain
of which may be included in such financial statements and notes).
<TABLE>
<CAPTION>
Company 5-28-97 Maturity
Limit Description Lender Balance Date
----- ----------- ------ ------- ----
<S> <C> <C> <C> <C> <C>
1. $25,000,000 Line of Credit CoreStates $24,364,000 on going
2. 10,000,000 Line of Credit First Union 10,000,000 on going
3. 5,000,000 Line of Credit Brown Brothers 5,000,000 on going
4. 5,000,000 Term Note CoreStates 500,000 07-01-97
5. 7,275,000 Term Note Central ESOP 6,817,000 10-31-07
6. 1,100,000 Mortgage Loan CoreStates 354,336 02-01-02
7. 10,000,000 Term Loan First Union 6,916,666 04-01-04
8. 10,000,000 Term Loan CoreStates 7,000,000 03-01-04
9. 688,000 Mortgage Loan CoreStates 642,133 08-01-06
10. 11,000,000 L/C - IRB F. Union/CoreSt. 10,450,000 11-01-15
Central CPVC Corp.
------------------
1. $3,500,000 Demand Note CoreStates $3,500,000 Demand
Spraysafe Ltd:
--------------
1. $4,223,700 Line of Credit Nat'l Westminster 2,181,100 on going
2. 1,110,000 Term Note Nat'l Westminster 995,300 7 years
</TABLE>
5-8-1
* (to be repaid with the proceeds of the Brown Brothers term loan)
<PAGE>
SCHEDULE 5.11
Guarantees
----------
All items disclosed in the January 31, 1997 financial statements included with
Form 10-Q and the notes thereto and October 31, 1996 financial statements
included with Form 10-K and the notes thereto, as well as the following (certain
of which may be included in such financial statements and notes).
Company Obligation Maturity
Limit Beneficiary Balance Guaranteed Date
----- ----------- ------- ---------- ----
1. $16,411 Yong An Valve 16,411 Letter of Credit 5-30-97
2. 25,400 Bldrs United Corp. 25,400 Letter of Credit 6-1-97
3. 29,707 FuSan Machinery 29,707 6-15-97
Corp. and Castings
- ------------------
1. All debt of Spraysafe, Company, Central Castings, Central CPVC as
well as Warehouse Leases, Auto Leases of subsidiaries.
5-8-2
<PAGE>
MODIFICATION TO BROWN BROTHERS TERM LOAN AGREEMENT
--------------------------------------------------
THIS MODIFICATION TO TERM LOAN AGREEMENT (the "Modification") made and
entered into this 28th day of October, 1997, by and among CENTRAL CPVC
CORPORATION ("Borrower"); CENTRAL SPRINKLER CORPORATION (the "Parent Company"),
CENTRAL SPRINKLER COMPANY (the "Company") and CENTRAL CASTINGS CORPORATION
("Castings") (the Parent Company, the Company, and Castings, collectively, the
"Guarantors"); and BROWN BROTHERS HARRIMAN & CO., ("Bank").
BACKGROUND
----------
A. The Borrower, the Guarantors, and the Bank have entered
into that certain term loan agreement dated May 30, 1997 (as modified through
the date hereof, the "Agreement"), pursuant to which the Bank made a term loan
(the "Loan") to the Borrower in the original principal amount of Seven Million
Five Hundred Thousand Dollars ($7,500,000) on the terms and subject to the
conditions set forth therein. The Guarantors joined in the Agreement and
executed the Guaranty to guaranty and become sureties for the prompt payment and
performance of the Borrower's duties, obligations, and liabilities under the
Agreement and in connection with the Loan, as provided therein.
B. The Borrower, the Guarantors, and the Bank desire to modify
and amend the Agreement pursuant to this Modification.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and intending to be legally bound hereby, the parties hereto covenant and
agree as set forth below.
1
<PAGE>
1. Incorporation of Background. The Background provisions of
this Modification are incorporated herein by reference thereto as if fully set
forth in this Modification.
2. Defined Terms. Any capitalized terms used in this
Modification or the Background provisions hereof which are not so defined, but
which are defined in the Agreement, shall have the meanings ascribed to them in
the Agreement.
3. Additional Defined Terms. The following defined terms are
hereby added to Section 1.01 of the Agreement and shall read in their entirety
as follows:
"Adjusted Current Ratio" shall mean, as at any
applicable time and for any Person, the ratio of (i) Current Assets to
(ii) (A) Current Liabilities plus (B) the outstanding principal balance
of the Revolving Credit Facility when calculating the Adjusted Current
Ratio of Parent Company hereunder.
"Capital Lease Obligations" shall mean, collectively,
the obligations of any applicable Person to pay rent or other amounts
under any lease of or other arrangement conveying the right to use real
or personal property, or a combination thereof, which obligations are
required to be classified and accounted for as capital leases on a
balance sheet of such Person pursuant to and accordance with GAAP, and
the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Central Castings Bonds" shall mean, collectively,
(i) the industrial revenue bonds issued on or about December 5, 1995 by
the State Industrial Development Authority of the State of Alabama for
the benefit of Castings in the aggregate principal amount of Eight
Million Dollars ($8,000,000), and (ii) the industrial revenue bonds
issued on or about December 5, 1995 by the Calhoun County
2
<PAGE>
Economic Development Council of the State of Alabama for the benefit of
Castings in the aggregate principal amount of Three Million Dollars
($3,000,000).
"Central Castings LC" shall mean that certain standby
letter of credit issued on or about December 5, 1995 by First Union
National Bank for the benefit of the trustee for the owners of the
Central Castings Bonds in the original stated amount of Eleven Million
Two Hundred Six Thousand Two Hundred Fifty Dollars ($11,206,250), which
letter of credit assures the repayment of the principal of and a
certain portion of the interest under the Central Castings Bonds.
"Credit Agreement" shall mean the Credit Agreement
dated October 28, 1997, by and among Parent Company and certain of its
Subsidiaries (including the Company), CoreStates Bank, N.A. as "Agent,"
and certain "Lenders," pursuant to which the Lenders have agreed to
make available the Revolving Credit Facility, and any future amendments
or modifications thereof.
"Current Assets" shall mean, as at any applicable
time and for any Person, the aggregate amount of current assets of such
Person and any Subsidiaries thereof on a consolidated basis, after
eliminating all intercompany items, as determined in accordance with
GAAP applied on a consistent basis.
"Current Liabilities" shall mean, as at any
applicable time and for any Person, the aggregate amount of current
liabilities of such Person and any Subsidiaries thereof on a
consolidated basis, after eliminating all intercompany items, as
determined in accordance with GAAP applied on a consistent basis.
"Debt" shall mean, with respect to any Person at any
applicable time (without duplication), (i) all obligations of such
Person for borrowed money, (ii) all obligations of such Person
evidenced by bonds, debentures, notes or similar instruments, (iii) all
obligations of such Person under conditional sale or other title
3
<PAGE>
retention agreements relating to property purchased by such Person to
the extent of the value of such property (other than customary
reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business), (iv) all obligations,
other than intercompany items, of such Person issued or assumed as the
deferred purchase price of property or services purchased by such
Person which would appear as liabilities on a balance sheet of such
Person, (v) all Debt of others secured by (or for which the holder of
such Debt has an existing right, contingent or otherwise, to be secured
by) any Lien on, or payable out of the proceeds of production from,
property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (vi) all Guaranty
Obligations of such Person, (vii) the principal portion of all Capital
Lease Obligations, (viii) amounts due and payable by such Person in
respect of letters of credit, bankers' acceptances or similar
obligations, (ix) all preferred stock issued by such Person and
required by the terms thereof to be redeemed, or for which mandatory
sinking fund payments are due, by a fixed date, and (x) any other item
of indebtedness that would be reflected on the liabilities side of a
balance sheet of such Person in accordance with GAAP. The Debt of any
Person shall also include the Debt of any partnership or unincorporated
joint venture in which and to the extent such Person is legally
obligated or has a reasonable expectation of being liable with respect
thereto.
"Export" shall mean Central Sprinkler Export
Corporation, a Barbados corporation and wholly-owned Subsidiary of the
Company.
"Funded Indebtedness" shall mean, as at any
applicable time and for any Person (without duplication), the sum of
(i) all Debt of such Person and their Subsidiaries for borrowed money,
(ii) all purchase money Debt of such Person and their Subsidiaries,
(iii) the principal portion of all obligations of such Person and their
Subsidiaries in respect of Capital Lease Obligations, (iv) amounts due
and payable by such Person and their Subsidiaries in respect of letters
of credit, bankers' acceptances, or similar obligations, (v) all
Guaranty Obligations of such Person, and their
4
<PAGE>
Subsidiaries with respect to Funded Debt of another Person, (vi) all
Funded Debt of another Person secured by a Lien on any property of such
Person and their Subsidiaries whether or not such Funded Debt has been
assumed by such Person or any of its Subsidiaries, and (vii) all Funded
Indebtedness of any partnership or unincorporated joint venture to the
extent such Person or any of its Subsidiaries is legally obligated or
has a reasonable expectation of being liable with respect thereto, net
of any assets of such partnership or joint venture; provided, however,
that, notwithstanding the foregoing, (A) trade indebtedness, tax and
other accruals, tax deferrals and deferred compensation incurred in the
ordinary course of such Person's business shall not constitute Funded
Indebtedness of such Person for purposes hereof, and (B) the amount of
Funded Indebtedness in respect of the Central Castings Bonds for
purposes hereof shall be equal to the greater of (x) the aggregate
outstanding amount of indebtedness under the Central Casting Bonds, and
(y) the maximum aggregate liability (fixed or contingent) of the issuer
of the Central Castings Bonds under the Central Castings LC.
"Guaranty Obligations" shall mean, as at any
applicable time and for any Person, without duplication, any
obligations (other than endorsements in the ordinary course of business
of negotiable instruments for deposit or collection) guaranteeing or
intended to guarantee any Debt of any other Person in any manner,
whether direct or indirect, and including without limitation any
obligation, whether or not contingent, (i) to purchase any such Debt or
other obligation or any property constituting security therefor, (ii)
to advance or provide funds or other support for the payment or
purchase of such Debt or obligation or to maintain working capital,
solvency or other balance sheet condition of such other Person
(including, without limitation, maintenance agreements, comfort
letters, take or pay arrangements, put agreements or similar agreements
or arrangements) for the benefit of the holder of Debt of such other
Person, (iii) to lease or purchase property, securities or services
primarily for the purpose of assuring the owner of such Debt, or (iv)
to otherwise assure or hold harmless the owner of such Debt or
obligation against loss in respect
5
<PAGE>
thereof. The amount of any Guaranty Obligation hereunder shall (subject
to any limitations set forth therein) be deemed to be an amount equal
to the outstanding principal amount (or maximum principal amount, if
larger) of the Debt in respect of which such Guaranty Obligation is
made.
"Minimum Tangible Net Worth Amount" shall mean, as at
any applicable time, (i) Forty-Eight Million Dollars ($48,000,000) plus
(ii) (A) seventy-five percent (75%) multiplied by (B) the consolidated
Net Income of Parent Company and its Subsidiaries for each fiscal year
(on a cumulative basis) of Parent Company commencing with the fiscal
year ending October 31, 1997; provided, however, no change shall be
made to the Minimum Tangible Net Worth Amount by reason of clause (ii)
if the consolidated net income of Parent Company is negative for any
fiscal year.
"Net Income" shall mean, for any applicable period
and for any Person, the net income after taxes of such Person and their
Subsidiaries on a consolidated basis, as determined in accordance with
GAAP consistently applied.
"Other Lenders" means CoreStates Bank, N.A., First
Union National Bank, and any other Lenders under the Credit Agreement.
"Other Lenders' Collateral" shall mean, collectively,
all accounts, inventory, and equipment of the Company, Parent Company,
and Export, whether now owned or hereafter acquired, and all products
and proceeds thereof.
"Other Lenders' Security Agreements" shall mean the
security agreements dated October 28, 1997, by and among Parent
Company, the Company, Export, and the Other Lenders, pursuant to which
Parent Company, the Company, and Export have granted to the Other
Lenders perfected security interests in the Other
6
<PAGE>
Lenders' Collateral, on the terms and conditions set forth therein, and
any future amendments or modifications thereto.
"Revolving Credit Facility" shall mean the
$55,000,000 revolving credit facility made available to Parent Company,
the Company and certain of their Subsidiaries pursuant to the Credit
Agreement.
"Total Capitalization" shall mean, as at any
applicable time and for any Person, (i) Funded Debt of such Person plus
(ii) Tangible Net Worth of such Person.
4. Modifications to Existing Defined Terms. The defined terms
"Maturity Date" and "Tangible Net Worth" in Sections 2.05 and 1.01,
respectively, of the Agreement are hereby modified, amended, and restated to
read in their entirety as follows:
"2.05 Maturity Date. The Loan shall mature and be
repayable in full on that date (the "Maturity Date") which is the
earlier of (a) the date on which Borrower refinances the Loan through
an IRB or otherwise or (b) January 31, 1998.
"Tangible Net Worth" shall mean, as at any applicable
time and for any Person, the amount by which (a) the book value of all
tangible assets of such Person and their Subsidiaries on a consolidated
basis, exceeds (b) the consolidated liabilities of such Person and
their Subsidiaries, all as determined in accordance with GAAP applied
on a consistent basis.
5. Consents of Bank. Notwithstanding anything in the Agreement
to the contrary, Bank hereby consents to (a) the Revolving Credit Facility and
the Credit Agreement, as it may be amended from time to time, and (b) the grant
by the Company, the Parent Company and Export of a security interest in the
Other Lenders' Collateral under the Other Lenders' Security Agreements;
provided, however, that Bank's consents are conditioned upon, and do not become
effective until, the Obligors have deposited an amount
7
<PAGE>
equal to the outstanding principal balance of the Loan into escrow with the Bank
under an "Escrow Agreement" satisfactory to the Bank (the Escrow Agreement will
call for income on the escrow to accumulate in the account for the benefit of
the Borrower until the escrow money is disbursed in accordance with the Escrow
Agreement); provided further, however, that in no event shall the Bank's
consents under this paragraph be construed as a consent to the grant by the
Borrower of any security interests or other encumbrances in any of the
collateral covered by the Bank's Security Agreement, as to all of which Bank
shall remain the first and only secured party until the Loan has been repaid in
full.
6. Restatement of Financial Covenants.
-----------------------------------
Section 5.13 of the Agreement is hereby modified,
amended, and restated to read in its entirety as follows:
"(a) Parent Company will maintain, on a consolidated
basis, Tangible Net Worth of not less than the
Minimum Tangible Net Worth Amount."
"(b) Parent Company will maintain, on a consolidated
basis, an Adjusted Current Ratio of not less than
1.00:1.00 as at the close of each fiscal quarter."
"(c) Parent Company will maintain, on a consolidated
basis, a ratio of Funded Debt to Total Capitalization
of not greater than .65:1.00 as at the close of each
fiscal quarter."
"(d) Company will maintain, on a consolidated basis,
cash and Investments of the type described in
Sections 6.3(b) and 6.3(c) of the Credit Agreement of
not less than Ten Million Dollars ($10,000,000) in
the aggregate at all times."
8
<PAGE>
The above financial covenants are based on the
financial covenants in the Credit Agreement. If the
financial covenants in the Credit Agreement are
amended, the above financial covenants shall be
deemed amended likewise. The parties also intend all
other affirmative and negative covenants in the
Agreement to conform to the affirmative and negative
covenants of the Credit Agreement; in the event of a
conflict, the covenants in the Credit Agreement shall
govern.
7. Representations and Warranties. The Borrower and the
Guarantors hereby jointly and severally represent and warrant to the Bank that
(i) they have taken all corporate action necessary to authorize the execution,
delivery and performance of this Modification; (ii) the Modification has been
duly executed and constitutes the valid and legally binding obligation of the
Borrower and the Guarantors, enforceable against them in accordance with its
term; and (iii) all representations and warranties of the Borrower and the
Guarantors set forth in Article 4 of the Agreement are true and correct on and
as of the date hereof and no Event of Default or event which, with the giving of
any required notice of the expiration of any applicable grace or cure period
would become an Event of Default has occurred or is continuing under the Loan
Documents.
8. Ratification. Except as modified pursuant to this
Modification, all of the terms and conditions of the Agreement and all of the
other Loan Documents are hereby ratified and affirmed, in the Agreement and all
of the other Loan Documents shall continue in full force and effect in
accordance with the terms thereof.
9. Miscellaneous.
--------------
(a) Expenses. The Borrower and the Guarantors agree
to pay all out-of-pocket costs and expenses (including, without limitation,
attorneys' fees and expenses)
9
<PAGE>
in connection with the negotiation and preparation of this Modification, the
Escrow Agreement, and the completion of all transactions contemplated hereby and
thereby.
(b) Binding Effect. This Modification shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(c) Counterparts. This Modification may be executed
in any number of counterparts with the same effect as if the signatures thereto
and hereto were upon the same instrument, but all of such counterpart taken
together shall be deemed to constitute one and the same instrument.
10
<PAGE>
(d) Governing Law. This Modification shall be
governed by and construed in accordance with the domestic internal law (but not
the law of conflicts of law) of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have caused this Modification to
be executed and delivered by their duly authorized officers as of the day and
year first above written.
CENTRAL CPVC CORPORATION
CENTRAL SPRINKLER CORPORATION
CENTRAL SPRINKLER COMPANY
CENTRAL CASTINGS CORPORATION
By /s/ Albert T. Sabol
----------------------------------
Albert T. Sabol
as Executive Vice President
of each company
BROWN BROTHERS HARRIMAN & CO.
By /s/ Harry R. Madeira, Jr.
----------------------------------
Harry R. Madeira, Jr.
Manager
11
<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of the 28th day of October, 1997,
among CENTRAL CPVC CORPORATION as "Borrower," BROWN BROTHERS HARRIMAN & CO. as
"Bank" and BROWN BROTHERS HARRIMAN & CO. as "Escrow Agent"; this Escrow
Agreement is also joined in by CENTRAL SPRINKLER CORPORATION, CENTRAL SPRINKLER
COMPANY, and CENTRAL CASTINGS CORPORATION as "Guarantors."
BACKGROUND
Under a Term Loan Agreement (the "Loan Agreement"; capitalized
terms not otherwise defined in this Agreement will have the meanings the Loan
Agreement gives to those terms) dated May 30, 1997, the Bank made a term loan
(the "Loan") to the Borrower in the original principal amount of $7,500,000. The
Bank has decided that it cannot maintain the Loan on its existing terms because
of new requirements imposed on the Guarantors by their bank lenders. The Bank is
willing, however, to keep the Loan outstanding while the Borrower seeks to
refinance it, provided that the Borrower deposits into escrow, on the terms set
forth below, funds in the amount of the outstanding principal balance of the
Loan.
Borrower, Bank, and Escrow Agent now wish to enter into this
agreement providing for the appointment of an escrow agent to hold such escrowed
funds and to set forth the terms and conditions under which such funds held in
escrow shall be disbursed.
AGREEMENT
NOW THEREFORE, intending to be legally bound hereby, the
parties hereto agree as follows:
1. Appointment of Escrow Agent. Bank and Borrower hereby
jointly appoint Escrow Agent as the escrow agent under this Escrow Agreement and
Escrow Agent hereby accepts such appointment and agrees to hold all of the funds
deposited into escrow with it pursuant to this Agreement, together with all
interest and income thereon and other proceeds thereof, including proceeds of
the sale or maturity of investments constituting any of the assets held by
Escrow Agent hereunder (collectively, the "Escrow Money") in accordance with the
terms hereof and to perform its other duties hereunder.
2. Establishment of Escrow. Escrow Agent hereby
acknowledges receipt of $7,500,000 paid to it by wire transfer by
or on behalf of Borrower as the initial Escrow Money. Escrow
<PAGE>
Agent shall hold the Escrow Money in segregated account No. 246- 208-3, entitled
"Central CPVC Corporation/Brown Brothers Harriman & Co. Escrow Account," and
invest and disburse it pursuant to the terms of this Agreement. Borrower hereby
grants to Bank a lien on and security interest in the Escrow Money as security
for the performance by Borrower of its obligations under the Loan Agreement and
the other Loan Documents.
3. Investment of Escrow Money. Until all of the Escrow Money
shall have been disbursed as provided in this Agreement, Escrow Agent shall
invest the same in a money market mutual fund or interest bearing bank account
or in such other investments as Bank and Borrower may from time to time choose
by mutual agreement. All income earned on the Escrow Money shall accumulate in
the Escrow Account and shall be treated as income of Borrower for income tax
purposes. Whenever required by this Agreement to disburse any of the Escrow
Money, Escrow Agent shall promptly liquidate sufficient investments to permit
such disbursement to be made; provided, however, that if the liquidation of any
investment would result in a loss, Escrow Agent, upon the direction of the party
to whom such disbursement is to be made, shall delay such payment as provided by
the direction of such party. Escrow Agent shall, upon the request of any other
party hereto, made not more frequently than monthly, promptly provide such party
with an accounting of the Escrow Money and of all debits and credits thereto.
Such accounting shall also describe the face value and maturity dates of any
investment of the Escrow Money.
4. Disposition of Escrow Money. Escrow Agent shall disburse
the Escrow Money pursuant to the mutual written directions of Bank and Borrower,
or, in the absence of such directions, pursuant to Section 5 hereof.
5. Delivery of Escrow Money by Escrow Agent.
(a) On the earlier of (i) the date on which the
Bank accelerates the Loan by written notice to the Borrower because of
Borrower's failure to pay principal or interest on the Loan when due (after
taking into account any applicable notice and grace period under the Loan
Agreement), (ii) the date on which a petition under the United States Bankruptcy
Code is filed by or against the Borrower or any Guarantor, or (iii) January 31,
1998 (the "Termination Date"), Escrow Agent shall deliver to Bank the Escrow
Money for application to the repayment of the unpaid principal and accrued
interest on the Loan. If after such application any Escrow Money remains, it
shall be disbursed to or as directed by the Borrower.
(b) If before the Termination Date the Bank
receives, from Borrower, Guarantors, or a refinancing source, good funds in the
amount of the outstanding principal balance of
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the Loan plus accrued interest, the Escrow Agent shall disburse the Escrow Money
to or as directed by the Borrower.
6. Resignation or Removal of Escrow Agent. Escrow
Agent may resign at any time upon 30 days' prior notice to Borrower and Bank,
and may be removed by the mutual consent of Borrower and Bank upon 30 days'
prior notice to Escrow Agent. Prior to the effective date of the resignation or
removal of Escrow Agent or any successor escrow agent, Borrower and Bank shall
jointly appoint a successor escrow agent to hold the Escrow Money, and any such
successor escrow agent shall execute and deliver to the predecessor escrow agent
an instrument accepting such appointment, upon which such successor agent shall,
without further act, become vested with all of the rights, powers and duties of
the predecessor escrow agent as if originally named herein. If no successor
escrow agent is appointed prior to the effective date of the termination or
resignation of the Escrow Agent, Escrow Agent may place all of the Escrow Money
at the disposal of a court and petition the court to act as the successor escrow
agent or to appoint another entity to act as the successor escrow agent.
7. Liability of Escrow Agent.
(a) The duties of Escrow Agent hereunder are
entirely administrative and not discretionary. Escrow Agent is obligated to act
only in accordance with written instructions received by it as provided in this
Agreement, is authorized hereby to comply with any orders, judgments or decrees
of any court or arbitration panel and shall not incur any liability as a result
of its compliance with such instructions, orders, judgments or decrees. Escrow
Agent may assume the due execution, validity and effectiveness of, and the truth
and accuracy of any information contained in, any instrument or other document
presented to it which Escrow Agent shall in good faith believe to be genuine,
and to have been signed or presented by the persons or parties purporting to
sign or present the same.
(b) Escrow Agent shall have no liability under,
or duty to inquire into, the terms and provisions of any other agreement between
any of the parties hereto. In the event that any of the terms and provisions of
any other agreement conflict or are inconsistent with any of the terms and
provisions of this Agreement, the terms and provisions of this Agreement in
respect of Escrow Agent's rights and duties shall govern and control in all
respects.
(c) If Escrow Agent shall be uncertain as to its
duties or rights hereunder, it shall be entitled to refrain from taking any
action other than to keep safely all property held in escrow pursuant hereto
until it shall be directed otherwise in a writing signed by Bank and Borrower,
or by an order of a court of
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competent jurisdiction. Escrow Agent may consult with counsel of its choice,
including in-house counsel, and shall not be liable for any action taken,
suffered, or omitted by it in accordance with the advice of such counsel. Escrow
Agent shall not be required to institute legal proceedings of any kind and shall
not be required to defend any legal proceedings which may be instituted against
it in respect of the subject matter of this Agreement unless requested to do so
by another party hereto and indemnified to its reasonable satisfaction against
the costs and expenses of such defense.
(d) Borrower and Bank hereby waive any suit,
claim, demand or cause of action of any kind which either one or both may have
to assert against Escrow Agent arising out of or relating to the execution or
performance by Escrow Agent of this Escrow Agreement, unless such suit, claim,
demand or cause of action is based upon the willful misconduct, gross
negligence, or bad faith of Escrow Agent or Escrow Agent's failure to perform an
express obligation hereunder. Escrow Agent and its partners shall be indemnified
and held harmless against any and all liabilities, including judgments, costs
and reasonable counsel fees, for anything done or omitted by Escrow Agent in the
performance of this Escrow Agreement except as a result of the willful
misconduct, bad faith or gross negligence of Escrow Agent or Escrow Agent's
failure to perform an express obligation hereunder. All such reimbursements and
indemnifications shall be paid by Borrower.
8. Notices. All notices hereunder shall be in writing and
shall be sufficiently given if hand-delivered, sent by documented overnight
delivery service or registered or certified mail, postage prepaid, return
receipt requested or by telegram, fax or telecopy (confirmed by U.S. mail),
receipt acknowledged, addressed as set forth below or to such other person
and/or at such other address as may be furnished in writing by any party hereto
to the other. Any such notice shall be deemed to have been given as of the date
received, in the case of personal delivery, or on the date shown on the receipt
or confirmation therefor, in all other cases.
(a) If to Bank:
Brown Brothers Harriman & Co.
1531 Walnut Street
Philadelphia, PA 19102
Fax: (215) 864-3989
Attention: Thomas J. Saunders, Deputy Manager
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(b) If to Borrower or Guarantors:
c/o Central Sprinkler Corporation
451 N. Cannon Avenue
Lansdale, PA 19446
Fax: (215) 362-5385
Attention: Albert T. Sabol,
Executive Vice President
(c) If to Escrow Agent:
Brown Brothers Harriman & Co.
1531 Walnut Street
Philadelphia, PA 19102
Fax: (215) 864-3989
Attention: Thomas J. Saunders, Deputy Manager
9. Entire Agreement and Modification. This Agreement
constitutes the entire agreement between the parties hereto with respect to the
matters contemplated herein and supersedes all prior agreements and
understandings with respect thereto. Any amendment, modification, or waiver of
this Agreement shall not be effective unless in writing. Neither the failure nor
any delay on the part of any party to exercise any right, remedy, power, or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power, or privilege
with respect to any occurrence be construed as a waiver of any right, remedy,
power, or privilege with respect to any other occurrence.
10. Governing Law. This Agreement is made pursuant to, and
shall be construed and enforced in accordance with, the internal laws of the
Commonwealth of Pennsylvania (and United States federal law, to the extent
applicable), without giving effect to otherwise applicable principles of
conflicts of law.
11. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original and all of
which, when taken together, shall be deemed to constitute but one and the same
Agreement.
12. Further Assurances. Each of the parties hereto shall
execute such further instruments and take such other actions as any other party
shall reasonably request in order to effectuate the purposes of this Agreement.
13. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns, heirs, executors, and administrators. If any provision of this
Agreement shall be or become illegal or unenforceable in whole or in part for
any reason
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<PAGE>
whatsoever, the remaining provisions shall nevertheless be deemed
valid, binding and subsisting.
14. Joinder of Guarantors. The Guarantors have joined in the
execution of this Escrow Agreement to express their consent to its terms and to
confirm that their Guaranty remains in full force and effect.
IN WITNESS WHEREOF, this Escrow Agreement has been executed as
of the date and year first-above written.
CENTRAL CPVC CORPORATION
CENTRAL SPRINKLER CORPORATION
CENTRAL SPRINKLER COMPANY
CENTRAL CASTINGS CORPORATION
By /s/ Albert T. Sabol
------------------------------
Albert T. Sabol
as Executive Vice President
of each company
BROWN BROTHERS HARRIMAN & CO.,
as Bank and as Escrow Agent
By /s/ Harry R. Madeira, Jr.
------------------------------
Harry R. Madeira, Jr.
Manager
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SECURITY AGREEMENT
------------------
This SECURITY AGREEMENT is made and entered into as of this 28th
day of October, 1997, by and among FIRST UNION NATIONAL BANK, successor to First
Fidelity Bank, N.A., a national banking association with offices at 123 South
Broad Street, Philadelphia, PA 19109 (the "Secured Party"), CENTRAL SPRINKLER
COMPANY, a Pennsylvania corporation with offices located at 451 Cannon Avenue,
Lansdale, PA 19446 ("Borrower"), CENTRAL SPRINKLER CORPORATION, a Pennsylvania
corporation with offices located at 451 Cannon Avenue, Lansdale, PA 19446 (the
"Existing Guarantor") and CENTRAL SPRINKLER EXPORT CORPORATION, a Barbados
corporation with offices at 451 Cannon Avenue, Lansdale, PA 19446 (the "New
Guarantor," and, together with the Existing Guarantor, the "Guarantors"). The
Borrower and the Guarantors are referred to collectively herein as the
"Obligors."
BACKGROUND
----------
A. The Borrower, the Existing Guarantor and the Secured Party are
parties to a certain Loan Agreement dated as of April 15, 1994, which has been
amended from time to time (the "Loan Agreement"), including most recently
pursuant to a certain Fifth Amendment to Loan Agreement of even date herewith
(the "Fifth Amendment").
B. The Secured Party is willing to enter into the Fifth Amendment
only on the condition that the Obligors execute and deliver this Security
Agreement to the Secured Party.
C. Capitalized terms which are used herein without definition shall
have the meanings ascribed to them in the Loan Agreement. Other terms used
herein without definition that are defined in the Uniform Commercial Code, as
enacted in Pennsylvania and in effect on the date hereof (the "Uniform
Commercial Code") shall have the meanings ascribed to them therein, unless the
context requires otherwise.
NOW, THEREFORE, incorporating the Background section herein, for
good and valuable consideration, the receipt and legal sufficiency of which is
hereby acknowledged and intending to be legally bound, the Obligors and the
Secured Party hereby agree as follows:
Section 1. Creation of Security Interest. The Obligors hereby grant
to the Secured Party a lien and security interest in and to all of the following
personal property of the Obligors, whether now owned or hereafter acquired or
arising and wherever located, including but not limited to the following
("Collateral"):
(a) all accounts, accounts receivable, rights under
contracts, chattel paper, instruments, and all obligations due any of the
Obligors for goods sold or to be sold, consigned or leased or to be leased, or
services rendered or to be rendered ("Accounts");
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(b) all inventory, whether raw materials, work-in-process,
finished goods, parts or supplies or otherwise; all goods, merchandise and other
property held for sale or lease or to be furnished under any contract of
service; all documents of title covering any goods which are or are to become
inventory and any such goods which are leased or consigned to others and all
returned, reclaimed or repossessed goods sold, consigned, leased or otherwise
furnished by any of the Obligors to others ("Inventory");
(c) all machinery, equipment, furniture, fixtures, tools,
motor vehicles, and all accessories, parts and equipment now or hereafter
attached thereto or used in connection therewith, whether or not the same shall
be deemed affixed to real property, and all other tangible personal property
("Equipment");
(d) all additions, replacements, attachments, accretions,
accessions, components and substitutions to or for any Inventory or Equipment;
(e) all books and records evidencing or relating to the
foregoing, including, without limitation, billing records of every kind and
description, customer lists, data storage and processing media, software and
related material, including computer programs, computer tapes, cards, disks and
printouts, and including any of the foregoing which are in the possession of any
affiliate or any computer service bureau;
(f) all proceeds, which term shall have the meaning given
to it in the Uniform Commercial Code and shall additionally include but not be
limited to, whatever is received upon the use, lease, sale, exchange, collection
or other utilization or any disposition of any of the collateral described in
subparagraphs (a) through (e) above, whether cash or noncash, and including
without limitation, rental or lease payments, accounts, chattel paper,
instruments, documents, contract rights, general intangibles, equipment,
inventory and insurance proceeds; and all such proceeds of the foregoing
("Proceeds").
Section 2. Secured Obligations. The security interest created
herein is given as ecurity for the prompt payment, performance, satisfaction and
discharge of the following bligations ("Obligations") of the Obligors:
(a) To pay the principal, interest, commitment fees and
any other liabilities of the Obligors to the Secured Party under the Loan
Agreement and the other Loan Documents in accordance with the terms thereof;
(b) To repay the Secured Party all amounts advanced by the
Secured Party hereunder or under the other Loan Documents on behalf of any of
the Obligors, including, but without limitation, advances for principal or
interest payments to prior secured parties, mortgagors or lienors, or for taxes,
levies, insurance, rent, wages, repairs to or maintenance or storage of any
Collateral; and
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<PAGE>
(c) To reimburse the Secured Party, on demand, for all of
the Secured Party's expenses and costs, including the reasonable fees and
expenses of its counsel, in connection with the negotiation, preparation,
administration, amendment, modification, or enforcement of the Loan Agreement
and the other Loan Documents.
Section 3. Representations and Warranties. Each Obligor, as of the
date hereof and at the time of each advance or extension of credit under the
Loan Agreement, represents and warrants as follows:
3.01 Good Title to Collateral. Each has good and
marketable title to the Collateral free and clear of all liens and encumbrances
other than the security interests granted to the Secured Party hereunder and
those liens and encumbrances set forth in Exhibit A to this Security Agreement.
3.02 Location of Books and Records. The locations of the
offices where each maintains its books and records concerning the Collateral are
as set forth in Exhibit B or at the location(s) hereafter disclosed to the
Secured Party pursuant to Section 5.10 hereof.
3.03 Chief Executive Office. The chief executive offices
of each are at the address set forth in Exhibit B or at the location(s)
hereafter disclosed to the Secured Party pursuant to Section 5.10 hereof
3.04 Location of Inventory and Equipment. All Inventory
and Equipment of each is located at one or more of the addresses set forth in
Exhibit B or at the location(s) hereafter disclosed to the Secured Party
pursuant to Section 5.10 hereof.
3.05 Other Representations. Each representation, warranty
or other statement by the Obligors in, or in connection with, any of the Loan
Documents is true and correct and states all material facts necessary to make it
not misleading.
Section 4. Collection, Disposition and Use of Collateral.
4.01 Accounts. The Secured Party hereby authorizes the
Obligors to collect all Accounts from the account debtors. The Proceeds of
Accounts so collected by the Obligors shall be received and held by the Obligors
in trust for the Secured Party but may be applied by the Obligors in their
discretion towards payment of the Obligations or other corporate purposes. Upon
the occurrence of a default as set forth in Section 7 hereof, the authority
hereby given to the Obligors to collect the Proceeds of Accounts in trust for
the Secured Party may be terminated by the Secured Party at any time and Secured
Party shall have the right at any time thereafter, acting if it so chooses in
any Obligor's name, to collect Accounts itself, to sell, assign, compromise,
discharge or extend the time for payment of any Account, and to do all acts and
things necessary or incidental thereto and the Obligors hereby ratify all such
acts. Upon the occurrence of a default as set forth in Section 7 hereof, at the
Secured Party's request, the Obligors will notify account debtors and any
guarantor thereof that the Accounts payable by
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such account debtors have been assigned to the Secured Party and shall indicate
on all billings to account debtors that payments thereon are to be made to the
Secured Party.
4.02 Inventory. So long as there has been no default
hereunder, the Obligors shall be permitted to process and sell their Inventory,
but only to the extent that such processing and sale are conducted in the
ordinary course of the Obligors' business.
4.03 Equipment. So long as there has been no default
hereunder, the Obligors shall be permitted to use their Equipment in the
ordinary course of their respective businesses.
Section 5. Covenants and Agreements of the Obligors.
5.01 Maintenance and Inspection of Books and Records. The
Obligors shall maintain complete and accurate books and records and shall make
all necessary entries therein to reflect the costs, values and locations of
their Inventory and Equipment and the transactions and documents giving rise to
their Accounts and all payments, credits and adjustments thereto. The Obligors
shall keep the Secured Party fully informed as to the location of all such books
and records and shall permit the Secured Party and its authorized agents to have
full, complete and unrestricted access thereto at any reasonable time and to
inspect, audit and make copies of all books and records, data storage and
processing media, software, printouts, journals, orders, receipts, invoices,
correspondence and other documents and written or printed matter related to any
of the Collateral. The Secured Party's rights hereunder shall be enforceable at
law or in equity, and the Obligors consent to the entry of judicial orders or
injunctions enforcing specific performance of such obligations hereunder.
5.02 Confirmation of Accounts. The Obligors agree that the
Secured Party shall at all times have the right to confirm orders and to verify
any or all of each Obligor's Accounts in the Secured Party's name, or in any
fictitious name used by the Secured Party for verifications, or through any
public accountants.
5.03 Delivery of Accounts Documentation. At such intervals
as the Secured Party shall require, the Obligors shall deliver to the Secured
Party copies of purchase orders, invoices, contracts, shipping and delivery
receipts and any other document or instrument which evidences or gives rise to
an Account.
5.04 Physical Inspection of Inventory and Equipment. The
Obligors shall permit the Secured Party and its authorized agents to inspect any
or all of the Obligors' Inventory and Equipment at all reasonable times.
5.05 Notice of the Secured Party's Interests. If requested
by the Secured Party, the Obligors shall give notice of the Secured Party's
security interests in the Collateral to any third person with whom the Obligors
have any actual or prospective contractual relationship or other business
dealings.
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<PAGE>
5.06 Delivery of Certain Accounts and Documents to the
Secured Party. Immediately upon receipt of any instrument, chattel paper,
document of title (including bills of lading and warehouse receipts), the
Obligors shall deliver such Collateral to the Secured Party and shall execute
any form of assignment requested by the Secured Party with respect thereto. The
Obligors shall deliver to the Secured Party all such reports and certificates
reasonably requested by the Secured Party and all such reports and certificates
delivered or required to be delivered to CoreStates Bank, N.A. pursuant to the
same terms and at the same intervals as set forth in the terms and conditions of
the CoreStates Financing.
5.07 Accounts Agings. The Obligors shall furnish the
Secured Party with agings of their Accounts in such form and detail and at such
intervals as the Secured Party may from time to time require.
5.08 Government Accounts. The Obligors shall immediately
provide written notice to the Secured Party of any and all Accounts in excess of
one hundred thousand dollars ($100,000) which arise out of contracts with the
United States or any department, agency or instrumentality thereof, and shall
execute and deliver to the Secured Party an assignment of claims for such
Accounts and cooperate with the Secured Party in taking any other steps
required, in the Secured Party's judgment, to perfect or continue the perfected
status of the Secured Party's security interest in such Accounts and proceeds
thereof under the Federal Assignment of Claims Act.
5.09 Insurance of Collateral. The Obligors shall keep
their Inventory and Equipment insured against such perils, in such amounts and
with such insurance companies as the Secured Party may require. All insurance
policies shall name the Secured Party as lender loss payee as its interest may
appear and shall provide for not less than thirty (30) days' advance notice in
writing to the Secured Party of any cancellation thereof. The Secured Party
shall have the right (but shall be under no obligation) to pay any of the
premiums on such insurance. Any premiums paid by the Secured Party shall, if the
Secured Party so elects, be considered an advance at the highest rate of
interest provided in the Loan Agreement, and all such accrued interest shall be
payable on demand. Any credit insurance covering Accounts shall name the Secured
Party as loss payee. The Obligors expressly authorize their insurance carriers
to pay proceeds of all insurance policies covering any or all of the Collateral
directly to the Secured Party.
5.10 New Locations of Collateral and Books and Records.
The Obligors shall immediately notify the Secured Party of any change in the
location of their chief executive office, of any new or additional address where
their books and records concerning the Collateral are located and of any new
locations of Inventory or Equipment not specified in Sections 3.02, 3.03 or 3.04
of this Security Agreement, and if any such location is on leased or mortgaged
premises, use their best efforts to promptly furnish the Secured Party with
landlord's or mortgagee's waivers in form and substance satisfactory to the
Secured Party.
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<PAGE>
5.11 Perfection of the Secured Party's Interests. The
Obligors agree to cooperate and join, at its expense, with the Secured Party in
taking such steps as are necessary, in the Secured Party's judgment, to perfect
or continue the perfected status of the security interests granted hereunder,
including, without limitation, the execution and delivery of any financing
statements, amendments thereto and continuation statements, the delivery of
chattel paper, documents or instruments to the Secured Party, the obtaining of
landlords' and mortgagees' waivers required by the Secured Party, the notation
of encumbrances in favor of the Secured Party on certificates of title, and the
execution and filing of any collateral assignments and any other instruments
requested by the Secured Party to perfect its security interest in any and all
of the Obligors' patents, trademarks, service marks, tradenames, copyrights and
other general intangibles. The Secured Party is expressly authorized to file
financing statements without the Obligors' signature.
5.12 Maintenance of Inventory and Equipment. The Obligors
shall care for and preserve the Inventory and Equipment in good condition and
repair, and will pay the cost of all replacement parts, repairs to and
maintenance of the Equipment. The Obligors will keep complete and accurate
maintenance records with respect to its Equipment.
5.13 Notification of Adverse Change in Collateral. The
Obligors agree immediately to notify the Secured Party if a "material adverse
effect" has occurred by virtue of (a) the creation of an Account pursuant to a
sale under terms which differ materially from those customarily offered by the
Obligors; or (b) an account or any inventory losing its qualified status, if
any, or any material diminution in the value of any significant item or type of
Collateral. For purposes hereof, "material adverse effect" shall mean relative
to any occurrence of whatever nature, a material adverse effect on (a) the
assets, operations, profits, financial condition, or business of the Obligors
taken as whole, (b) the ability of the Obligors taken as a whole to perform
their respective obligations under this Security Agreement or any of the other
Loan Documents, or (c) the validity or enforceability of this Security
Agreement, any of the other Loan Documents, or any of the rights and remedies of
the Secured Party hereunder or thereunder.
5.14 Reimbursement and Indemnification. The Obligors agree
to reimburse the Secured Party on demand for out-of-pocket expenses incurred in
connection with the Secured Party's exercise of its rights under this Security
Agreement. The Obligors agree to indemnify the Secured Party and hold it
harmless against any costs, expenses, losses, damages and liabilities (including
reasonable attorney's fees) incurred in connection with this Security Agreement,
other than as a direct result of the Secured Party's gross negligence or willful
misconduct.
Section 6. Power of Attorney. The Obligors hereby appoint the
Secured Party as their lawful attorney-in-fact to do, at the Secured Party's
option, and at the Obligors' expense and liability, all acts and things which
the Secured Party may deem necessary or desirable to effectuate its rights under
this Security Agreement, including without limitation, (a) file financing
statements and otherwise perfect any security interest granted hereby, (b)
correspond and negotiate directly with insurance carriers, (c) upon the
occurrence of a default hereunder,
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<PAGE>
receive, open and dispose of in any reasonable manner all mail addressed to the
Obligors and notify Postal Service authorities to change the address for mail
addressed to the Obligors to an address designated by the Secured Party, (d)
upon the occurrence of a default hereunder, demand, collect and receive from
account debtors and other third parties for the purpose of recovering,
protecting or preserving the Collateral, and (e) upon the occurrence of a
default hereunder and acceleration of the Obligations, in the Obligors' or the
Secured Party's name, to compound, compromise, settle and give acquittance for,
and prosecute and discontinue or dismiss, with or without prejudice, any suit or
proceeding respecting any of the Collateral.
Section 7. Default. The occurrence of any one or more of the
following shall be a default hereunder:
7.01 Default Under Loan Agreement. The occurrence of an
Event of Default under the Loan Agreement or any of the Loan Documents.
7.02 Failure to Observe Covenants. The failure of the
Obligors to keep, observe or perform any provisions of this Security Agreement,
which failure is not cured and remedied within fifteen (15) days after written
notice thereof is given to the Obligors.
7.03 Representations, Warranties. If any representation,
warranty or certificate furnished by the Obligors under or in connection with
this Security Agreement shall, at any time, be materially false or incorrect.
Section 8. Secured Party's Rights Upon Default. Upon the occurrence
of a default hereunder, or at any time thereafter, the Secured Party may
immediately and without notice do any or all of the following, which rights and
remedies are cumulative, may be exercised from time to time, and are in addition
to any rights and remedies available to the Secured Party under the Loan
Agreement or any other Loan Document:
8.01 Uniform Commercial Code Rights. Exercise any and all
of the rights and remedies of a secured party under the Uniform Commercial Code,
including the right to require the Obligors to assemble the Collateral and make
it available to the Secured Party at a place reasonably convenient to the
parties.
8.02 Operation of Collateral. Operate, utilize,
recondition and/or refurbish (at the Secured Party's sole option and discretion
and in any manner) any of the Collateral which is Equipment, for the purpose of
enhancing or preserving the value thereof or the value of any other Collateral.
8.03 Notification of Account Debtors. Notify the account
debtors for any of the Accounts that such Accounts have been assigned to the
Secured Party and that payments are to be made directly to the Secured Party, or
to such post office box as the Secured Party may direct. The Obligors shall not
compromise, discharge, extend the time for payment or otherwise
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grant any indulgence or allowance with respect to any Account without the prior
written consent of the Secured Party.
8.04 Sale of Collateral. Upon five (5) calendar days'
prior written notice to the Obligors, which the Obligors hereby acknowledge to
be sufficient, commercially reasonable and proper, sell, lease or otherwise
dispose of any or all of the Collateral at any time and from time to time at
public or private sale, with or without advertisement thereof and apply the
proceeds of any such sale first to the Secured Party's expenses in preparing the
Collateral for sale (including reasonable attorneys' fees) and second to the
complete satisfaction of the Obligations. The Obligors waive the benefit of any
marshalling doctrine with respect to the Secured Party's exercise of its rights
hereunder.
Section 9. Notices. Any written notices required or permitted by
this Security Agreement shall be effective if delivered in accordance with the
Loan Agreement.
Section 10. Miscellaneous.
10.01 No Waiver. No delay or omission by the Secured Party
in exercising any right or remedy hereunder shall operate as a waiver thereof or
of any other right or remedy, and no single or partial exercise thereof shall
preclude any further exercise thereof or the exercise of any other right or
remedy.
10.02 Preservation of Rights. The Secured Party shall have
no obligation or responsibility to take any steps to enforce or preserve rights
against any parties to any Account and such obligation and responsibility shall
be those of the Obligors exclusively.
10.03 Successors. The provisions of this Security
Agreement shall inure to the benefit of and be binding upon the Secured Party
and the Obligors and their respective successors and assigns, provided that the
Obligors' obligations hereunder may not be assigned without the written consent
of the Secured Party.
10.04 Amendments. No modification, rescission, waiver,
release or amendment of any provisions of this Security Agreement shall be
effective unless set forth in a written agreement signed by the Obligors and an
authorized officer of the Secured Party.
10.05 Governing Law. This Security Agreement shall be
construed under the internal laws of the Commonwealth of Pennsylvania without
reference to conflict of laws principles.
10.06 Severability. If any provision of this Security
Agreement shall be held invalid or unenforceable under applicable law in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of such provision in any other jurisdiction or the validity or
enforceability of any other provision of this Security Agreement that can be
given effect without such invalid or unenforceable provision.
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10.07 Judicial Proceedings. Each party to this Agreement
agrees that any suit, action or proceeding, whether claim or counterclaim,
brought or instituted by any party hereto or any successor or assign of any
party, on or with respect to this Agreement or the dealings of the parties with
respect hereto, shall be tried only by a court and not by a jury. EACH PARTY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. Further, each party waives any
right it may have to claim or recover, in any such suit, action or proceeding,
any special, exemplary, punitive or consequential damages or any damages other
than, or in addition to, actual damages. THE OBLIGORS ACKNOWLEDGE AND AGREE THAT
THIS PARAGRAPH IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT THE
SECURED PARTY WOULD NOT ENTER INTO THE FIFTH AMENDMENT IF THE WAIVERS SET FORTH
IN THIS PARAGRAPH WERE NOT A PART OF THIS AGREEMENT.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be executed and delivered by their authorized officers the day and
year first above written.
ATTEST: CENTRAL SPRINKLER COMPANY
By: /s/ Jennifer R. Cemini By: /s/ Albert T. Sabol
----------------------- ----------------------------
Name: Jennifer R. Cemini Name: Albert T. Sabol
Title: Secretary Title: Executive Vice President
ATTEST: CENTRAL SPRINKLER CORPORATION
By: /s/ Jennifer R. Cemini By: /s/ Albert T. Sabol
----------------------- ----------------------------
Name: Jennifer R. Cemini Name: Albert T. Sabol
Title: Assistant Secretary Title: Executive Vice President
ATTEST: CENTRAL SPRINKLER EXPORT
CORPORATION
By: /s/ Jennifer R. Cemini By: /s/ Albert T. Sabol
----------------------- ----------------------------
Name: Jennifer R. Cemini Name: Albert T. Sabol
Title: Secretary Title: Executive Vice President
FIRST UNION NATIONAL BANK
By: /s/ Suzanne Storm
-------------------------
Name: Suzanne Storm
Title: Senior Vice President
- 10 -
<PAGE>
EXHIBIT A
---------
Central Sprinkler Company:
1. Mortgage Lien - CoreStates Security Interest on
451 North Cannon Avenue
Lansdale, PA
2. All Equipment and Warehouse Leases - contractually obliged to grant security
interest to Landlord upon equipment and property held at warehouse if rents
are unpaid.
3. All Auto and Truck Leases - lien upon autos and trucks under lease.
4. All Auto and Truck Loans - lien upon autos and trucks subject to loan.
5. Lien of First Union National Bank ("First Union") in and to any property,
credits, securities or monies of Central Sprinkler Company in the possession
of First Union from time to time, as provided in Section 6.02 of the First
Union Term Loan Agreement, upon event of default.
6. Mortgage Lien - CoreStates Security Interest on
90 North Towamencin Street
Lansdale, PA
7. Cannon Financial Services - lien upon copiers under lease.
8. AT&T Capital Corporation - lien upon one copier under lease.
9. Pitney Bowes Credit Corp. - lien upon Pitney Bowes equipment under lease.
10. Deere Credit, Inc. - lien upon Manlift under lease.
11. Crown Credit Co. - lien upon Crown Lift trucks.
12. Orix Credit Alliance - lien upon equipment under lease.
13. Judgement Lien related to case #92-07079 and filed April 3, 1992 in the
amount of $80,799.65.
<PAGE>
CSC
Lien of First Union in and to any property, credits, securities or monies of
CSC in the possession of First Union from time to time, as provided in
Section 5 of the Guaranty, dated April 5, 1994 of the First Union Term Loan
Agreement, upon event of default.
All Obligors
1. The liens and security interests created or permitted by the Security
Agreements between CoreStates Bank, N.A. and Obligors, dated as of even date
herewith.
2. Liens for taxes not yet payable or being contested in good faith by
appropriate proceedings and for which adequate reserves have been provided on
the books of the Obligors.
3. Mechanics', materialmen's, warehousemen's, carriers' or other like Liens
arising in the ordinary course of business of the Borrowers or any
Subsidiary, arising with respect to obligations which are not overdue for a
period longer than thirty (30) days or which are being contested in good
faith by appropriate proceedings, and for which adequate reserves have been
provided on the books of the Obligors.
4. Deposits or pledges to secure the performance of bids, tenders, contracts,
leases, public or statutory obligations, surety or appeal bonds or other
deposits or pledges for purposes of a like general nature or given in the
ordinary course of business by the Obligors.
5. Other encumbrances consisting of zoning restrictions, easements, restrictions
on the use of real property or minor irregularities in the title thereto,
which do not arise in connection with the borrowing of, or any obligation for
the payment of, money and which, in the aggregate, do not materially detract
from the value of the business, properties or assets of the Obligors.
6. Judgment and other similar Liens arising in connection with court
proceedings, provided the execution or other enforcement of such Lien is
effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings promptly initiated and
diligently conducted and adequate reserves have been established with respect
thereto.
7. Cash collateral provided by CPVC to Brown Brothers as security for the Brown
Brothers Loan.
<PAGE>
EXHIBIT B
Collateral Locations
Chief Executive Offices of Central Sprinkler Company, Central Sprinkler
Corporation and Central Sprinkler Export Corporation:
451 N. Cannon Avenue
Lansdale, PA 19446
Central Sprinkler Company Locations:
451 N. Cannon Avenue 7th Street
Lansdale, PA 19446 Anniston, AL 36206
W. 2nd & Towamencin Avenue 2660 Old Gadsden Highway
Lansdale, PA 19446 Anniston, AL 36206
245 Swancott Rd.
Madison, AL 35758
Regional Distribution Centers (Central Sprinkler Company):
Atlanta Los Angeles
3080 N. Lanier Parkway 3170 Nasa Street
Decatur, GA 30030 Brea, CA 92621
Baltimore/Washington D.C. Miami
8230-C Preston Court 1500 S.W. 5th Ct., Suite A
Jessup, MD 20794 Pompano Beach, FL 33069
Boston Philadelphia
27R Doherty Avenue 201 King Manor Road
Avon, MA 02322 King of Prussia, PA 19406
Chicago Portland
85 O'Leary Drive 7500 S.W. Tech Center Dr. Ste. 110
Bensenville, IL 60106 Tigard, OR 97223
Cleveland Salt Lake City
12400 Plaza Drive 2915 S. West Temple
Parma, OH 44130 Salt Lake City, UT 84115
<PAGE>
Regional Distribution Centers (continued):
Dallas San Francisco
1780 Hurd Drive 2380 Lincoln Avenue
Irving, TX 75038 Hayward, CA 94545
Greensboro Seattle
156 Industrial Avenue 19307 70th Avenue South
Greensboro, NC 27406 Kent, WA 98032
Glass Bulb Manufacturing:
Glinecke Glass Company
94 Walker Lane
Newtown, PA 18940
Contract Manufacturing (Steel Pipe):
Youngstown Tube
301 Andrews Avenue
Youngstown, OH 44505
Consignment of Inventory:
Atlantic American Fire Equipment Co.
121 Titus Avenue
Warrington, PA 18976
<PAGE>
FIFTH AMENDMENT TO LOAN AGREEMENT
This FIFTH AMENDMENT TO LOAN AGREEMENT ("Fifth Amendment"), dated as of
October 28, 1997, by and among FIRST UNION NATIONAL BANK, successor to First
Fidelity Bank, N.A., a national banking association with offices at 123 South
Broad Street, Philadelphia, PA 19109 (the "Bank"), CENTRAL SPRINKLER COMPANY, a
Pennsylvania corporation with offices located at 451 Cannon Avenue, Lansdale, PA
19446 ("Borrower"), CENTRAL SPRINKLER CORPORATION, a Pennsylvania corporation
with offices located at 451 Cannon Avenue, Lansdale, PA 19446 (the "Existing
Guarantor") and CENTRAL SPRINKLER EXPORT CORPORATION, a Barbados corporation
with offices located at 451 Cannon Avenue, Lansdale, PA 19446 (the "New
Guarantor," and, together with the Existing Guarantor, the "Guarantors"). The
Borrower and the Guarantors are referred to collectively herein as the
"Obligors").
BACKGROUND
A. The Bank, the Borrower and the Existing Guarantor are parties to
that certain Loan Agreement dated as of April 15, 1994, as amended from time to
time (the "Loan Agreement"). Capitalized terms not otherwise defined herein
shall have the meaning ascribed to such terms in the Loan Agreement.
B. The Obligors and certain other related entities intend to enter into
a financing arrangement with CoreStates Bank, N.A. and a syndicate of banks,
pursuant to which the Obligors will obtain financing in the maximum original
principal amount of $55,000,000 (the "CoreStates Financing").
C. As a condition to the CoreStates Financing, the lenders have
required that all of the Obligors' existing lenders, including the Bank, modify
certain terms and conditions of their existing financing arrangements to conform
said terms and conditions to certain terms and conditions of the CoreStates
Financing.
D. In light of the foregoing, the Obligors have requested the Bank to
amend certain provisions of the Loan Agreement, and the Bank has agreed to do
so, subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, incorporating the Background herein, the Bank and the
Obligors, each intending to be legally bound hereby and for good and valuable
consideration, agree as follows:
1. AMENDMENTS.
a. New Definitions. The following defined terms are hereby
added to Section 1.01 of the Loan Agreement:
- 1 -
<PAGE>
"Consolidated Corporations" means the Parent and its
Subsidiaries.
"Net Income" means, for any relevant period, the net income
after taxes for such period of the Consolidated Corporations
on a consolidated basis, as determined in accordance with
GAAP.
b. Existing Definitions. "Loan Documents" means the Loan
Documents, as the same have been or may be modified, extended, renewed or
amended from time to time and shall also be deemed to include that certain
Guaranty Agreement executed by the New Guarantor and that certain Security
Agreement executed by the Obligors each as of the date hereof, together with all
other documents delivered and/or executed in connection with this Fifth
Amendment.
c. Amended Covenants. The covenants set forth in Section 5 of
the Loan Agreement are hereby amended as follows:
(1) Section 5.11(b) is hereby amended and modified by
deleting "and" as it appears in the 4th line therein and adding the following
prior to the period in the 16th line therein: "; and (iii) in existence on the
date of this Fifth Amendment relating to the CoreStates Financing".
(2) Schedule A attached hereto shall amend and
supplement the Schedule A attached to the Fourth Amendment to reflect the
permitted indebtedness and guarantee obligations, if any, incurred in connection
with the CoreStates Financing.
(3) Section 5.12(h) is hereby amended and restated in
its entirety as follows: "indebtedness in the form of unsecured revolving lines
of credit under which (1) trade letters of credit and bankers' acceptance may be
issued, and (2) the maximum credit availability thereunder does not exceed
$10,000,000 in the aggregate."
d. Amended and Restated Covenants. The covenants set forth in
Section 5 of the Loan Agreement are hereby amended and restated in their
entirety as follows:
5.15 The Consolidated Corporations shall maintain, on a
consolidated basis, at all times (to be measured as of the
last date of each fiscal quarter and tested in connection with
the delivery of financial statements pursuant to Section 5.01
hereof) a Tangible Net Worth of no less than (i) Forty-Eight
Million Dollars ($48,000,000) plus (ii) (A) seventy-five
percent (75%) multiplied by (B) the Net Income for each fiscal
year (on a cumulative basis) commencing with the fiscal year
ending October 31, 1997; provided, however, no change shall be
made hereto by reason of clause (ii) if the Net Income is
negative for any fiscal year.
5.16 The Consolidated Corporations shall maintain, on a
consolidated basis, (as of the last date of each fiscal
quarter and tested in connection with the delivery of
financial statements pursuant to Section 5.01 hereof and the
delivery of a
- 2 -
<PAGE>
certification of the Chief Financial Office of the Borrower
certifying the outstanding principal balance of the CoreStates
Financing as of the last date of each fiscal quarter) a ratio
of (i) consolidated current assets to (ii) (a) consolidated
current liabilities plus (b) the outstanding principal balance
of the revolving credit facility under the CoreStates
Financing, of not less than 1.00:1.00.
5.17 The cash, cash equivalents and marketable securities of
the Consolidated Corporations shall not at any time be less
than $10,000,000.
5.18 The Consolidated Corporations shall maintain, on a
consolidated basis, (as of the last date of each fiscal
quarter and tested in connection with the delivery of
financial statements pursuant to Section 5.01 hereof) a ratio
of the Consolidated Funded Indebtedness to (i) the
Consolidated Corporations' Consolidated Funded Indebtedness
plus (ii) the Consolidated Corporations' Tangible Net Worth,
of not greater than 0.65:1.00.
2. CONDITIONS PRECEDENT. The Bank's obligations hereunder are expressly
conditioned upon compliance with, or execution and delivery by the Obligors to
the Bank of, the following in form and substance satisfactory to the Bank and
its counsel:
a. this Fifth Amendment;
b. that certain Second Amendment to Letter of Credit and
Reimbursement Agreement by and among the Bank and the Obligors with respect to
the loan and financial accommodations by the Bank to Castings dated November 1,
1995;
c. that certain Security Agreement by and between the Obligors
and the Bank, together with accompanying UCC-1 financing statements relating
thereto;
d. that certain Guaranty Agreement by and between the
New Guarantor and the Bank;
e. an intercreditor agreement between the Bank and
CoreStates in connection with the CoreStates Financing;
f. delivery by the Obligors and review by the Bank of a true,
correct and complete copy of the closing binder prepared in connection with the
CoreStates Financing;
g. payment of all amounts due and owing by the Obligors to the
Bank pursuant to that certain LOC demand loan by the Bank to CSC and guaranteed
by the remaining Obligors dated November 23, 1993 in the original principal
amount of $10,000,000;
- 3 -
<PAGE>
h. payment of the reasonable fees and costs incurred or
expended by the Bank in connection with the preparation, negotiation, drafting
and execution of this Fifth Amendment and the documents, agreements, instruments
and certificates, if any, executed in connection herewith;
i. a certificate of the Secretary or an Assistant Secretary of
each Obligor dated the date hereof including (i) resolutions duly adopted by
such Obligor authorizing the transactions under the Fifth Amendment; (ii)
evidence of the incumbency and signature of the officers executing on its behalf
the Fifth Amendment and any of the documents executed in connection herewith,
together with evidence of the incumbency of such Secretary or Assistant
Secretary; and (iii) certificates of authority or good standing for such Obligor
from its jurisdiction of incorporation;
j. all such other documents and instruments as the
Bank may reasonably require.
3. REPRESENTATIONS AND WARRANTIES. The Obligors represent and warrant
to the Bank as follows:
a. Each Obligor has the power and authority to execute and
deliver each of the Fifth Amendment and all other documents and instruments
executed and delivered in connection herewith, has taken all necessary action to
authorize the execution, delivery and performance hereof and thereof, and the
Fifth Amendment and other documents and instruments executed in connection
herewith constitute the legal, valid and binding obligations of the Obligors
enforceable in accordance with their respective terms subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforceability of rights of creditors generally, and subject
to the application of equitable principles;
b. The by-laws and articles of incorporation last provided by
the Obligors to the Bank have not been amended, changed or modified in any way
and are in full force and effect as of the date hereof;
c. All the representations and warranties made by the Obligors
in the Loan Documents, as the same have been modified or amended from time to
time, are true and correct as of the date of this Fifth Amendment as if such
representations and warranties had been made on the date hereof; and
d. No Default or Event of Default has occurred which remains
uncured.
4. ACKNOWLEDGMENTS; RATIFICATIONS AND RELEASE.
a. Acknowledgments. The Obligors acknowledge that:
- 4 -
<PAGE>
(1) the Loan Documents are valid and enforceable
against the Obligors in every respect, and all of the terms and conditions
thereof are binding upon the Obligors;
(2) to the extent that any defenses, set-offs or
counterclaims exist to the obligations set forth under the Loan Documents, the
Obligors hereby waive any and all defenses, set-offs, and counterclaims which
they, or any of them, have or may have to the enforcement by the Bank of the
Loan Documents and to the exercise by the Bank of the Bank's rights and remedies
under the Loan Documents, as amended hereby, and/or applicable law;
b. Ratification and Confirmation. Except as amended hereby,
all of the terms and provisions of the Loan Documents and any other documents
executed in connection with the Loan Documents, shall remain in full force and
effect and are hereby ratified, reaffirmed and confirmed and shall continue to
exist, be legal, valid and binding and in full force and effect. The Loan
Documents are not intended to be re-enacted as of the above date, but rather to
be effective as of the original date of each such document. In the event and to
the extent of any conflict between the provisions of this Fifth Amendment and
the provisions of the Loan Documents, the provisions of this Fifth Amendment
with respect thereto shall govern.
5. CONFLICTS WITH CORESTATES FINANCING DOCUMENTS.
As of the date of this Fifth Amendment, the Bank acknowledges and
agrees that: (i) it consents to the CoreStates Financing as entered into as of
the date hereof; and (ii) that it is the intent of the Bank and the Obligors to
conform the covenants contained in the Loan Agreement (individually, a "First
Union Covenant," and collectively, the "First Union Covenants") to those
covenants contained in the Credit Agreement executed in connection with the
CoreStates Financing as of the date hereof (individually, a "CoreStates
Covenant," and collectively, the "CoreStates Covenants"). To the extent that
there is any conflict between any First Union Covenant and the corresponding
CoreStates Covenant, the Bank agrees that the CoreStates Covenant shall govern
and that the Loan Agreement shall be deemed amended to include such CoreStates
Covenant; provided, however, that this paragraph 5 shall apply only to the
extent any applicable CoreStates Covenant has not been amended or modified at
any time following the date hereof without the prior written consent of the
Bank.
6. MISCELLANEOUS.
a. The Obligors agree to do such further acts and to execute
and deliver such additional agreements, instruments and documents as may be
reasonably required by the Bank to carry out the purpose of this Fifth
Amendment.
b. This Fifth Amendment may be executed in any number of
counterparts and each such counterpart shall be deemed an original, but all such
counterparts shall constitute but one and the same agreement.
- 5 -
<PAGE>
c. This Fifth Amendment may be modified or amended by the
Obligors and the Bank only by written agreement executed by the Bank and the
party against whom a change is to be enforced.
d. This Fifth Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without reference
to conflict of law principles.
e. This Fifth Amendment constitutes the sole agreement of the
parties with respect to the subject matter hereof and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof and
thereof.
f. This Fifth Amendment (i) shall be binding upon the Bank and
the Obligors and upon their respective nominees, successors and assigns, and
(ii) shall inure to the benefit of the Obligors and the Bank and to their
respective nominees, successors and assigns, provided that the Obligors may not
assign their rights hereunder or any interest herein without obtaining the prior
written consent of the Bank, and any such assignment or attempted assignment
shall be void and of no effect with respect to the Bank.
g. Any provision of this Fifth Amendment that is held to be
inoperative, unenforceable, void or invalid in any jurisdiction shall, as to
that jurisdiction, be ineffective, unenforceable, void or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability or validity of that provision in any other jurisdiction, and to
this end the provisions of this Fifth Amendment are declared to be severable.
h. Each party to this Fifth Amendment agrees that any suit,
action or proceeding, whether claim or counterclaim, brought or instituted by
any party hereto or any successor or assign of any party, on or with respect to
this Fifth Amendment or any of the Loan Documents or the dealings of the parties
with respect hereto, or thereto, shall be tried only by a court and not by a
jury. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. Further, each
party waives any right it may have to claim or recover, in any such suit, action
or proceeding, any special, exemplary, punitive or consequential damages or any
damages other than, or in addition to, actual damages. THE OBLIGORS ACKNOWLEDGE
AND AGREE THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT
AND THAT THE BANK WOULD NOT ENTER INTO THIS FIFTH AMENDMENT IF THE WAIVERS SET
FORTH IN THIS SECTION WERE NOT A PART OF THIS FIFTH AMENDMENT.
[remainder of page left blank intentionally]
- 6 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Fifth Amendment to
be executed by their duly authorized officers on the date first above written.
ATTEST: CENTRAL SPRINKLER COMPANY
By: /s/ Jennifer R. Cemini By: /s/ Albert T. Sabol
----------------------------- -------------------------------
Name: Jennifer R. Cemini Name: Albert T. Sabol
Title: Secretary Title: Executive Vice President
ATTEST: CENTRAL SPRINKLER CORPORATION
By: /s/ Jennifer R. Cemini By: /s/ Albert T. Sabol
----------------------------- -------------------------------
Name: Jennifer R. Cemini Name: Albert T. Sabol
Title: Assistant Secretary Title: Executive Vice President
ATTEST: CENTRAL SPRINKLER EXPORT
CORPORATION
By: /s/ Jennifer R. Cemini By: /s/ Albert T. Sabol
----------------------------- -------------------------------
Name: Jennifer R. Cemini Name: Albert T. Sabol
Title: Secretary Title: Executive Vice President
FIRST UNION NATIONAL BANK
By: /s/ Suzanne Storm
-------------------------------
Name: Suzanne Storm
Title: Senior Vice President
- 7 -
<PAGE>
Schedule "A" - Liens Granted and Indebtedness Incurred Relative To CoreStates
Financing
Central Sprinkler Company ("Central Sprinkler") is the Borrower and Central
Sprinkler Corporation ("CSC") and Central Castings Corporation ("Castings") are
Co-Borrowers of up to a maximum original principal amount of $55,000,000, under
a Revolving Credit Facility, pursuant to the Credit Agreement, dated October 28,
1997, among Central Sprinkler, CSC, Castings, Central CPVC Corporation, Central
Sprinkler Export Corporation ("Export") and CoreStates Bank, N.A., as Agent (the
"Agent") and the Lenders identified therein (the "Credit Agreement"). Pursuant
to the Credit Agreement, the Agent and the Lenders have a security interest in
certain of the assets of Central Sprinkler, CSC and Export (the "Secured
Borrowers"), pursuant to the terms of the Security Agreement between the Agent
and the Secured Borrowers, dated as of even date therewith.
- 8 -
<PAGE>
SECOND AMENDMENT TO LETTER OF CREDIT
AND REIMBURSEMENT AGREEMENT
This SECOND AMENDMENT TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
("Second Amendment"), dated as of October 28, 1997, by and among FIRST UNION
NATIONAL BANK, successor to First Fidelity Bank, N.A., a national banking
association with offices at 123 South Broad Street, Philadelphia, PA 19109 (the
"Bank"), CENTRAL CASTINGS CORPORATION, an Alabama corporation with offices at
2660 Old Gadsden Highway, Anniston, AL 36206 (the "Borrower"), CENTRAL SPRINKLER
COMPANY, a Pennsylvania corporation with offices located at 451 Cannon Avenue,
Lansdale, PA 19446 ("CSC"), and CENTRAL SPRINKLER CORPORATION, a Pennsylvania
corporation with offices located at 451 Cannon Avenue, Lansdale, PA 19446
("Corporation;" together with CSC, the "Guarantors"). The Borrower and the
Guarantors are collectively referred to herein as the "Obligors".
BACKGROUND
A. The Bank and the Borrower (and others) are parties to that certain
Letter of Credit and Reimbursement Agreement dated as of November 1, 1995, as
amended by that certain Amendment to Letter of Credit and Reimbursement
Agreement dated as of January 27, 1997 (the "Credit Agreement"). Capitalized
terms not otherwise defined herein shall have the meaning ascribed to such terms
in the Credit Agreement.
B. The Obligors and certain other related entities intend to enter into
a financing arrangement with CoreStates Bank, N.A. and a syndicate of banks,
pursuant to which the Obligors will obtain financing in the maximum original
principal amount of $55,000,000 (the "CoreStates Financing").
C. As a condition to the CoreStates Financing, the lenders have
required that all of the Obligors' existing lenders, including the Bank, modify
certain terms and conditions of their existing financing arrangements to conform
said terms and conditions to certain terms and conditions of the CoreStates
Financing.
D. In light of the foregoing, the Obligors have requested the Bank to
amend certain provisions of the Credit Agreement, and the Bank has agreed to do
so, subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, incorporating the Background herein, the Bank and the
Obligors, each intending to be legally bound hereby and for good and valuable
consideration, agree as follows:
- 1 -
<PAGE>
1. AMENDMENTS.
a. New Definitions. The following defined terms are hereby
added to Section 1.1 of the Credit Agreement:
"Net Income" means, for any relevant period, the net income
after taxes for such period of the Consolidated Corporations
on a consolidated basis, as determined in accordance with
GAAP.
b. Existing Definitions. Credit Documents shall also be deemed
to include all other documents executed and or delivered in connection with this
Second Amendment.
c. Covenants. The covenants set forth in Article 6 of the
Credit Agreement are hereby amended as follows:
(1) Section 6.18(K) is hereby amended and modified by
deleting "and" as it appears in the 8th line therein and adding the following
prior to the period in the 9th line therein: "; and (d) the CoreStates
Financing".
(2) Schedule A attached hereto shall amend and
supplement the Schedule A attached to the Amendment to Letter of Credit and
Reimbursement Agreement to reflect the Liens granted and the Indebtedness
incurred in connection with the CoreStates Financing.
(3) Section 6.19(a)(viii) is hereby amended and
restated in its entirety as follows: "cash borrowings in the form of unsecured
revolving lines of credit under which (1) trade letters of credit and bankers'
acceptance may be issued, and (2) the maximum credit availability thereunder
does not exceed $10,000,000 in the aggregate."
d. New Financial Covenants. The financial covenants set forth
in Article 7 of the Credit Agreement are hereby amended and restated in their
entirety as follows:
Section 7.1 Consolidated Minimum Tangible Net Worth. The
Consolidated Corporations shall maintain, on a consolidated
basis, at all times (to be measured as of the last date of
each fiscal quarter and tested in connection with the delivery
of financial statements pursuant to Sections 6.1 and 6.2
hereof) a Tangible Net Worth of no less than (i) Forty-Eight
Million Dollars ($48,000,000) plus (ii) (A) seventy-five
percent (75%) multiplied by (B) the Net Income for each fiscal
year (on a cumulative basis) commencing with the fiscal year
ending October 31, 1997; provided, however, no change shall be
made hereto by reason of clause (ii) if the Net Income is
negative for any fiscal year.
Section 7.2 Adjusted Consolidated Current Ratio. The
Consolidated Corporations shall maintain, on a consolidated
basis (as of the last date of each fiscal quarter
- 2 -
<PAGE>
and tested in connection with the delivery of financial
statements pursuant to Sections 6.1 and 6.2 hereof and the
delivery of a certification of the Chief Financial Office of
the Borrower certifying the outstanding principal balance of
the CoreStates Financing as of the last date of each fiscal
quarter) a ratio of (i) Consolidated Current Assets to (ii)
(a) Consolidated Current Liabilities plus (b) the outstanding
principal balance of the revolving credit facility under the
CoreStates Financing, of not less than 1.00:1.00.
Section 7.3 Consolidated Funded Indebtedness Limit. The
Consolidated Corporations shall maintain, on a consolidated
basis (as of the last date of each fiscal quarter and tested
in connection with the delivery of financial statements
pursuant to Sections 6.1 and 6.2 hereof) a ratio of the
Consolidated Corporations' Consolidated Funded Indebtedness to
(i) the Consolidated Corporations' Consolidated Funded
Indebtedness plus (ii) the Consolidated Corporations' Tangible
Net Worth, of not greater than 0.65:1.00.
7.4 Cash Equivalents. The cash, cash equivalents and
marketable securities of the Consolidated Corporations shall
not at any time be less than $10,000,000.
2. CONDITIONS PRECEDENT. The Bank's obligations hereunder are expressly
conditioned upon compliance with, or execution and delivery by the Obligors to
the Bank of, the following in form and substance satisfactory to the Bank and
its counsel:
a. this Second Amendment;
b. that certain Fifth Amendment To Loan Agreement by and among
the Bank and the Obligors with respect to the term loan by the Bank in favor of
CSC dated April 15, 1994;
c. an intercreditor agreement between the Bank and CoreStates
in connection with the CoreStates Financing;
d. delivery by the Obligors and review by the Bank of a true,
correct and complete copy of the closing binder prepared in connection with the
CoreStates Financing;
e. payment of all amounts due and owing by the Obligors to the
Bank pursuant to that certain LOC demand loan by the Bank to CSC and guaranteed
by the remaining Obligors dated November 23, 1993 in the original principal
amount of $10,000,000;
f. payment of the reasonable fees and costs incurred or
expended by the Bank in connection with the preparation, negotiation, drafting
and execution of this Second Amendment and the documents, agreements,
instruments and certificates, if any, executed in connection herewith;
- 3 -
<PAGE>
g. a certificate of the Secretary or an Assistant Secretary of
each Obligor dated the date hereof including (i) resolutions duly adopted by
such Obligor authorizing the transactions under the Second Amendment; (ii)
evidence of the incumbency and signature of the officers executing on its behalf
the Second Amendment and any of the documents executed in connection herewith,
together with evidence of the incumbency of such Secretary or Assistant
Secretary; and (iii) certificates of authority or good standing for such Obligor
from its jurisdiction of incorporation; and
h. all such other documents and instruments as the Bank may
reasonably require.
3. REPRESENTATIONS AND WARRANTIES. The Obligors represent and warrant
to the Bank as follows:
a. Each Obligor has the power and authority to execute and
deliver each of the Second Amendment and all other documents and instruments
executed and delivered in connection herewith, has taken all necessary action to
authorize the execution, delivery and performance hereof and thereof, and the
Second Amendment and other documents and instruments executed in connection
herewith constitute the legal, valid and binding obligations of the Obligors
enforceable in accordance with their respective terms subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforceability of rights of creditors generally, and subject
to the application of equitable principles;
b. The by-laws and articles of incorporation last provided by
the Obligors to the Bank have not been amended, changed or modified in any way
and are in full force and effect as of the date hereof;
c. All the representations and warranties made by the Obligors
in the Credit Documents, as the same have been modified or amended from time to
time, are true and correct as of the date of this Second Amendment as if such
representations and warranties had been made on the date hereof; and
d. No Default or Event of Default has occurred which remains
uncured.
4. ACKNOWLEDGMENTS; RATIFICATIONS AND RELEASE.
a. Acknowledgments. The Obligors acknowledge that:
(1) the Credit Documents are valid and enforceable
against the Obligors in every respect, and all of the terms and conditions
thereof are binding upon the Obligors;
- 4 -
<PAGE>
(2) to the extent that any defenses, set-offs or
counterclaims exist to the obligations set forth under the Credit Documents, the
Obligors hereby waive any and all defenses, set-offs, and counterclaims which
they, or any of them, have or may have to the enforcement by the Bank of the
Credit Documents and to the exercise by the Bank of the Bank's rights and
remedies under the Credit Documents, as amended hereby, and/or applicable law;
(3) the Obligors acknowledge that the Bank holds
perfected security interests in and liens upon all of each of the Collateral and
that the Collateral secures all of the Obligations;
b. Ratification and Confirmation. Except as amended hereby,
all of the terms and provisions of the Credit Documents and any other documents
executed in connection with the Credit Documents, shall remain in full force and
effect and are hereby ratified, reaffirmed and confirmed and shall continue to
exist, be legal, valid and binding and in full force and effect. The Credit
Documents are not intended to be re-enacted as of the above date, but rather to
be effective as of the original date of each such document. In the event and to
the extent of any conflict between the provisions of this Second Amendment and
the provisions of the Credit Documents, the provisions of this Second Amendment
with respect thereto shall govern.
5. CONFLICTS WITH CORESTATES FINANCING DOCUMENTS.
As of the date of this Second Amendment, the Bank acknowledges and
agrees that: (i) it consents to the CoreStates Financing as entered into as of
the date hereof; and (ii) that it is the intent of the Bank and the Obligors to
conform the covenants contained in the Credit Agreement (individually, a "First
Union Covenant," and collectively, the "First Union Covenants") to those
covenants contained in the credit agreement executed in connection with the
CoreStates Financing as of the date hereof (individually, a "CoreStates
Covenant," and collectively, the "CoreStates Covenants"). To the extent that
there is any conflict between any First Union Covenant and the corresponding
CoreStates Covenant, the Bank agrees that the CoreStates Covenant shall govern
and that the Loan Agreement shall be deemed amended to include such CoreStates
Covenant; provided, however, that this paragraph 5 shall apply only to the
extent any applicable CoreStates Covenant has not been amended or modified at
any time following the date hereof without the prior written consent of the
Bank.
6. MISCELLANEOUS.
a. The Obligors agree to do such further acts and to execute
and deliver such additional agreements, instruments and documents as may be
reasonably required by the Bank to carry out the purpose of this Second
Amendment.
- 5 -
<PAGE>
b. This Second Amendment may be executed in any number of
counterparts and each such counterpart shall be deemed an original, but all such
counterparts shall constitute but one and the same agreement.
c. This Second Amendment may be modified or amended by the
Obligors and the Bank only by written agreement executed by the Bank and the
party against whom a change is to be enforced.
d. This Second Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without reference
to conflict of law principles.
e. This Second Amendment constitutes the sole agreement of the
parties with respect to the subject matter hereof and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof and
thereof.
f. This Second Amendment (i) shall be binding upon the Bank
and the Obligors and upon their respective nominees, successors and assigns, and
(ii) shall inure to the benefit of the Obligors and the Bank and to their
respective nominees, successors and assigns, provided that the Obligors may not
assign their rights hereunder or any interest herein without obtaining the prior
written consent of the Bank, and any such assignment or attempted assignment
shall be void and of no effect with respect to the Bank.
g. Any provision of this Second Amendment that is held to be
inoperative, unenforceable, void or invalid in any jurisdiction shall, as to
that jurisdiction, be ineffective, unenforceable, void or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability or validity of that provision in any other jurisdiction, and to
this end the provisions of this Second Amendment are declared to be severable.
h. Each party to this Second Amendment agrees that any suit,
action or proceeding, whether claim or counterclaim, brought or instituted by
any party hereto or any successor or assign of any party, on or with respect to
this Second Amendment or any of the Credit Documents or the dealings of the
parties with respect hereto, or thereto, shall be tried only by a court and not
by a jury. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. Further, each
party waives any right it may have to claim or recover, in any such suit, action
or proceeding, any special, exemplary, punitive or consequential damages or any
damages other than, or in addition to, actual damages. THE OBLIGORS ACKNOWLEDGE
AND AGREE THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT
AND THAT THE BANK WOULD NOT ENTER INTO THIS SECOND AMENDMENT IF THE WAIVERS SET
FORTH IN THIS SECTION WERE NOT A PART OF THIS SECOND AMENDMENT.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Second Amendment
to be executed by their duly authorized officers on the date first above
written.
ATTEST: CENTRAL CASTINGS CORPORATION
By: /s/ Jennifer R. Cemini By: /s/ Albert T. Sabol
--------------------------------- -----------------------------
Name: Jennifer R. Cemini Name: Albert T. Sabol
Title: Secretary Title: Executive Vice President
ATTEST: CENTRAL SPRINKLER COMPANY
By: /s/ Jennifer R. Cemini By: /s/ Albert T. Sabol
--------------------------------- -----------------------------
Name: Jennifer R. Cemini Name: Albert T. Sabol
Title: Assistant Secretary Title: Executive Vice President
ATTEST: CENTRAL SPRINKLER CORPORATION
By: /s/ Jennifer R. Cemini By: /s/ Albert T. Sabol
--------------------------------- -----------------------------
Name: Jennifer R. Cemini Name: Albert T. Sabol
Title: Secretary Title: Executive Vice President
FIRST UNION NATIONAL BANK
By: /s/ Suzanne Storm
-----------------------------
Name: Suzanne Storm
Title: Senior Vice President
- 7 -
<PAGE>
Schedule "A" - Liens Granted and Indebtedness Incurred Relative To CoreStates
Financing
Central Sprinkler Company ("Central Sprinkler") is the Borrower and Central
Sprinkler Corporation ("CSC") and Central Castings Corporation ("Castings") are
Co-Borrowers of up to a maximum original principal amount of $55,000,000, under
a Revolving Credit Facility, pursuant to the Credit Agreement, dated October 28,
1997, among Central Sprinkler, CSC, Castings, Central CPVC Corporation, Central
Sprinkler Export Corporation ("Export") and CoreStates bank, N.A., as Agent
(the "Agent") and the Lenders identified therein (the "Credit Agreement").
Pursuant to the Credit Agreement, the Agent and the Lenders have a security
interest in certain of the assets of Central Sprinkler, CSC and Export (the
"Secured Borrowers"), pursuant to the terms of the Security Agreement between
the Agent and the Secured Borrowers, dated as of even date therewith.
- 8 -
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of the lst day
of November, 1997, among CENTRAL SPRINKLER COMPANY, a Pennsylvania corporation
(the "Company"), CENTRAL SPRINKLER CORPORATION, a Pennsylvania corporation (the
"Parent Company"), and WILLIAM J. MEYER, an individual (the "Employee").
RECITALS
WHEREAS, pursuant to an Employment Agreement dated March 19, 1990 among
the parties hereto, the Employee is currently employed as the Chairman of the
Board of the Company;
WHEREAS, the Employee now desires to resign as the Chairman of the
Board of the Company;
WHEREAS, the Company desires to employ the Employee as a Senior
Consultant and the Employee desires to serve the Company in such a capacity; and
WHEREAS, the Parent Company wishes to guarantee the obligations of the
Company hereunder.
WITNESSETH
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Resignation as Chairman. The Employee hereby resigns his position
as the Chairman of the Board of the Company and also of any other offices that
the Employee may hold with the Company or the Parent Company, and the Parent
Company and the Company hereby accepts his resignation from such positions.
2. Employment. The Company hereby employs the Employee as a Senior
Consultant for the term of employment under this Agreement (the "Employment
Term") and the Employee accepts such employment. The Employee shall perform,
subject to the direction of the Board of Directors of the Company, such duties
as shall reasonably be requested by the Chief Executive Officer of the Company.
3. Performance. The Employee shall devote his entire business efforts
to the performance of his duties hereunder.
<PAGE>
4.1 Term. The term of employment under this Agreement (the "Employment
Term") shall be for a period of 10 years commending on November 1, 1997 and
continuing thereafter until October 31, 2007 unless terminated earlier by the
occurrence of the Termination of Employment (as defined in Section 4.2 hereof).
4.2 Termination of Employment. For purposes of this Agreement,
"Termination of Employment" shall mean the occurrence of any of the following:
(a) any reason, if the Company and the Employee mutually agree
in writing to terminate the Agreement;
(b) the death of the Employee, if the Employee's spouse (at
the signing of this Agreement), Mary Catherine Meyer, predeceases
him;
(c) the death of the Employee's spouse (at the signing of
this Agreement), Mary Catherine Meyer, if the Employee predeceases
her;
(d) the breach by the Employee of any terms of this agreement,
if the Company gives at least 30 days' prior written notice and the
breach is not cured within such 30 day period; and
(e) the breach by the Company of any terms of this Agreement,
if the Employee gives at least 30 days' prior written notice and the
breach is not cured within such 30 day period.
5. Compensation. Subject to Section 6 hereof the annual compensation of
the Employee for this employment services during the Employment Term shall be
$360,000 (the "Salary"), which shall be payable in equal monthly installments.
In addition, the Employee shall be entitled to receive such benefits that are
generally available to all employees of the Company from time to time.
6. Spousal Benefit. If the Employee predeceases his spouse (at the
signing of this Agreement), Mary Catherine Meyer, during the Employment Term,
the Company shall pay the Salary for the remaining period of the Employment
Term to the Employee's spouse in the same amount and pursuant to the same
method of payment as it is obligated to pay to the Employee hereunder.
7. Agreement Not to Compete. For a period equal to (a) the Employment
Term, plus (b) an additional one year thereafter, the Employee shall not,
directly or indirectly, in any capacity engage in any business, or assist,
render services to or have a financial interest in any person or entity that
engages in any business that competes within the United States with the Company
or with any person or entity controlling, controlled by or under common control
with the Company (each such person or entity is referred to as a "Company
Affiliate"), including any majority-owned subsidiary of the Parent Company. The
foregoing restriction prohibits, among other things, soliciting the employees of
the Company or of any Company Affiliate to become employees of or to otherwise
assist any such competing person or entity.
<PAGE>
8. Secret Processes and Confidential Information. During his Employment
Term and indefinitely thereafter, the Employee shall not divulge, other than in
the regular and proper course of business of the Company, any knowledge or
information with respect to the operation or finances of the Company or any
Company Affiliate or with respect to confidential or secret processes,
techniques, machinery, plans, devices or products licensed to or by,
manufactured or sold by the Company or any Company Affiliate; provided, however,
that the Employee has no obligation, express or implied, to refrain from using
or disclosing to others any such knowledge or information which is or hereafter
shall become available to the public without breaching this Agreement. All new
processes, techniques, know-how, inventions, plans, products, patents and
devices developed, made or invented by the Employee, alone or with others, while
an employee of the Company, shall become and be the sole property of the Company
unless released in writing by the Company.
9. Parent Company. The Parent Company shall cause the Company to
perform each of its obligations hereunder. The Parent Company hereby guarantees
such obligations to the Employee.
10. General.
10.1 Governing Law. The terms of this Agreement shall be governed by
the laws of the Commonwealth of Pennsylvania.
10.2 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns.
10.3 Notices. Any notices required hereunder shall be in writing and
shall be deemed to have been given when personally delivered or when mailed,
certified or registered mail, postage prepaid, to such address that any party
may designate with respect to itself, himself or herself by notice to the other
parties.
10.4 Entire Agreement Modification. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter
hereof and may not be modified or amended in any way except in writing by the
parties hereto. This Agreement supersedes and cancels any other Employment
Agreements now in effect between the parties.
10.5 Interpretation. Unless the context of this Agreement clearly
requires otherwise, (i) references to the plural include the singular, the
singular to the plural, the part the whole, (ii) "or" has the inclusive meaning
frequently identified with the phrase "and/or," (iii)"including" has the
inclusive meaning frequently identified with the phrase "but not limited to" and
(iv) references to "hereunder" or "herein" relate to this Agreement. The section
and other headings contained in this Agreement are for reference purposes only
and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection and paragraph
references are to this Agreement unless otherwise specified.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto duly executed this Agreement the day and year first written above.
CENTRAL SPRINKLER COMPANY
By /s/ George G. Meyer
-------------------------------------
Name: George G. Meyer
Title: President
CENTRAL SPRINKLER CORPORATION
By /s/ Winston J. Churchill
-------------------------------------
Name: Winston J. Churchill
Title: Chairman
EMPLOYEE
/s/ William J. Meyer
-------------------------------------
William J. Meyer
<PAGE>
CONSULTING AGREEMENT
AGREEMENT made and entered into as of this lst day of August, 1996, by
and among CENTRAL SPRINKLER CORPORATION, ("Central"), CENTRAL SPRINKLER COMPANY
("CSC") and CHURCHILL INVESTMENT PARTNERS, INC. (the "Advisor"). Central and CSC
are referred to herein collectively as the "Companies" and individually as a
"Company."
RECITALS
1. The Advisor has certain knowledge and experience in corporate
management and financial matters, long range strategic planning, access to
public markets and relations with institutional investors.
2. The Companies desire to avail themselves of the Advisor's expertise,
and are willing to do so on the terms and conditions set forth herein.
3. The Advisor is willing to render services to the Companies, on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
(a) Retention of Advisor.
(i) Subject to the terms and conditions of this Agreement, the
Companies hereby retain the Advisor, and the Advisor hereby agrees to render
services to the Companies, as a consultant in respect of the business of the
Companies.
(ii) The Advisor shall at all times be and conduct itself as an
independent contractor in respect of the Companies, and shall not, under any
circumstances, create or purport to create any obligation on behalf of the
Companies.
(b) Duties of Advisor. The Advisor shall provide corporate advisory,
financial and other consulting services consistent with the Advisor's expertise
as mentioned above with respect to the affairs and activities of the Companies
in the ordinary course of their businesses, at such times and from time to time
as reasonably requested by the Companies. In performing such services for the
Companies, the Advisor shall, among other things, be provided with information
concerning the business strategy of the Companies, and shall have the full
cooperation of management to review and make recommendations concerning all
<PAGE>
material business transactions of whatever type effected or proposed to be
effected by the Companies, and to review and make recommendations concerning all
matters relating to the manner, method and timing of corporate financing
transactions. This Agreement shall not preclude the payment of additional
compensation to the Advisor for services performed by the Advisor that are
beyond the scope of the Advisor's duties hereunder, such as services as a broker
or finder, provided that the parties agree in writing that the Advisor is
entitled to any such additional compensation.
(c) Other Agreement. It is understood that the Advisor may from time to
time act as consultant to or enter into similar agreements with other companies
that may compete with the Companies, without the necessity of obtaining approval
from the Companies. However, the Advisor will not use or disclose any
confidential information regarding the Companies for the benefit of any
corporation, partnership or other entity or person that competes with the
Companies.
(d) Fees. As consideration for the Advisor's services hereunder,
Central shall pay the Advisor fees of $100,000 per annum. The fees shall be
payable in advance in equal quarterly installments, commencing on August 1, 1996
and continuing on the first day of each quarter thereafter.
(e) Expenses. All reasonable out-of-pocket expenses and other
disbursements incurred by the Advisor in connection with the Advisor's services
hereunder shall be borne by the Companies and/or reimbursed to the Advisor.
(f) Duration. This Agreement shall become effective as of the date
hereof and shall continue in effect until October 31, 1997, but this Agreement
shall thereafter automatically renew for successive one-year terms unless
notice of termination is given by either party to the other at least 90 days
prior to the close of the then-current one-year period. Notwithstanding the
foregoing, if Winston J. Churchill ceases to be a partner of the Advisor, the
Companies may terminate this Agreement upon 30 days' prior notice to the Advisor
and have no further liability to the Advisor except for unpaid fees and expenses
accrued through the date of such termination.
(g) Notices. All notices relating to this Agreement shall be in writing
and shall be deemed to have been given when personally delivered or at the time
when mailed in any general or branch United States Post Office or sent by
Federal Express or a similar overnight courier service, addressed to the other
party at its address stated below, or to such changed address as the other party
may have been given by notice.
-2-
<PAGE>
If to the Companies:
Central Sprinkler Corporation
450 North Cannon Avenue
Lansdale, PA 19446
Attention: Albert T. Sabol
FAX: 215-362-5385
If to the Advisor:
Churchill Investment Partners, Inc.
c/o CIP Capital L.P.
20 Valley Stream Parkway
Suite 265
Malvern, PA 19355
Attention: Winston J. Churchill
FAX: 215-695-8388
(h) Binding Effect; Assignability. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors. This Agreement and the rights and obligations hereunder shall not be
assignable or delegable by the parties hereto.
(i) Indemnification. The Companies agree to indemnify the Advisor, the
partners officers and directors of the Advisor, and their agents and affiliates
against, and to save and hold them harmless from and in respect of, all (a)
fees, costs and expenses paid in connection with, resulting from or relating to
any claim, action or demand against any and all such indemnified parties that
arise out of or in any way relate to the Companies, their properties, business,
or affairs and (b) such claims, actions and demands and any losses or damages
resulting from such claims, actions and demands, including amounts paid in
settlement or compromise (if recommended by attorneys for the Companies) of any
such claim, action or demand; provided, however, that this indemnity shall not
extend to conduct of such indemnified parties not undertaken in good faith to
promote the best interests of the Companies, nor to any wilful misconduct. If
such an indemnified party seeks indemnification under this Agreement and the
Companies challenge such party's right to indemnification, the Companies shall
advance the amounts claimed hereunder to the indemnified party until a court of
competent jurisdiction determines in a final judgment that the party is not
entitled to indemnification hereunder, in which case the party receiving such
advanced amounts shall return such amounts to the Companies to the extent
specified in such judgment.
-3-
<PAGE>
(j) Entire Agreement. This Agreement sets forth the entire agreement
between the parties relating to the subject matter hereof. Any and all prior
agreements or arrangements entered into between the Companies and the Advisor,
including the Consulting Agreement dated June 21, 1993 between the Companies and
the Advisor, are hereby terminated and each of the parties hereto releases and
discharges the other from any and all obligations and liabilities existing under
or by reason of any such agreements. None of the terms, covenants or conditions
hereof may be waived or amended except by a written instrument signed by the
party to be charged therewith.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
CHURCHILL INVESTMENT PARTNERS, CENTRAL SPRINKLER
INC. CORPORATION
By: Winston J. Churchill By: X X X X X X
--------------------------- -----------------------------
CENTRAL SPRINKLER
COMPANY
By: X X X X X X
-----------------------------
-4-
<PAGE>
CONSULTING AGREEMENT
AGREEMENT made and entered into as of this lst day of August, 1996, by
and among CENTRAL SPRINKLER CORPORATION, ("Central"), CENTRAL SPRINKLER COMPANY
("CSC") and BRADFORD VENTURES LTD. (the "Advisor"). Central and CSC are referred
to herein collectively as the "Companies" and individually as a "Company.
RECITALS
1. The Advisor has certain knowledge and experience in corporate
management and financial matters, business operations and performance, access to
public markets, management relations and corporate acquisitions.
2. The Companies desire to avail themselves of the Advisor's expertise,
and are willing to do so on the terms and conditions set forth herein.
3. The Advisor is willing to render services to the Companies, on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
(a) Retention of Advisor.
(i) Subject to the terms and conditions of this Agreement, the
Companies hereby retain the Advisor, and the Advisor hereby agrees to render
services to the Companies, as a consultant in respect of the business of the
Companies.
(ii) The Advisor shall at all times be and conduct itself as an
independent contractor in respect of the Companies, and shall not, under any
circumstances, create or purport to create any obligation on behalf of the
Companies.
(b) Duties of Adisor. The Advisor shall provide corporate advisory,
financial and other consulting services consistent with the Advisor's expertise
as mentioned above with respect to the affairs and activities of the Companies
in the ordinary course of their businesses, at such times and from time to time
as reasonably requested by the Companies. In performing such services for the
Companies, the Advisor shall, among other things, be provided with information
concerning the business strategy of the Companies, and shall have the full
cooperation of management to review and make recommendations concerning all
material business transactions of whatever type effected or proposed to be
effected by the Companies, and to review and make recommendations concerning all
matters relating to the
<PAGE>
manner, method and timing of corporate financing transactions. This Agreement
shall not preclude the payment of additional compensation to the Advisor for
services performed by the Advisor that are beyond the scope of the Advisor's
duties hereunder, such as services as a broker or finder, provided that the
parties agree in writing that the Advisor is entitled to any such additional
compensation.
(c) Other Agreements. It is understood that the Advisor may from time
to time act as consultant to or enter into similar agreements with other
companies that may compete with the Companies, without the necessity of
obtaining approval from the Companies. However, the Advisor will not use or
disclose any confidential information regarding the Companies for the benefit of
any corporation, partnership or other entity or person that competes with the
Companies.
(d) Fees. As consideration for the Advisor's services hereunder,
Central shall pay the Advisor fees of $100,000 per annum. The fees shall be
payable in advance in equal quarterly installments, commencing on August 1, 1996
and continuing on the first day of each quarter thereafter.
(e) Expenses. All reasonable out-of-pocket expenses and other
disbursements incurred by the Advisor in connection with the Advisor's services
hereunder shall be borne by the Companies and/or reimbursed to the Advisor.
(f) Duration. This Agreement shall become effective as of the date
hereof and shall continue in effect until October 31, 1997, but this Agreement
shall thereafter automatically renew for successive one-year terms unless notice
of termination is given by either party to the other at least 90 days prior to
the close of the then-current one-year period. Notwithstanding the foregoing, if
Barbara M. Henagan ceases to be an officer of the Advisor, the Companies may
terminate this Agreement upon 30 days' prior notice to the Advisor and have no
further liability to the Advisor except for unpaid fees and expenses accrued
through the date of such termination.
(g) Notices. All notices relating to this Agreement shall be in writing
and shall be deemed to have been given when personally delivered or at the time
when mailed in any general or branch United States Post Office or sent by
Federal Express or a similar overnight courier service, addressed to the other
party at its address stated below, or to such changed address as the other party
may have been given by notice.
-2-
<PAGE>
If to the Companies:
Central Sprinkler Corporation
450 North Cannon Avenue
Lansdale, PA 19446
Attention: Albert T. Sabol
FAX: 215-362-5385
If to the Advisor:
Bradford Ventures Ltd.
1212 Avenue of the Americas
Suite 1802
New York, NY 10036
Attention: Barbara M. Henagan
FAX: 212-764-3467
(h) Binding Effect; Assignability. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors. This Agreement and the rights and obligations hereunder shall not be
assignable or delegable by the parties hereto.
(i) Indemnification. The Companies agree to indemnify the Advisor, the
partners, officers and directors of the Advisor, and their agents and affiliates
against, and to save and hold them harmless from and in respect of, all (a)
fees, costs and expenses paid in connection with, resulting from or relating to
any claim, action or demand against any and all such indemnified parties that
arise out of or in any way relate to the Companies, their properties, business,
or affairs and (b) such claims, actions and demands and any losses or damages
resulting from such claims, actions and demands, including amounts paid in
settlement or compromise (if recommended by attorneys for the Companies) of any
such claim, action or demand; provided, however, that this indemnity shall not
extend to conduct of such indemnified parties not undertaken in good faith to
promote the best interests of the Companies, nor to any wilful misconduct. If
such an indemnified party seeks indemnification under this Agreement and the
Companies challenge such party's right to indemnification, the Companies shall
advance the amounts claimed hereunder to the indemnified party until a court of
competent jurisdiction determines in a final judgment that the party is not
entitled to indemnification hereunder, in which case the party receiving such
advanced amounts shall return such amounts to the Companies to the extent
specified in such judgment.
-3-
<PAGE>
(j) Entire Agreement. This Agreement sets forth the entire agreement
between the parties relating to the subject matter hereof. Any and all prior
agreements or arrangements entered into between the Companies and the Advisor,
including the Consulting Agreement dated June 21, 1993 between the Companies and
the Advisor, are hereby terminated and each of the parties hereto releases and
discharges the other from any and all obligations and liabilities existing under
or by reason of any such agreements. None of the terms, covenants or conditions
hereof may be waived or amended except by a written instrument signed by the
party to be charged therewith.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
BRADFORD VENTURES LTD. CENTRAL SPRINKLER
CORPORATION
By: By:
--------------------------- -----------------------------
CENTRAL SPRINKLER
COMPANY
By:
-----------------------------
-4-
<PAGE>
MODIFICATION TO CREDIT AGREEMENT
THIS MODIFICATION TO CREDIT AGREEMENT (the "Modification") is
made and entered into this 26th day of January, 1998, by and among CENTRAL
SPRINKLER CORPORATION, a Pennsylvania corporation, CENTRAL SPRINKLER COMPANY, a
Pennsylvania corporation, CENTRAL CASTINGS CORPORATION, an Alabama corporation,
CENTRAL CPVC CORPORATION, an Alabama corporation, and CENTRAL SPRINKLER EXPORT
CORPORATION, a Barbados corporation, the LENDERS reflected on the signature
pages of this Modification, and CORESTATES BANK, N.A., a national banking
association in its capacity as Agent for the LENDERS.
BACKGROUND:
A. The Lenders, the Agent, and the Borrowers have entered into
a certain Credit Agreement dated October 28, 1997 (the "Credit Agreement"),
pursuant to which the Lenders have agreed to make a revolving credit facility in
the maximum principal amount of Fifty-Five Million Dollars ($55,000,000)
available to the Borrowers, on the terms and subject to the conditions set forth
therein.
B. At the request of the Borrowers, the Lenders have
unanimously agreed to waive a certain Event of Default which has occurred under
the Credit Agreement provided that the Borrowers enter into this Modification
and satisfy all conditions precedent thereto.
NOW, THEREFORE, in consideration of the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, covenant and agree as follows:
1. Incorporation of Background; Incorporation of Credit
Agreement. The Background provisions of this Modification are incorporated
herein by reference thereto as if fully set forth in this Modification. The
Credit Agreement is also incorporated herein by reference hereto as if fully set
forth in this Modification.
2. Defined Terms. Any capitalized terms used in this
Modification or the Background provisions hereof which are not so defined, but
which are defined in the Credit Agreement, shall have the meanings ascribed to
those terms in the Credit Agreement.
3. Additional Defined Terms. The following defined
terms are hereby added to Section 1.2 of the Credit Agreement and
shall read in their entirety as follows:
"Borrowing Base" shall mean, as at any applicable
time, (i) eighty percent (80%) of Qualified Accounts, plus
1
<PAGE>
(ii) fifty percent (50%) of Qualified Inventory, plus (iii) fifty
percent (50%) of Net Fixed Assets, minus (iv) the aggregate outstanding
balance of the Term Loans.
"Borrowing Base Certificate" shall mean a certificate
in substantially the form of Exhibit "A-1" attached hereto and made a
part hereof certifying as to the matters therein described.
"Fixed Charge Coverage Ratio" shall mean, for the
Borrowers and the rolling four (4) fiscal quarter period ending at the
close of the fiscal quarter of the Borrowers then in question, the
ratio of (i) the sum of (A) net income of the Borrowers, (B)
depreciation and amortization expense taken by the Borrowers, (C)
interest expense on all Debt of the Borrowers, and (D) cash payments of
the Borrowers in respect of federal and state income taxes of the
Borrowers, to (ii) the sum of (A) principal payments due and owing in
respect of long-term Debt of the Borrowers (excluding the Revolving
Credit Facility), (B) payments in the nature of principal in respect of
Capital Lease Obligations of the Borrowers, (C) the sum of the amounts
in paragraphs (C) and (D) of clause (i) of this definition, (D) the
aggregate amount of capital expenditures of the Borrowers not
specifically financed with proceeds of Permitted Debt, and (E) cash
dividends paid by the Borrowers, all of the foregoing as determined on
a consolidated basis after eliminating all intercompany items pursuant
to and in accordance with GAAP consistently applied; provided, however,
(i) for purposes of calculating net income of the Borrowers under
paragraph (A) of clause (i) of this definition, (x) the reduction to
net income of the Borrowers resulting from the 1997 Omega Charge shall
not be taken into account, and (y) net income of the Borrowers shall be
reduced by any extraordinary or unusual charge (other than the 1997
Omega Charge) taken by the Borrowers to the extent not taken into
account in connection with the calculation of net income, and (ii) for
purposes of calculating interest expense under paragraph (C) of clauses
(i) and (ii) of this definition, the amount thereof shall be reduced
(but not below zero) by the amount of interest income of the Borrowers.
"Net Fixed Assets" shall mean, collectively as at any
applicable time, the sum of (i) equipment of the Secured Borrowers in
which the Agent has a perfected first-priority security interest, and
(ii) all other property, plant and equipment reflected on the balance
sheet of the Secured Borrowers.
"Out of Trust Position" shall have the meaning
ascribed to it in Section 2.13(c).
2
<PAGE>
"Qualified Accounts" shall mean, collectively as at
any applicable time, any account receivable of the Secured Borrowers in
which the Agent has a perfected first-priority security interest where
(i) the account is not more than ninety (90) days past the due date
thereof, (ii) the account debtor is not an Affiliate, and (iii) the
account is not payable from any customer located outside of the
geographic boundaries of the United States of America, unless, with
respect to clause (iii), payment of the account is assured by an
irrevocable letter of credit or credit insurance issued by a United
States banking institution or insurance company, as appropriate, and
which is reasonably satisfactory, in all respects, to the Agent.
"Qualified Inventory" shall mean, collectively as at
any applicable time, any raw materials and finished goods inventory of
the Secured Borrowers in which the Agent has a perfected first-priority
security interest and vet forth in the Section 1.2 of the Credit
Agreement are hereby modified, amended, and restated to read in their
entirety as follows:
4. 1997 Omega Charge. The term "1997 Omega Charge", as used
in the definition of Fixed Charge Coverage Ratio in Section 1.2 of the
Credit Agreement (as modified hereby), shall have the meaning ascribed
to it in Section 12(a) hereof.
5. Modification to Existing Defined Terms. The following
defined terms set forth in the Section 1.2 of the Credit Agreement are
hereby modified, amended, and restated to read in their entirety as
follows:
"Financial Covenants" shall mean, collectively, the
affirmative covenants set forth at Sections 5.9 through 5.12 and 5.22.
"Revolving Credit Commitment" shall mean, as at any
applicable time, the lesser amount of (i) Fifty-Five Million Dollars
($55,000,000), or (ii) the Borrowing Base, which lesser amount shall be
the Borrowers' maximum credit availability under the Revolving Credit
Facility, subject to reduction in accordance with the provisions of
Section 2.1(c).
6. Borrowing Base Certificate. Exhibit "A-1" is hereby added
as an Exhibit to the Credit Agreement and shall be substantially in the form of
Exhibit "A-1" attached hereto and made a part hereof.
7. Compliance Certificate. Exhibit "B" to the Credit Agreement
is hereby modified, amended, and restated so as to take substantially the form
of Exhibit "B" attached hereto and made a part hereof.
3
<PAGE>
8. Voluntary Prepayments; Mandatory Payments.
Section 2.13 of the Credit Agreement is hereby modified, amended,
and restated to read in its entirety as follows:
"2.13 Voluntary Prepayments; Mandatory Payments.
(a) Except as otherwise provided herein, the
Borrowers at any time and from time to time may voluntarily prepay any
Base Rate Loans, in whole or in part, upon (1) one Business Day prior
written notice to the Agent of such prepayment.
(b) The Borrowers shall not prepay, in whole or in
part, any LIBOR Loan prior to the expiration of the appropriate LIBOR
Period applicable thereto, unless such prepayment is accompanied by any
payment required pursuant to the provisions of Section 2.3(f).
(c) In the event that (i) the unpaid principal
balance of the Revolving Credit Note exceeds (ii) the Revolving Credit
Commitment at any time (an "Out of Trust Position"), the Borrowers
shall immediately pay to the Agent, for application to the Revolving
Credit Note, an amount equal to the Out of Trust Position."
9. Additional Condition to Advances. Paragraph (e)
is hereby added to Section 4.2 of the Credit Agreement and shall
read in its entirety as follows:
"(e) Borrowing Base Certificate. The Borrowers shall
have delivered to the Agent a Borrowing Base Certificate duly executed
and completed by an authorized officer of the Borrowers."
10. Additional Financial Reporting.
(a) Additional Monthly Reports. Section 5.1(b)
of the Credit Agreement is hereby modified, amended, and restated
to read in its entirety as follows:
"(b) Monthly and Quarterly Reports: (i) as
soon as available, but in any event not later than thirty-five
(35) days after the close of each fiscal month, consolidated
balance sheets of the Borrowers and any Subsidiaries, as at
the end of such monthly period, and related consolidated
statements of income for such monthly period and statements of
cash flows for the period from the end of the preceding fiscal
year to the end of such monthly period, setting forth in each
case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, together
with the individual balance sheets and income and related
statements of Central Sprinkler, Spraysafe, Castings, CPVC,
and all in the form heretofore
4
<PAGE>
submitted to the CSC Board of Directors on a monthly basis and
prepared in accordance with GAAP applied on a consistent basis
(subject to normal year-end adjustments, the absence of
footnotes thereon and the existence of intercompany items in
the individual financial statements furnished in connection
therewith which would have been eliminated under GAAP), and
(ii) as soon as available, but in any event not later than
sixty (60) days after the close of each of the first three (3)
fiscal quarters of each fiscal year of the Borrowers,
consolidated balance sheets of the Borrowers and any
subsidiaries, as at the end of such quarterly period, and
related consolidated statements of income for such quarterly
period and statements of cash flows for the period from the
end of the preceding fiscal year to the end of such quarterly
period, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the
preceding fiscal year, all in reasonable detail and prepared
in accordance with GAAP applied on a consistent basis (subject
to normal year-end adjustments and the absence of footnotes
thereon);"
(b) Addition of Borrowing Base Certificate.
Section 5.1(d) of the Credit Agreement is hereby modified, amended, and restated
to read in its entirety as follows:
"(d) Borrowing Base and Compliance
Certificates: (i) Within thirty-five (35) days after the close
of each fiscal month of each fiscal year of the Borrowers and
as required pursuant to Section 4.2(e), a Borrowing Base
Certificate duly executed and completed by an authorized
officer of the Borrowers reflecting the Borrowing Base and
components thereof as of the close of such month, and (ii)
within sixty (60) days after the close of each of the first
three (3) fiscal quarters of each fiscal year of the Borrowers
and within one hundred twenty (120) days after the close of
the final fiscal quarter of each fiscal year of the Borrowers,
a Compliance Certificate duly executed and completed by an
authorized officer of the Borrowers reflecting the information
required therein as of the close of each such fiscal quarter
or fiscal year, as appropriate;"
(c) Omega Status Report. Pursuant to the
provisions of Section 5.1(g), the Borrowers shall, concurrently with providing
monthly financial statements required under clause (i) of Section 5.1(b),
furnish the Agent with a status report relating to the Borrowers' liabilities in
respect of Omega fire sprinklers described in Schedule 3.10 to the Credit
Agreement, in reasonable detail and in a form which is reasonably satisfactory
to the Agent at all times. Such status report shall include, without limitation:
(i) actual expenditures incurred by
5
<PAGE>
the Borrowers in respect of the Omega fire sprinklers for same monthly period
for which financial statements are then being furnished, the then current fiscal
year, and since inception of the program referred to in Section 12(a) hereof,
together with a comparison thereof to estimated expenditures for the same
periods; (ii) actual number of Omega fire sprinkler heads remediated for the
same monthly period for which financial statements are then being furnished, the
then current fiscal year, and since inception of the program referred to in
Section 12(a) hereof, together with a comparison thereof to estimated
expenditures for the same periods; (iii) the aggregate amount of cash
attributable to investments of the Borrowers and their Subsidiaries expended by
the Borrowers in connection with the program referred to in Section 12(a) for
the same monthly period for which financial statements are then being furnished,
the then current fiscal year, and since inception of the program referred to in
Section 12(a) hereof, together with a comparison thereof to estimated
expenditures for the same periods; and (v) the amount of accrued liabilities
remaining on the Borrowers' consolidated balance sheet attributable to the Omega
fire sprinklers.
11. Modification to Financial Covenants.
(a) Section 5.11 of the Credit Agreement is
hereby modified, amended, and restated to read in its entirety as
follows:
"5.11 Minimum Cash and Investments. The
Borrowers and their Subsidiaries will maintain, on a
consolidated basis, cash and Investments of the type
described in Sections 6.3(b) and 6.3(c) of not less
than Five Million Dollars ($5,000,000) in the aggregate
at all times."
(b) Section 5.22 is hereby added to the Credit
Agreement and shall read in its entirety as follows:
"5.22 Fixed Charge Coverage Ratio. The
Borrowers shall maintain a Fixed Charge Coverage Ratio of not
less than 1:20:1.00 as at the close of each fiscal quarter
(for the rolling four (4) fiscal quarter period ending as at
the close of such fiscal quarter) commencing with the fiscal
quarter ending April 30, 1998."
12. 1997 Omega Charge; Default Waiver.
(a) Description of Omega Charge. On or about
December 22, 1997, the Borrowers announced the recordation of an unusual charge
of Thirteen Million Two Hundred Thousand Dollars ($13,200,000) for the fourth
fiscal quarter of their fiscal year ending October 31, 1997. This charge was
recorded to reflect the expansion of a voluntary program initiated by the
Borrowers to
6
<PAGE>
encourage the testing and possible replacement of certain Omega fire sprinklers.
The problems relating to the Omega fire sprinklers were initially disclosed to
the Lenders in Schedule 3.10 to the Credit Agreement (such charge being referred
to herein as the "1997 Omega Charge"). The recordation of the 1997 Omega Charge
resulted in the occurrence of an Event of Default under and pursuant to Section
7.1(n) of the Credit Agreement. The Borrowers have requested the Lenders to
waive such Event of Default.
(b) Waiver of Event of Default. Subject to the
Borrowers' execution and delivery of this Modification and satisfaction of all
conditions precedent herein contained, the Lenders hereby waive the Event of
Default which has occurred under and pursuant to the Section 7.1(n) of the
Credit Agreement solely by reason of the 1997 Omega Charge. The Borrowers
expressly acknowledge and agree that the waiver herein contained shall not, nor
shall it be deemed to, constitute (i) a waiver of any other Event of Default, or
(ii) a waiver of any Event of Default under Section 7.1(n) of the Credit
Agreement by reason of any other charge, liability, reserve, or expense which
gives rise to an Event of Default under Section 7.1(n) of the Credit Agreement
(including an additional charge, liability, reserve, or expense arising out of
or relating to the Omega fire sprinklers).
13. Conditions Precedent. The Lenders' agreement to grant the
waiver described in Section 12(b) hereof shall be subject to the Borrowers'
satisfaction of each of the following conditions on or before the date hereof.
(a) Supporting Documents. The Borrowers shall
have executed and delivered any and all other agreements, documents, and
instruments required by the Agent or the Lenders in connections herewith.
(b) Authorizations. The Borrowers shall have
furnished to the Agent satisfactory evidence that the transactions contemplated
hereby have been duly authorized by all requisite corporate action on behalf of
the Borrowers.
(c) Other Conditions. Such other conditions as
the Agent may reasonably impose in connection with the transactions described
herein.
14. Representations and Warranties. As a material inducement
for the Lenders to enter into this Modification, the Borrowers jointly and
severally make the following representations and warranties to the Lenders and
acknowledge the Lenders' justifiable reliance thereon:
(a) Defaults. Except as otherwise described in
Section 12(a) hereof, no Default or Event of Default has occurred.
7
<PAGE>
(b) Representations. All representations and
warranties previously made to the Lender by the Borrowers remain true, accurate,
and complete in all material respects.
(c) Enforceability. The Credit Agreement, as
modified and amended hereby, is the valid and binding obligation of the
Borrowers and is fully enforceable in accordance with all stated terms.
15. Binding Effect. This Modification shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
16. Costs and Expenses. Without limiting the generality of the
provisions of Section 9.3 of the Credit Agreement, the Borrowers shall reimburse
the Agent for its out-of-pocket expenses, including reasonable counsel fees,
incurred by the Agent in connection with the development, preparation, and
negotiation of this Modification and all documents executed in connection
herewith.
17. Effective Date. This Modification shall be operative and
effective when the Agent and the Lenders have executed this Modification and all
conditions precedent described in Section 13 hereof have been satisfied.
18. Governing Law. This Modification shall be
governed by and construed in accordance with the domestic,
internal laws (but not the law of conflict of laws) of the
Commonwealth of Pennsylvania.
19. Ratification. Except as expressly modified and
amended herein, the Credit Agreement is hereby ratified and
affirmed.
IN WITNESS WHEREOF, the parties hereto have caused this
Modification to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
CENTRAL SPRINKLER CORPORATION
By________________________________
Albert T. Sabol,
Executive Vice President of
Finance and Administration
Attest:___________________________
Secretary
8
<PAGE>
CENTRAL SPRINKLER COMPANY
By________________________________
Albert T. Sabol,
Executive Vice President of
Finance and Administration
Attest:___________________________
Secretary
CENTRAL CASTINGS CORPORATION
By________________________________
Albert T. Sabol,
Executive Vice President of
Finance and Administration
Attest:___________________________
Secretary
CENTRAL CPVC CORPORATION
By________________________________
Albert T. Sabol,
Executive Vice President of
Finance and Administration
Attest:___________________________
Secretary
CENTRAL SPRINKLER EXPORT
CORPORATION
By________________________________
Albert T. Sabol,
Executive Vice President of
Finance and Administration
Attest:___________________________
Secretary
("Borrowers")
CORESTATES BANK, N.A., in its
capacity as Agent
By________________________________
William Johnston,
Vice President
("Agent")
9
<PAGE>
CORESTATES BANK, N.A., individually
in its capacity as a Lender
By________________________________
William Johnston,
Vice President
10
<PAGE>
LaSALLE NATIONAL BANK, as a Lender
By________________________________
Steve Cohen, First
Vice President
11
<PAGE>
NATIONAL CITY BANK OF PENNSYLVANIA,
as a Lender
By________________________________
Name:
Title:
12
<PAGE>
EXHIBIT "A-1"
FORM OF BORROWING BASE CERTIFICATE
- ----------------------------------------------------------------
----------
(Date)
CoreStates Bank, N.A. (as Agent)
2240 Butler Pike
Plymouth Meeting, PA 19462-1302
Attn: Mr. William Johnston, Vice President
Re: Borrowing Base Certificate No. __________
- ----------------------------------------------------------------
Dear Mr. Johnston:
The Borrowing Base under Section 1.2 of the Credit Agreement dated
October 28, 1997 among Central Sprinkler Corporation, Central Sprinkler Company,
Central Castings Corporation, Central CPVC Corporation, Central Sprinkler Export
Corporation, the Lenders identified therein, and the Agent (as modified, the
"Credit Agreement") was as follows on __________, 199_:
BORROWING BASE
1. Total Qualified Accounts $_________
2. 80% of Total Qualified Accounts $_________
3. Total Qualified Inventory $_________
4. 50% of Total Qualified Inventory $_________
5. Total Fixed Assets $_________
6. 50% of Total Fixed Assets $_________
7. Balance of Term Loans $_________
8. Lesser of Borrowing Base (2 plus 4 plus 6 minus 7)
or $55 million $_________
9. Outstanding Balance of Revolving Credit $_________
10. Amount Available for Borrowing under
Revolving Credit (8 minus 9) $_________
13
<PAGE>
There are no Defaults or Events of Default (as those terms are defined
in Section 1.2 of the Credit Agreement) in existence as of the date of this
letter.
The undersigned certifies to the Agent and the Lenders that, to the
best of the undersigned's knowledge, information, and belief (based upon all
financial and related information available to the undersigned), this Borrowing
Base Certificate is a complete, accurate, and true statement of all items listed
above.
----------------------------------
Executive Vice President of Finance
and Administration
14
<PAGE>
EXHIBIT "B"
FORM OF COMPLIANCE CERTIFICATE
In accordance with the provisions of Section 5.1(c) of the
Credit Agreement (the "Credit Agreement") dated October 28, 1997, by and among
Central Sprinkler Corporation, Central Sprinkler Company, Central Castings
Corporation, Central CPVC Corporation, and Central Sprinkler Export Corporation
(together with any other Borrowers identified therein from time to time, the
"Borrowers"), CoreStates Bank, N.A. (in its capacity as Agent for the Lenders),
and the Lenders identified therein, the undersigned, ___________________, being
the Executive Vice President of Finance and Administration and authorized
officer of Borrowers, does hereby certify to the Agent and Lenders that, to best
of the undersigned's knowledge, information, and belief (based upon all
financial and related information available to the undersigned):
a. The representations and warranties made by the Borrowers in
Section 3 of the Credit Agreement are true and complete in all material respects
as on and as of the date hereof as if made on and as of this date;
b. The Borrowers have, as of the date hereof, performed all
covenants and agreements required to be performed by them under the Credit
Agreement and related Loan Documents;
c. No Default or Event of Default has occurred,
[except and to the extent specifically set forth on Exhibit "A"
attached hereto and made a part hereof]; and
d. The Borrowers are in compliance with the Financial
Covenants set forth below.
Actual Required
o Adjusted Current ____:1.00 1.00:1.00
Ratio (Section
5.09)
o Funded Debt to ____:1.00 .65:1.00
Total
Capitalization
(Section 5.10)
o Minimum Cash and $______ $5 million
Investments
(Section 5.11)
o Tangible Net Worth $______ $______
(Section 5.12)
15
<PAGE>
o Fixed Charge ____:1.00 1.20:1.00
Coverage Ratio
(effective
April 30, 1998)
e. By reason of the ratio of the Borrowers' Funded Debt to
Total Capitalization, the Applicable Margin for LIBOR Loans is in Pricing
Category ___ and shall be ___ basis points.
f. Borrowers are in compliance with the provisions of Section
6.1(c) and 6.1(g).
Any capitalized terms which are used in this Certificate and
which are not defined herein, but which are defined in the Credit Agreement,
shall have the meanings given to those terms in the Credit Agreement.
IN WITNESS WHEREOF, I have executed this Certificate the ____
day of _______________.
By__________________________(SEAL)
Executive Vice President of
Finance and Administration of
the Borrowers
16
<PAGE>
Exhibit 11
CENTRAL SPRINKLER CORPORATION
EARNINGS PER COMMON SHARE
(Amounts in thousands, except per share amounts)
Year Ended Year Ended Year Ended
October 31, October 31, October 31,
1997 1996 1995
----------- ----------- -----------
Net income (loss) $(2,542) $ 3,763 $ 8,458
======= ======= =======
Average number of common shares
outstanding 3,843 3,793 3,902
Adjustment to exclude average
unreleased common shares in ESOP (604) (640) (672)
Adjustment for assumed conversion
of stock options -- 177 152
------- ------- -------
Average number of common shares 3,239 3,330 3,382
======= ======= =======
Net income (loss) per common share $ (.78) $ 1.13 $ 2.50
======= ======= =======
<PAGE>
Exhibit 21
CENTRAL SPRINKLER CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Names
Jurisdiction of Under Which
Name Organization Doing Business
- ---- ------------ --------------
CSC Finance Company Delaware Corporate Name
CSC Investment Company Delaware Corporate Name
Central Sprinkler Company Pennsylvania Corporate Name
Spraysafe Automatic
Sprinklers Limited United Kingdom Corporate Name
Central Castings Corporation Alabama Corporate Name
Central CPVC Corporation Alabama Corporate Name
Central Sprinkler
Export Corporation Barbados Corporate Name
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed Form S-8
Registration Statement File No. 33-30092.
/s/ Arthur Andersen LLP
-----------------------------
Philadelphia, Pa.,
January 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000766041
<NAME> CENTRAL SPRINKLER CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 6,568
<SECURITIES> 14,288
<RECEIVABLES> 53,777
<ALLOWANCES> 5,949
<INVENTORY> 50,450
<CURRENT-ASSETS> 130,995
<PP&E> 73,412
<DEPRECIATION> 25,480
<TOTAL-ASSETS> 188,027
<CURRENT-LIABILITIES> 46,005
<BONDS> 79,918
0
0
<COMMON> 56
<OTHER-SE> 52,842
<TOTAL-LIABILITY-AND-EQUITY> 188,027
<SALES> 221,990
<TOTAL-REVENUES> 221,990
<CGS> 168,910
<TOTAL-COSTS> 168,910
<OTHER-EXPENSES> 52,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,322
<INCOME-PRETAX> (3,577)
<INCOME-TAX> (1,035)
<INCOME-CONTINUING> (2,542)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,542)
<EPS-PRIMARY> (.78)
<EPS-DILUTED> (.78)
</TABLE>
