SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the fiscal year ended December 31, 1996, or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the transition period from______ to_______
Commission file number 0-23802
MOTIVEPOWER INDUSTRIES, INC.
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(formerly known as MK Rail Corporation)
(Exact name of registrant as specified in its charter)
Delaware 82-0461010
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1200 Reedsdale Street, Pittsburgh, PA 15233
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (412) 237-2250
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class
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Common stock, $.01 par value
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. [ ]
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
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant at March 10 1997: $193,190,700
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 10, 1997
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Common stock, $.01 par value 17,562,793
Documents Incorporated by Reference: Certain sections or portions of the
registrant's proxy statement for the annual meeting of stockholders to be held
on June 24, 1997, described in Part III hereof are incorporated by reference in
this report.
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PART I
Unless otherwise indicated or the context otherwise requires, the terms
"Company" and "MotivePower" refer to MotivePower Industries, Inc. and its
predecessors.
Item 1. BUSINESS
The Company
MotivePower, formerly MK Rail Corporation, is a leading supplier of
products and services to the railroad industry. The Company was formed in April
1993 by Morrison Knudsen Corporation ("Morrison Knudsen"), which later sold 35
percent of the Company's common stock in an initial public stock offering in
April 1994. In October 1996, Morrison Knudsen distributed all of its remaining
ownership stake in the Company to Morrison Knudsen's creditors as part of
Morrison Knudsen's bankruptcy settlement. The Company and its subsidiaries
design, manufacture and distribute engineered locomotive components and parts;
provide locomotive fleet maintenance, remanufacturing and overhauls; and
manufacture environmentally friendly switcher, commuter and mid-range, DC
traction, diesel-electric and liquefied natural gas locomotives up to 4,000
horsepower. The Company provides products and services to freight and passenger
railroads, including every Class I Railroad in North America, commuter rail and
transit authorities, original equipment manufacturers and other customers
internationally.
Forward-looking Statements
Statements in this Form 10-K as to efforts to increase or maximize
stockholder value or otherwise improve operations, are forward-looking
statements. Factors such as a decrease in rail traffic, a reduction in
railroads' capital and maintenance spending plans with regard to their
locomotive fleets, industry consolidations, a decrease in railroads' outsourcing
trends, increased competition in the locomotive or locomotive components
segments, adverse general economic conditions, changes in laws or regulations
affecting the industry, technological developments that render existing industry
technology obsolete or the Company's inability to retain existing contracts and
or obtain new contract awards are among the factors which could cause the
Company to be unable to meet its objectives.
Business Strategy
MotivePower's business strategy is to grow and continue to strengthen
its core businesses. The Company considers the following to be core businesses:
manufacturing and distributing engineered locomotive components and parts;
providing locomotive fleet maintenance and overhauling and remanufacturing
locomotives; and manufacturing environmentally friendly switcher, commuter and
mid-range, DC traction, diesel-electric and liquefied natural gas locomotives up
to 4,000 horsepower. To the extent market conditions, technological developments
or other factors change, management will reconsider its strategy to best
position the Company under the conditions and circumstances then prevailing.
Industry Conditions and Trends
The Company's operating results are strongly influenced by general
economic conditions, railroad freight traffic, the financial condition of the
railroad industry and their outsourcing of
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work to improve their competitive position. Favorable conditions generally
prevailed in the economy and the railroad industry during 1996, although there
is no assurance that these favorable conditions in the railroad industry will
continue. Historically, however, the components and parts, maintenance and
overhaul segments of the railroad industry, while still subject to the impact of
rail traffic fluctuations, have been more stable and less cyclical than the new
and remanufactured locomotive segments. The Company operates in a highly
competitive environment, and there can be no assurance that increased rail
traffic and outsourcing by the railroads will benefit the Company.
Since the deregulation of the U.S. railroad industry in 1980, freight
railroads have reduced their equipment base and consolidated operations to
reduce operating costs and improve their competitive position compared to
trucking companies, which compete with the railroad industry. In recent years,
railroads have been consolidating and merging, hoping to achieve additional
operating and financial efficiencies that will allow them to compete more
effectively with other modes of transportation. Management believes these
consolidations offer the Company opportunities to increase business with the
surviving railroads as these railroads seek operating efficiencies through such
means as outsourcing locomotive fleet maintenance and components repair. This is
a forward-looking statement. There can be no assurances, however, that continued
consolidation will not adversely impact the Company through concentration of
bargaining power over prices or rationalization of locomotive fleet sizes.
Description of Business Operations
The Company operates principally through two business units, the
Components Group and the Locomotive Group.
Components Group
The Components Group manufactures and distributes primarily
aftermarket, or replacement components and parts for freight and passenger
railroads, including every Class I Railroad in North America, metropolitan
transit and commuter rail authorities, original equipment manufacturers and
other customers internationally. MotivePower provides most aftermarket
components for locomotives manufactured by the Electro-Motive Division of
General Motors Corporation ("EMD") and certain components for locomotives made
by the GE Transportation Systems unit of General Electric Company ("GE").
MotivePower believes it is the leading independent supplier in North America of
aftermarket locomotive components such as traction motors, alternators,
turbochargers, cooling systems and overhauled diesel engines.
Demand for components tends to depend largely on rail traffic. As
traffic increases, the railroads seek to maximize locomotive availability and
capacity, which can increase the frequency of necessary repairs and maintenance.
This business is highly competitive, as the Company faces competition from EMD,
GE and numerous smaller, independent manufacturers and distributors. EMD and GE
accounted for virtually 100% of the new high-horsepower locomotives delivered in
the United States in the past five years and, as original equipment
manufacturers, are the principal suppliers of original parts for their
locomotives.
Locomotive Group
The Locomotive Group provides fleet maintenance, overhauling and
remanufacturing, and manufacturing of environmentally friendly switcher,
commuter and mid-range, DC traction,
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diesel-electric and liquefied natural gas locomotives up to 4,000 horsepower.
The Company's fleet maintenance business unit provides locomotive maintenance
under long-term contracts. These contracts generally cover normal, expected
maintenance costs but also allow the Company to bill additional amounts to cover
extraordinary maintenance.
Demand for fleet maintenance services is driven by the railroads' focus
on cost reduction and productivity improvements as the industry has consolidated
over recent decades, and as railroads consider outsourcing non-transportation
functions. While most railroads have their own mechanical and maintenance
facilities, some can achieve cost savings and productivity improvements by
outsourcing the work to an independent servicer. In this business segment, the
Company competes against GE, EMD and the captive in-house shops of certain
railroads. When possible, the Company supplies its own component parts, at
market prices, for use in overhaul and maintenance under these contracts. In
this manner, the locomotive fleet maintenance contracts provide additional
opportunities for sales of component parts.
There are approximately 4,000 locomotives operating in
switcher/short-haul service in the United States and Canada, with an average age
of 30 years. Demand for new mid- range locomotives has been minimal since the
early 1980s because the railroads have focused instead on modernizing,
rationalizing and downsizing their higher-horsepower freight locomotive fleets.
In addition, older freight locomotives are sometimes used as switchers. As a
result of this low level of demand, few switcher manufacturers exist today. In
this business, the Company competes against Peoria Locomotive Works. In 1996,
the Company delivered 32 switchers to two terminal railroads in Houston.
Although the Company does not currently have additional switcher contracts, it
has several proposals outstanding as of March 1997 for delivery in 1997 and
1998.
The Company has been providing overhauling and remanufacturing services
to the railroad industry since 1972, and management believes the Company is the
largest, independent remanufacturer of locomotives in North America. In this
business segment, the Company faces competition from VMV, AMF Canada, GEC
Alsthom Mexico, numerous smaller regional remanufacturers, the captive in-house
shops of Class I railroads, and from GE and EMD. Most large railroads have
in-house capacity to overhaul locomotives but not to remanufacture them.
Typically, a locomotive overhaul includes replacement of various engine
and electrical rotating equipment. The cost can vary greatly depending on the
number and type of options included. Remanufacturing is a more extensive process
involving the disassembly, redesign from the frame up and reassembly of a
locomotive with upgraded equipment to substantially as-new condition.
The Company's overhauling and remanufacturing businesses have been
driven by the aging of the rail industry's locomotive fleet and the historical
cost advantages compared to purchasing new locomotives. Between 1970 and 1980,
the industry purchased approximately 12,000 new locomotives, compared to
approximately 8,000 since then. As a result, the average age of the fleet has
increased, with nearly 75% of the fleet at least 10 years old. The typical
maintenance cycle calls for a locomotive to be overhauled after approximately
seven years, remanufactured after 15 years and replaced after 20 to 25 years if
it has not been remanufactured.
Product Development In 1994 and 1995, MotivePower signed agreements
with CSX Intermodal ("CSXI"), a unit of CSX Corporation, for the development and
manufacturing of the Iron Highway, a proposed new system for intermodal freight
transportation. The Company developed four Iron
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Highway trainsets, two of which are currently in revenue-testing service by CP
Rail. CSXI has postponed testing of its two units. In 1996, the Company and CSXI
cancelled an Iron Highway manufacturing agreement. The Company currently
receives no revenues and incurs no costs for the Iron Highway project, and there
is no certainty that CP Rail will proceed with the Iron Highway beyond the
testing phase, or that CSXI will resume testing.
Backlog
At December 31, 1996, the Company's backlog was approximately $526
million, related to the Company's multi-year locomotive fleet maintenance
agreements. The largest agreement is subject to termination, but the Company
would receive a substantial termination settlement.
The Components Group, which represented approximately 50% of Company
sales in 1996, has no backlog because the vast majority of its sales are
considered to be maintenance items on short lead time cycles. However, the
Components Group does have several long-term supply agreements with certain
Class I railroads that designate that Group as the preferred supplier of
required maintenance products.
Employees
At March 10, 1997, MotivePower had 2,102 employees versus 2,141 in
1995. This included 589 salaried employees and 898 hourly employees in the
United States, and 135 salaried employees and 480 hourly employees in Mexico. Of
the hourly employees in the United States, 348 at Boise Locomotive Company
("Boise Locomotive") are represented by the International Union of Operating
Engineers ("Operating Engineers"), and 550 at Motor Coils Manufacturing Co.
("Motor Coils") are represented by the International Union of Electronic,
Electrical, Salaried, Machine and Furniture Workers ("Electrical Workers"). The
collective bargaining agreement with the Operating Engineers expires in June
2000 and the three collective bargaining agreements with the Electrical Workers,
covering Motor Coils employees in Braddock and Emporium, Pennsylvania, and St.
Louis, Missouri, expire in July 1998, October 1998 and June 2000, respectively.
The Company considers its relations with its employees and union representation
to be good.
Environmental Matters
The Company is subject to federal, state, local and foreign
environmental laws and regulations concerning the discharge, storage, handling
and disposal of hazardous or toxic substances and petroleum products
(collectively referred to as "waste"). Examples of regulated activities are the
disposal of lubricating oil, the discharge of water used to clean parts and to
cool machines, the maintenance of underground storage tanks and the release of
particulate emissions produced by Company operations. For some activities the
Company must obtain permits. Violation of environmental laws or regulations
could subject the Company and its management to civil and criminal penalties and
other liabilities. In addition, third parties may make claims for personal
injuries and property damage associated with releases of waste. A current or
prior owner or operator of property may be required to investigate and clean up
waste releases and may be liable to governmental entities or some other third
party for their investigation and remediation costs in connection with the
contamination. The Company arranges for the disposal or treatment of waste at
disposal or treatment facilities owned by third parties. The Company could be
liable for the costs of removing or remediating a release of waste at such
facilities.
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Because it owns and operates property, the Company may have
responsibility and liability even if it does not know of or cause the presence
of contaminants. Liability is often joint and several and is generally not
limited. The cost to investigate, remediate and remove waste may be substantial
and may even exceed the value of the property or the aggregate assets of the
owner or operator. The Company may have difficulty selling or renting
contaminated property or borrowing against such property. The government
sometimes creates liens against property for damages and costs it incurs in
connection with contamination. The Company has potential liabilities associated
with its and its predecessor's past waste disposal activities, including
disposal activities at plants currently being operated by the Company.
The Company has a Chief Compliance Officer who audits the Company
policy and reports directly to the Audit Committee of the Board of Directors.
All Audit Committee members are independent directors.
Boise, Idaho
Heavy equipment repair and locomotive remanufacturing commenced at Boise
Locomotive in 1972. At the time, solvents were used in the process of cleaning
parts and equipment as part of the repair/remanufacturing process at the
facility. Wastewater generated from the equipment cleaning process containing
solvents was discharged during the process to in-ground wastewater separation
basins that were connected to buried drain fields. This wastewater treatment
system was in place until 1984. In 1985, the Company's predecessor received
notices from the Idaho Department of Health and Welfare, Division of
Environmental Quality and the United States Environmental Protection Agency,
indicating that it was in violation of state and federal environmental laws with
respect to this treatment system at Boise Locomotive. Related regulatory
requirements led to the closure of the buried drain fields and a buried trench
that was used for disposal of waste material. Further requirements led to the
issuance in 1991 of a Resource Conservation and Recovery Act Part B Post Closure
Permit (the "Permit"), which is the formal permit pursuant to which a detailed
corrective action plan is specified for groundwater cleanup and for protection
of the public and environment following the "closure" or termination of the
releases which created the problem. In compliance with the Permit, about 57
wells have been drilled on the Boise Locomotive property and on adjacent
property to monitor, collect, and treat contaminated shallow groundwater, to
monitor any movement of the contaminated plume, and to monitor the deeper
groundwater systems at the facility. The Company was in compliance with the
Permit at December 31, 1996. In addition, Boise Locomotive would be liable for
any damages resulting from hazardous substances migrating from the facility to
deeper groundwater systems, including the regional aquifer system which serves
most of the domestic and industrial users of groundwater in the area (which
includes and extends beyond Boise). Three private off-site wells are known to
have been impacted by shallow groundwater contamination. Two of these wells are
used for residential domestic purposes, and the third well is used for supply to
a pond and landscape watering for a residential subdivision. Boise Locomotive
has entered into agreements whereby the residential domestic use of the wells
will be abandoned and domestic water will be provided via a public water supply
hook-up. In the event of contamination of the regional aquifer, Boise Locomotive
would be required, among other things, to provide potable water to affected
users and to install a treatment system to clean up the polluted water, and
could incur other liabilities, the combined cost of which cannot be estimated,
but would be expected to be material in amount. The regional aquifer system,
however, occurs at a depth which is
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approximately 200 feet below the shallow contaminated groundwater that is
currently being remediated. While management believes there is no evidence that
the regional aquifer system is currently threatened by releases of contaminants
from Boise Locomotive, no assurance can be given in this regard.
Mexico
Through its MK Gain, S.A. de C.V. ("MK Gain") subsidiary, the Company
has operational responsibility for facilities in Acambaro and San Luis Potosi in
Mexico, pursuant to a contract with the Mexican National Railway. Under the
contract, MK Gain is responsible for performing certain work related to
environmental protection at the facilities, such as waste water treatment, storm
water control, tank repair, and spill prevention and control. The costs of this
work are either to be directly reimbursed to MK Gain by the Mexican National
Railway or recoverable through fees payable under the contract, which has been
structured to account for such cost. No assurance can be given, however, that
the Mexican National Railway will not dispute any submissions for reimbursement
or that the fee structure under the contract will, in fact, cover costs. MK
Gain's operations are subject to Mexican environmental laws and regulations. It
has obtained, or is in the process of obtaining, environmental permits, licenses
and approvals required for its continuing operations.
Mountaintop, Pennsylvania
The Comprehensive Environmental Response, Compensation and Liability
Act (also known as "CERCLA" or "Superfund") is a federal law regarding abandoned
hazardous waste sites which imposes joint and several liability, without regard
to fault or the legality of the original act, on certain classes of persons,
including those who contribute to the release of a "hazardous substance" into
the environment. Foster Wheeler Energy Corporation ("FWEC") is named as a
potentially responsible party with respect to the Company's Mountaintop,
Pennsylvania plant, which has been listed by the EPA in its data base of
potential hazardous waste sites, the Comprehensive Environmental Response,
Compensation and Liability Information System ("CERCLIS"). FWEC, the seller of
the Mountaintop property to the Company's predecessor in 1989, agreed to
indemnify the Company's predecessor against any liabilities associated with this
Superfund site. Management believes that this indemnification arrangement is
enforceable for the benefit of the Company and, although such obligation is
unsecured and therefore structurally subordinate to secured indebtedness of
FWEC, that FWEC has the financial resources to honor its obligations under this
indemnification arrangement. This indemnification does not alter the Company's
potential liability to third parties (other than FWEC) or governmental agencies
under CERCLA but creates contractual obligations on the part of FWEC for such
liabilities.
Richland Township, Pennsylvania
Motor Coils owns a vacant lot in Richland Township, Pennsylvania which
has been subject to unauthorized dumping by unknown parties. The Company has not
yet tested the soil at the site or materials disposed there. Based on a visual
inspection, Motor Coils cannot yet estimate the cost to remove and properly
dispose of the material, and does not believe that the removal will have a
material adverse impact on the Company's financial position or results of
operations.
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St. Louis, Missouri
Motor Coils completed voluntary remediation of surficial contamination
resulting from a release of xylene in connection with a storage tank leak at its
St. Louis, Missouri facility. Motor Coils notified the relevant state regulatory
agency of its remediation plan and, with the concurrence of the state agency,
initiated site remediation in 1994. Based on monitoring results, the Company
discontinued site remediation in 1996.
The Company believes that its planned expenditures are adequate to meet
its known environmental obligations and liabilities, including those under the
Permit, and under CERCLA and similar legislation. The Company's knowledge of its
environmental obligations and liabilities is, for the majority of its
facilities, based on assessments and due diligence conducted by its
predecessor's personnel and Phase I and/or Phase II environmental assessments
conducted by third-party consultants. No assurance can be given, however, that
stricter interpretation and enforcement of existing environmental laws or
regulations, the adoption of new laws or regulations, the discovery of currently
unknown waste or contamination for which the Company may be liable, the
inability of the Company to enforce the indemnification with respect to the
Mountaintop plant or the continued spread of the hazardous waste plume through
off-site groundwater near Boise Locomotive will not result in significantly
higher environmental costs to the Company.
Environmental laws and regulations are subject to change at any time.
Compliance with current or future laws and regulations could potentially
necessitate significant capital outlays by the Company, affect the economics of
a given project or cause material changes or delays in intended activities.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, "Environmental Remediation Liabilities" ("SOP
96-1"). SOP 96-1 is effective for fiscal years beginning after December 15,
1996. The Company believes that its liabilities have been recorded in compliance
with SOP 96-1 and, therefore, implementation of SOP 96-1 will have no impact on
the Company's financial position or results of operations.
Major Customers
In 1996, sales to three customers exceeded 10% of total sales:
Burlington Northern/Santa Fe (19%), Union Pacific (16%), and the Mexican
National Railway (14%). No other single customer accounted for 10% or more of
sales. Based on current operations, management expects that sales to Burlington
Northern/Santa Fe, Union Pacific and the Mexican National Railway will exceed
10% of 1997 total sales.
Item 2. PROPERTIES
The Company's headquarters are located in Pittsburgh, Pennsylvania and
its manufacturing facilities are located in the United States and Mexico. The
Company considers that its properties are generally in good condition, are
well-maintained, and are generally suitable and adequate to carry on its
business. The principal facilities of the Company and its subsidiaries or
operating units are as follows:
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Square Owned/
Location Footage Leased Use
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MotivePower Industries, Inc.
Pittsburgh, Pennsylvania 8,430 Leased Corporate Headquarters
Boise Locomotive Company
Pittsburgh, Pennsylvania 5,000 Leased Office
Mountaintop, Pennsylvania* 204,000 Owned Manufacturing
Boise, Idaho 210,000 Owned Manufacturing
Boise, Idaho 66,900 Owned Manufacturing
Helper, Utah** -- Leased Maintenance Shop
Barstow, California** -- Leased Maintenance Shop
Clark Industries Co.
Gilman, Illinois 31,800 Leased Manufacturing
Engine Systems Co., Inc.
Latham, New York 63,000 Owned Manufacturing
MK Gain, S.A. de C.V.
San Luis Potosi, Mexico 968,400 Leased Manufacturing
Acambaro, Mexico 138,000 Leased Manufacturing
Mexico City, Mexico 3,700 Leased Office
Motor Coils Mfg. Co.
Pittsburgh, Pennsylvania 61,777 Leased Office
Pittsburgh, Pennsylvania 57,000 Leased Warehouse
Pittsburgh, Pennsylvania 71,950 Leased Warehouse/Manufacturing
Braddock, Pennsylvania 111,000 Owned Manufacturing
Emporium, Pennsylvania 37,000 Owned Manufacturing
St. Louis, Missouri 65,000 Owned Manufacturing
Power Parts Co.
Elk Grove Village, Illinois 18,000 Leased Office
Elk Grove Village, Illinois*** 132,700 Leased Warehouse
Touchstone Co.
Jackson, Tennessee 88,000 Owned Manufacturing
Jackson, Tennessee 77,200 Leased Warehouse
Jackson, Tennessee 2,590 Leased Storage
Jackson, Tennessee 1,540 Leased Office
Racine, Wisconsin 1,200 Leased Office
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* The Company closed this facility in the second quarter of 1996. On March 6,
1997 the Company signed a letter of intent to sell this facility.
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**Represents unspecified portions of maintenance facilities owned by the
railroads for which the Company provides locomotive fleet maintenance services.
These facilities have been made available to the Company to perform these
services for nominal consideration.
*** The Company subleases 59,500 sq. ft. of space through July 1997, subject to
two consecutive six-month renewals at the option of the subtenant.
Item 3. LEGAL PROCEEDINGS
In December 1995, Morrison Knudsen, the Company and certain of
Morrison Knudsen's directors and officers were named as defendants in a
complaint (the "Pilarczyk Lawsuit") filed in the United States District Court
for the Northern District of New York by plaintiffs who were principals in
and/or held substantial stock in TMS, Inc. ("TMS"), a New York corporation
acquired by Morrison Knudsen on December 30, 1992. The complaint alleges, among
other things, violations of Section 10(b), Rule 10b-5 and Section 20(a) of the
Securities Exchange Act of 1934, breach of contract, unjust enrichment,
negligent misrepresentation and common law fraud during Morrison Knudsen's
acquisition of TMS in 1992. Plaintiffs assert that the Company, which was not
formed by Morrison Knudsen until 1993, is fully responsible for the acts of
Morrison Knudsen. However, the actions complained of occurred before the Company
was formed and the Company did not assume such liabilities of Morrison Knudsen.
A motion to dismiss, filed in April 1996 on behalf of all defendants to the
Pilarczyk Lawsuit, is still pending. Counsel to the Company believes the causes
of action in the Pilarczyk Lawsuit relating to the Company are without merit and
the Company expects that it will be successful on this motion, even if the suit
is not dismissed as to all defendants. If the Company is successful, the Company
intends to make appropriate requests to the court to seek to require the
plaintiff to pay the Company's legal fees and costs.
In June 1995, the Company was named as defendant in a complaint filed
with the Idaho Human Rights Commission (the "Idaho Commission") and the Equal
Employment Opportunity Commission by a female employee on behalf of herself and
other women employed by the Company alleging discrimination based on sex, which
complaint was amended in December 1995 to include allegations of retaliatory
discharge. In 1996, the idaho Commission announced that it found no probable
cause to believe either discrimination or retaliatory discharge had occurred as
alleged in the complaint and, accordingly, the proceeding was dismissed.
The Company is engaged in a commercial dispute with a former supplier,
Samyoung Machinery Industrial Co. and Samyoung (America), Inc. (collectively,
"Samyoung"). The Company filed suit on April 16, 1996 alleging delivery of
defective product and seeking damages in excess of $1 million. Samyoung denies
that the product was defective and countersued to recover $300,000 under the
contract, and $10 million for trade libel and interference with prospective
economic relationships as a result of the Company allegedly making false
disparaging statements concerning the diesel engine assembly liners to
customers. The Company believes that Samyoung's claims are without merit, and,
to date, no evidence supporting Samyoung's counterclaims has come to light
through the discovery being conducted by the parties. The Company intends to
vigorously prosecute its own claims and defend against Samyoung's counterclaims.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 30, 1996, the annual meeting of the shareholders of the
Company was held, at which the shareholders voted on and approved the following
matters:
1. The election of John C. Pope and Nicholas J. Stanley to the Board
of Directors for a term of three years. A summary of the voting
results is as follows:
John C. Pope Nicholas J. Stanley
For 14,474,146 14,459,321
Withheld 32,198 47,023
2. The amendment of the Company's Certificate of Incorporation to
permit vacancies on the Board or newly created directorships to
be filled at meetings of the stockholders called by the Board. A
summary of the voting results is as follows:
For 13,056,523
Against 34,700
Abstain 10,013
3. The amendment of the Company's Stock Incentive Plan to increase
the maximum number of shares which may be issued under such Plan
by one million shares. A summary of the voting results is as
follows:
For 12,707,091
Against 273,480
Abstain 20,309
4. The amendment of the Company's Stock Option Plan for Non-Employee
Directors to (i) provide for annual stock option awards to the
Company's non-employee directors and (ii) increase the maximum
number of shares which may be issued under such plan by 50,000
shares. A summary of the voting results is as follows:
For 12,630,604
Against 382,521
Abstain 19,709
5. The appointment of Deloitte & Touche LLP as the Company's
independent auditors. A summary of the voting results is as
follows:
For 14,459,462
Against 38,681
Abstain 8,201
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MotivePower's Common Stock trades on the Nasdaq National Market Tier of
the Nasdaq Stock Market under the symbol "MOPO." As of March 10, 1997, the
approximate number of holders of record of its Common Stock was 983.
The high and low sales prices for the Company's Common Stock, as
reported in the Nasdaq Stock Market Summary of Activity reports in 1996, were as
follows:
1996 1995
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High Low High Low
First Quarter $4.50 $2.88 $10.63 $5.75
Second Quarter 6.75 3.38 9.25 4.50
Third Quarter 6.63 5.00 8.75 6.38
Fourth Quarter 8.00 5.88 8.75 3.88
The Board did not declare dividends for 1995 or 1996. On February 27,
1997, the Company entered into a new credit facility which allows up to $3
million in annual dividends to be paid if declared by the Board of Directors.
The Board reviews its dividend policy regularly.
At the close of business on March 10, 1997, the Company's Common Stock
was trading at $11.00 per share.
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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data are qualified in
their entirety by, and should be read in conjunction with, the Consolidated
Financial Statements of the Company and the related notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth under Item 7. The Balance Sheet Data at December 31, 1992,
1993, 1994, 1995 and 1996, and the Statement of Operations Data for each of the
five years in the period ended December 31, 1996, have been derived from the
audited Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
December 31,
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands except share information)
Statements of Operations Data:
<S> <C> <C> <C> <C> <C>
Net sales $ 291,407 $263,718 $368,537 $218,160 $129,507
Net income (loss) 11,509 (40,414) (42,793) 3,632 1,790
Earnings (loss) per common share 0.66 (2.34) -- -- --
Pro forma supplemental income
(loss) per common share (1) -- -- (2.47) 0.21 --
Special dividend to
Morrison Knudsen -- -- 3.19 -- --
Other dividends -- 0.04 0.12 -- --
Balance Sheet Data:
Total assets $ 234,044 $280,948 $311,297 $181,930 $138,263
Long-term debt and
Redeemable Preferred Stock 27,161 61,296 40,867 -- --
Stockholders' equity 120,980 94,527 114,124 100,061 68,863
- ----------
<FN>
(1) The net loss for 1994 has been adjusted to reflect the following: additional
interest expense on a $19 million debt from January 1, 1994 through February 25,
1994, transferred from Morrison Knudsen and assumed by the Company; a reduction
of interest expense resulting from the assumed payment of $39.6 million on the
intercompany debt due Morrison Knudsen, and a dividend payment of $35.6 million
to Morrison Knudsen. Net income for 1993 has been adjusted for the net effects
of the acquisitions of Touchstone, Inc., Clark Industries, Inc., and Arrowsmith
Power Systems, Inc., as if such acquisitions occurred on January 1, 1993.
</FN>
</TABLE>
13
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
In 1996, MotivePower had net income of $11.5 million, or 66 cents per
share, on sales of $291.4 million. During the year, the Company reduced debt by
$71 million, cut general and administrative costs by $13 million, sold $21
million of non-core assets and reduced inventories by $21 million. For the year,
both the Locomotive Group and the Components Group had operating income above
prior year results, exclusive of any Unusual Items. The Company's Boise
Locomotive subsidiary completed a contract for 32 switcher locomotives during
the year, contributing significantly to the improved performance of the Company.
Business Strategy
MotivePower's business strategy is to grow and continue to strengthen
its core businesses. The Company considers the following to be core businesses:
manufacturing and distributing engineered locomotive components and parts;
providing locomotive fleet maintenance and overhauling and remanufacturing
locomotives; and manufacturing environmentally friendly switcher, commuter and
mid-range DC traction, diesel electric and liquefied natural gas locomotives up
to 4,000 horsepower. To the extent market conditions, technological developments
or other factors change, management will reconsider its strategy to best
position the Company under the conditions and circumstances then prevailing.
Industry Conditions and Trends
The Company's operating results are strongly influenced by general
economic conditions, railroad freight traffic, the financial condition of the
railroad industry and their outsourcing of work to improve their competitive
position. Favorable conditions generally prevailed in the economy and the
railroad industry during 1996, although there is no assurance that these
favorable conditions in the railroad industry will continue. Historically,
however, the components and parts, maintenance and overhaul segments of the
railroad industry, while still subject to the impact of rail traffic
fluctuations, have been more stable and less cyclical than the new and
remanufactured locomotive segments. The Company operates in a highly competitive
environment, and there can be no assurance that increased rail traffic and
outsourcing will benefit the Company.
Since the deregulation of the U.S. railroad industry in 1980, freight
railroads have reduced their equipment base and consolidated operations to
reduce operating costs and improve their competitive position compared to
trucking companies, which compete with the railroad industry. In recent years,
railroads have been consolidating and merging. Management believes these
consolidations offer the Company opportunities to increase business with the
surviving railroads as these railroads seek operating efficiencies through such
means as outsourcing locomotive fleet maintenance and parts repair. This is a
forward-looking statement. There can be no assurances, however, that continued
consolidation will not adversely impact the Company through concentration of
bargaining power over prices or rationalization of locomotive fleet sizes.
14
<PAGE>
Results of Operations
The following table sets forth the percentage of sales represented by
certain items in the Company's Consolidated Statements of Operations for the
years indicated.
Year Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
Net sales ..................................... 100.0% 100.0% 100.0%
------ ------ ------
Cost of sales ................................. (79.8) (86.5) (90.8)
Unusual items ................................. (0.7) (15.5) (10.6)
------ ------ ------
Gross profit (loss) ........................... 19.5 (2.0) (1.4)
------ ------ ------
General and administrative expenses ........... (11.2) (17.4) (11.2)
Research and development expense .............. -- -- (0.9)
------ ------ ------
Operating income (loss) ....................... 8.3 (19.4) (13.5)
Interest income ............................... 0.7 0.4 0.5
Interest expense .............................. (3.1) (3.6) (1.8)
Other income .................................. 0.5 -- --
Gain on sale of assets ........................ 0.5 -- --
Foreign exchange gain (loss) .................. 0.1 (0.2) (0.3)
------ ------ ------
Income (loss) before income taxes and
minority interest .......................... 7.0 (22.8) (15.1)
Income tax (expense) benefit .................. (2.6) 7.5 3.3
Minority interest in loss of subsidiary ....... -- -- 0.3
------ ------ ------
Income (loss) before extraordinary item ....... 4.4 (15.3) (11.5)
Extraordinary loss on extinguishment of debt .. (0.4) -- --
------ ------ ------
Net income (loss) ............................. 4.0% (15.3%) (11.5%)
====== ======= =======
Consolidated Operations
1996 Compared to 1995
Sales increased 10% to $291.4 million in 1996 from $263.7 million in
1995. The increase was primarily due to increased sales in the Locomotive Group
which completed a $34 million contract to deliver switcher locomotives in
December 1996. The Components Group had lower sales in 1996 versus 1995
principally as a result of the sale of non-core businesses during the year.
Cost of sales (exclusive of Unusual Items) as a percentage of sales
decreased to 80% in 1996 compared to 87% in 1995, resulting in gross profit
margins of 20% and 13%, respectively. The
15
<PAGE>
improvement in gross profit is the result of cost reductions and improved
productivity in the operating groups and increased profitability at the higher
sales volume due to the benefits of operating leverage.
Charges for Unusual Items were $2.1 million in 1996 compared to $40.8
million in 1995. The charges in 1996 were incurred due to the impairment of
certain assets, facility rationalization and the restructuring of lease
commitments. The charges in 1995 related to the Company's exit from the
high-horsepower locomotive business, the impairment of the Mountaintop facility
and the locomotive lease fleet, the disposition of the Company's Australian
operations and other miscellaneous charges.
General and administrative expenses decreased 29% to $32.6 million in
1996 from $45.9 million in 1995. The decrease resulted from the elimination of
$4.5 million in costs incurred in 1995 during the attempt to sell the Company,
cost reductions at the operating entities and reductions in corporate overhead,
including legal expenses and staff reductions.
Interest income increased 108% to $2 million in 1996 from $951,000 in
1995. The 1996 amount includes $947,000 of interest income on the notes
receivable related to the restructuring of the Company's Argentina investment
and $1 million in interest on funds invested by MK Gain. Based on the remaining
term of the notes receivable, the Company expects interest income to be minimal
in 1997.
Interest expense decreased 5% to $9.1 million in 1996 from $9.6 million
in 1995. The decrease is the result of a decrease of $1.6 million in interest
expense on the amount owed to Morrison Knudsen which was paid off in September
1996, a decrease of $1 million in interest expense on the amount owed on the
Company's domestic credit facility which was paid down $30 million in 1996,
partially offset by an increase in interest expense of $1.4 million on the
Company's Mexican credit facility, and an increase in interest expense of
$737,000 on customer advances to Boise Locomotive Company related to contracts
for the production of switcher locomotives.
Other income of $1.6 million in 1996 represents funds received on the
unsecured portion of the Company's restructured Argentina investments. There is
no assurance that the Company will receive such payments in the future.
Gain on sale of assets of $1.5 million in 1996 is the result of a gain
on the sale of Alert Manufacturing and Supply Co. ("Alert") of $700,000 and a
gain on the sale of Power Parts Sign Co. ("Sign") of $783,000. Both companies
were sold in the second half of 1996 after having been previously identified as
non-core assets.
The foreign exchange gain in 1996 of $169,000 compares to a foreign
exchange loss of $544,000 in 1995. The respective gain and loss is the result of
fluctuations in the Mexican peso and its effects on the net peso exposure at the
Company's Mexican subsidiary.
The extraordinary loss on extinguishment of debt in 1996, net of
deferred tax benefit of $687,000, is the result of the Company's restructuring
of its domestic credit facility. The gross charge includes $1 million paid to
bank syndication partners for the break-up of the existing facility and the
write-off of $751,000 of unamortized fees related to that facility.
The Company recorded income tax expense of $7.7 million in 1996 versus
a benefit of $19.9 million in 1995. The 1995 benefit was a result of the
Company's net loss during the year. At December 31, 1996, MK Gain had a net
operating loss carryforward of approximately $23 million, expiring in various
amounts during 2004-2005, and the Company had a consolidated United States
federal net operating loss carryforward of approximately $48 million, expiring
in various amounts during 2009-2010. The Company has reflected a valuation
allowance with respect to these net operating loss carryforwards of $6.3 million
at December 31, 1996.
16
<PAGE>
1995 Compared to 1994
Sales decreased 28%, to $263.7 million in 1995 from $368.5 million in
1994. The decrease was primarily due to lower sales in the Locomotive Group,
which completed a major remanufacturing contract in February 1995 and did not
secure comparable new contracts. The Components Group also had lower sales due
to a general slowdown in rail traffic growth for much of the year. The decrease
in sales in 1995 was partially offset by sales increases from a full year's
results of operations for the Company's maintenance contracts.
Cost of sales (exclusive of Unusual Items) as a percentage of sales
decreased to 87% in 1995 from 91% in 1994 resulting in a gross margin of 13% of
sales in 1995 versus 9% in 1994. The improvement in the gross margin for 1995
was primarily a result of cost reductions in the Locomotive Group resulting from
the decline in sales volume, and the inclusion of the operating results of MK
Gain for the entire year of 1995.
General and administrative expenses increased 12%, to $45.9 million in
1995 from $41.1 million in 1994. The increase resulted primarily from expenses
related to efforts to sell the Company, costs associated with hiring and
relocating corporate employees, and costs related to fulfilling regulatory and
other requirements.
Research and development expense decreased to zero in 1995, from $3.4
million in 1994. The decrease was due to the curtailment of the Company's
high-horsepower (over 4,000 horsepower) locomotive manufacturing program in
early 1995.
Interest income decreased 52% to $951,000 in 1995 from $2 million in
1994. The decrease was due primarily to the elimination of an intercompany
receivable from Morrison Knudsen. Interest expense increased 43% to $9.6 million
in 1995 from $6.7 million in 1994. The increase resulted from increased
borrowings under existing credit facilities needed to fund operating capital
requirements and significantly higher general and administrative expenses.
The Company's foreign exchange loss decreased 55% to $544,000 in 1995
from $1.2 million in 1994. The decrease is the result of the use of U.S. dollars
as the functional currency for the Company's Mexican operations in 1995 versus
the Mexican peso as the functional currency in 1994. The change in functional
currency resulted from changes in the sourcing of component parts from U.S.
suppliers during the year and the U.S. dollar-denominated financing secured by
MK Gain in 1995.
Income taxes reflect a benefit of $19.9 million that resulted from the
Company's net loss in 1995.
Components Group
1996 Compared to 1995
In 1996, net sales for the Components Group decreased 1% to $145
million from $146 million in 1995. The decrease is primarily attributed to the
sale of Alert which generated net sales of $5.6 million in 1996 prior to the
sale, compared to $10.7 million in the full year 1995. Excluding the sales of
Alert for both periods, net sales increased 3% in 1996 compared to 1995.
Operating income (exclusive of Unusual Items) increased 27% to $19.9 million in
1996 from $15.7 million in 1995. The increase is attributed to cost-cutting and
productivity improvements.
1995 Compared to 1994
In 1995, net sales for the Components Group decreased 6% to $146
million from $156 million in 1994. The decrease was due to a general slowdown in
rail traffic growth for much of 1995, which caused the railroads to defer
certain maintenance costs. Operating income also
17
<PAGE>
decreased by 37% to $14.2 million in 1995 from $22.6 million in 1994. Excluding
charges related to the discontinued high-horsepower program, the group's
operating profit would have been $15.7 million in 1995. The decrease in
operating income was due primarily to the group's high level of fixed costs.
Locomotive Group
1996 Compared to 1995
In 1996, net sales increased by 25% to $146.8 million from $117.4
million in 1995. The increase is attributed to a 38% increase in net sales at
Boise Locomotive, primarily the result of the completion of contracts for 32
switcher locomotives which were manufactured during the year. Six of the
switcher locomotives were accelerated for delivery in 1996, at the customer's
request, to allow the units to be operating in the customer's fleet by the end
of the year. In addition, MK Gain had an 11% increase in net sales under its
contract to provide locomotive operations and maintenance. Operating income
increased to $16.7 million in 1996 from an operating loss (exclusive of Unusual
Items) of $6.2 million in 1995. The increase is attributed to the increase in
sales, costs reductions and improved productivity, and the accelerated delivery
of switcher locomotives in 1996.
1995 Compared to 1994
In 1995, net sales for the Locomotive Group decreased 45%, to $117.4
million from $212.8 million in 1994. The decrease was due primarily to the
completion of a large remanufacturing contract, which produced sales of
approximately $80 million in 1994 and $10.7 million in 1995, which more than
offset an increase in sales at MK Gain. The group had an operating loss of $45.4
million in 1995, compared to an operating loss of $40.8 million in 1994. MK Gain
had sales of $46 million and $18 million, and operating income of $1.7 million
and $1.7 million in 1995 and 1994, respectively. The 1995 loss included Unusual
Items of $39.3 million to discontinue manufacturing of high-horsepower
locomotives, and to establish reserves against the locomotive lease fleet and a
manufacturing plant in Mountaintop, Pa. Excluding these charges and losses in
the discontinued Australian operations, the group would have had an operating
loss of $1.7 million in 1995. The comparable loss in 1994, excluding Unusual
Items, was $8.9 million.
Financial Condition, Liquidity and Capital Resources
During 1996 the Company significantly improved its financial liquidity
through improved operating results, an overall reduction of debt of $71 million
including the repurchase of debt the Company owed to Morrison Knudsen, a
reduction of receivables of $6 million, a reduction of inventory of $19 million,
and the restructuring of its domestic credit facility. In addition, the Company
sold non-core assets during the year, including Alert, Sign and the majority of
its locomotive lease fleet as part of the restructuring plan. Also, capital
expenditures were reduced in 1996, and certain overhead costs were reduced
through work force reductions at both the operating level and the corporate
level.
18
<PAGE>
The following table summarizes the net changes in cash flows for the
years ended December 31, 1996, 1995 and 1994:
Year Ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
(In thousands)
Net cash provided by (used in)
Operating activities ................. $ 43,368 $ (21,743) $ (85,141)
Investing activities ................. 12,407 (15,408) (36,941)
Financing activities ................. (56,235) 30,388 120,463
Effect of exchange rates on cash ..... -- -- 2,207
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents ........................... $ (460) $ (6,763) $ 588
========= ========= =========
Cash and cash equivalents at end
of year .............................. $ 5,236 $ 5,696 $ 12,459
========= ========= =========
Net cash provided by operations in 1996 was $43.4 million, primarily
the result of net income of $11.5 million and working capital management. During
1996, steps were taken to return the Company to profitability, including
improving operations through production efficiencies and cutting overhead costs.
As a result of these actions, and significantly improved sales volume in the
Locomotive Group, the Company improved its financial condition and is positioned
for future growth. In addition, inventories were reduced by $19 million in 1996
as the Company continued to manage assets and improve liquidity. Non-cash
charges during the year for depreciation and amortization totaled $10.4 million.
Net cash provided by investing activities in 1996 was $12.4 million. As
part of the Company's restructuring plan, non-core assets were sold during the
year, generating net proceeds of $14.9 million. Offsetting these proceeds were
capital additions of $4.1 million. Domestic capital spending during the year was
limited to normal maintenance items, with MK Gain expenditures being made in
accordance with contractual obligations. Other investing activities provided
cash of $1.6 million, principally from the reduction of other long-term assets.
The Company anticipates a $10 million increase in capital expenditures in 1997,
principally due to contractual obligations at MK Gain and the construction of a
new facility at its Touchstone subsidiary. This is a forward-looking statement.
Actual capital expenditures could vary based on availability of capital,
interest rate increases, site availability and changes in market conditions.
Cash used in financing activities in 1996 totaled $56.2 million,
primarily the result of the buy back of the note payable to Morrison Knudsen for
$34.6 million and the reduction of debt under credit agreements of $17 million.
In addition, the Company also used funds to buy back the preferred stock
outstanding for $1.1 million. The repurchase of the Morrison Knudsen note was
completed at a discount of approximately $22 million, as the note plus interest
at the date of closing was $56.6 million. This debt repurchase was part of the
Company's overall strategy of reducing debt and improving liquidity. As a result
of the improved operating results, the proceeds from the sale of non-core assets
and funds received from unsecured notes related to the Company's restructured
Argentina investments, the Company was able to pay down amounts owed under
existing credit agreements. Also, in December 1996, the Company restructured its
domestic credit
19
<PAGE>
facility to reduce the cost of borrowing and increase net borrowing availability
through increases in the term loan portion of the facility, and MK Gain entered
into a new credit agreement which will provide up to $3.5 million in additional
financing to support investments in property, plant and equipment.
Currency Risks
MK Gain is the source of foreign currency risks. Under a contract with
the Mexican National Railway, MK Gain provides locomotive fleet maintenance and
overhauls for 276 locomotives. For its services, MK Gain receives a monthly fee
paid in Mexican pesos. As currency exchange or inflation rates fluctuate, the
fee is adjusted periodically (currently monthly) based on an escalation formula
in the contract. In 1996, despite continued fluctuation of the peso and a high
rate of Mexican inflation, the formula effectively preserved the U.S. dollar
value of the monthly fee.
MotivePower did, however, record a foreign currency gain of $169,000
for the year, related to MK Gain's net peso exposure. Most goods and services
used in maintenance and overhaul activities are invoiced in U.S. dollars.
The Company does not speculate or use derivatives in any of its
investment decisions. The Company will continue to monitor its exposure to
foreign currency risks and may adjust its strategy in the future.
Inflation
General price inflation in the United States has been moderate during
the three-year period ended December 31, 1996 and has not had a material impact
on the Company's results of operations. Some of the Company's labor contracts
contain negotiated salary and benefit increases, and others contain
cost-of-living adjustment clauses which would cause the Company's costs to
automatically increase if inflation were to become significant. Because of the
competitive nature of the Company's business and its long-term contract terms
and conditions, it is possible that the Company may be unable to pass on any
significant inflationary effects to the Company's customers in the form of
higher prices. The Company's strategy for reducing the possible adverse effects
of higher inflation is to continue to adopt methods to increase productivity and
reduce manufacturing costs.
Stock Ownership
Stock ownership guidelines for the Company's officers, directors and
key managers, which sets minimum levels of Company stock ownership as a multiple
of annual salaries, have been established as of March 1997. Their purpose is to
encourage ownership of 10% or more of the Company's stock within five years to
demonstrate an owner/management commitment to increase long-term stockholder
value.
20
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
MotivePower Industries, Inc. Page
----
Consolidated Financial Statements as of December 31, 1996 and 1995,
and for each of the three years in the period ended December 31, 1996
Independent Auditors' Report.................................... 22
Consolidated Statements of Operations........................... 23
Consolidated Balance Sheets..................................... 24
Consolidated Statements of Cash Flows........................... 25
Consolidated Statements of Changes in Stockholders' Equity...... 27
Notes to Consolidated Financial Statements...................... 28
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF MOTIVEPOWER INDUSTRIES, INC.:
We have audited the consolidated financial statements of MotivePower
Industries, Inc. and subsidiaries listed in the accompanying index. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, such consolidated financial statements present fairly,
in all material respects, the financial position of MotivePower Industries, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 10, 1997
(except for Note 7, as to which the date
is February 27, 1997 and Note 18, as to
which the date is March 6, 1997)
22
<PAGE>
<TABLE>
<CAPTION>
MOTIVEPOWER INDUSTRIES, INC.
(Formerly known as MK Rail Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of dollars except share data)
Year Ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales ................................................. $ 291,407 $ 263,718 $ 368,537
Cost of sales ............................................. (232,434) (228,047) (334,799)
Unusual items ............................................. (2,126) (40,838) (39,216)
------------ ------------ ------------
Gross profit (loss) ....................................... 56,847 (5,167) (5,478)
General and administrative expenses ....................... (32,615) (45,946) (41,125)
Research and development expense .......................... -- -- (3,374)
------------ ------------ ------------
Operating income (loss) ................................... 24,232 (51,113) (49,977)
Interest income ........................................... 1,981 951 1,979
Interest expense .......................................... (9,143) (9,602) (6,724)
Other income .............................................. 1,565 -- --
Gain on sale of assets .................................... 1,483 -- --
Foreign exchange gain (loss) .............................. 169 (544) (1,204)
------------ ------------ ------------
Income (loss) before income taxes and minority interest ... 20,287 (60,308) (55,926)
Income tax (expense) benefit .............................. (7,714) 19,894 12,065
Minority interest in loss of subsidiary ................... -- -- 1,068
------------ ------------ ------------
Income (loss) before extraordinary item ................... 12,573 (40,414) (42,793)
Extraordinary loss on extinguishment of debt,
net of income tax benefit of $687 ......................... (1,064) -- --
------------ ------------ ------------
Net income (loss) ......................................... $ 11,509 $ (40,414) $ (42,793)
============ ============ ============
Weighted average shares outstanding ....................... 17,562,793 17,255,953 16,852,668
Earnings (loss) per share:
Earnings (loss) before extraordinary item ................. $ .72 $ (2.34) $ --
Extraordinary item ........................................ (.06) -- --
------------ ------------ ------------
Earnings (loss) ........................................... $ .66 $ (2.34) $ --
============ ============ ============
Supplemental pro forma loss per share ..................... $ -- $ -- $ (2.47)
Dividends per share:
Other dividends ........................................... $ -- $ .04 $ .12
Special dividend to Morrison Knudsen (on 11,149,000 shares) $ -- $ -- $ 3.19
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
<TABLE>
<CAPTION>
MOTIVEPOWER INDUSTRIES, INC.
(Formerly known as MK Rail Corporation)
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars except share data)
December 31,
--------------------------------------
1996 1995
ASSETS ------------ ------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents .......................... $ 5,236 $ 5,696
Receivables from customers:
Billed, net of allowance for doubtful
accounts of $284 and $531, respectively ............ 25,754 29,684
Unbilled ........................................... 468 3,922
Inventories ........................................ 78,438 99,459
Deferred income taxes .............................. 4,635 1,082
Other current assets ............................... 2,638 2,903
------------ ------------
Total current assets ............................... 117,169 142,746
Locomotive lease fleet, net ........................ 2,083 14,840
Property, plant and equipment:
Land ............................................... 1,193 1,193
Buildings and improvements ......................... 47,298 40,952
Machinery and equipment ............................ 39,136 42,612
------------ ------------
Property, plant and equipment - cost ............... 87,627 84,757
Less accumulated depreciation ...................... (43,644) (38,010)
------------ ------------
Property, plant and equipment - net ................ 43,983 46,747
Underbillings ...................................... 19,561 10,328
Deferred income taxes .............................. 15,348 27,530
Goodwill and other intangibles ..................... 24,637 27,789
Other .............................................. 11,263 10,968
------------ ------------
Total assets ....................................... $ 234,044 $ 280,948
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt .................. $ 11,626 $ 978
Current portion of note payable to Morrison Knudsen -- 10,440
Accounts payable:
Trade .............................................. 13,470 18,509
Morrison Knudsen ................................... -- 2,348
Accrued expenses and other current liabilities ..... 28,236 33,271
Income taxes payable ............................... 1,957 249
Revolving credit agreement borrowings .............. 22,431 59,847
------------ ------------
Total current liabilities .......................... 77,720 125,642
Long-term debt ..................................... 15,535 7,198
Note payable to Morrison Knudsen ................... -- 41,655
Commitments and contingencies ...................... 18,394 9,299
Other .............................................. 1,415 1,602
------------ ------------
Total liabilities .................................. 113,064 185,396
------------ ------------
Redeemable Preferred Stock, par value
$.10 per share, authorized 10,000,000
shares, redemption price $100 per share;
shares issued 0 at December 31, 1996,
10,000 Class A, at December 31, l995 ............... -- 1,025
------------ ------------
Stockholders' Equity:
Common Stock, par value $.01 per share,
authorized 55,000,000 shares;
issued 17,562,793 shares ........................... 176 176
Additional paid-in capital ......................... 201,661 186,681
Deficit ............................................ (75,629) (87,107)
Cumulative translation adjustments, net of tax ..... (5,105) (5,105)
Deferred compensation .............................. (123) (118)
------------ ------------
Total stockholders' equity ......................... 120,980 94,527
------------ ------------
Total liabilities and stockholders' equity ......... $ 234,044 $ 280,948
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
MOTIVEPOWER INDUSTRIES, INC.
(formerly known as MK Rail Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
Year Ended December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
Operating Activities
- --------------------
<S> <C> <C> <C>
Net income (loss) .......................................... $ 11,509 $ (40,414) $ (42,793)
---------- ---------- ----------
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation ............................................. 6,950 8,209 8,315
Amortization ............................................. 3,407 3,123 3,317
Extraordinary loss on extinguishment of debt (net of tax) 1,064 -- --
Gain on sale of assets ................................... (1,483) -- --
Deferred income taxes .................................... 5,403 (20,341) (16,166)
Provision for loss on disposition of Argentine operations -- -- 11,060
Unusual Items ............................................ 2,126 40,838 --
Gain on sale of Talleres ................................. -- -- (1,255)
Other, net ............................................... 82 194 105
Changes in operating assets and liabilities
net of 1994 purchase of Touchstone and the
1996 sale of Alert and Sign:
Receivables from customers ............................. 5,787 13,090 (31,440)
Inventories ............................................ 19,088 (4,823) (26,339)
Other current assets ................................... (2,919) 93 (2,763)
Long-term lease ........................................ -- -- (12,297)
Accounts payable ....................................... (4,162) (9,866) 14,440
Accrued expenses and other current liabilities ......... (5,054) (2,241) 20,194
Advances from customers ................................ -- -- (9,204)
Income taxes payable ................................... 1,708 (74) (2,218)
Underbillings/overbillings ............................. (9,233) (12,252) 2,778
Commitments and contingencies .......................... 9,095 2,721 7,893
Argentine operations - noncash charges
and working capital changes ............................ -- -- (8,768)
---------- ---------- ----------
Net cash provided by (used in) operating activities ........ 43,368 (21,743) (85,141)
---------- ---------- ----------
Investing Activities
- --------------------
Additions to property, plant and equipment ................. (4,063) (8,565) (21,041)
Proceeds from (additions to) locomotive lease fleet ........ 10,071 (6,389) (15,333)
Proceeds from sale of assets ............................... 4,838 -- --
Proceeds from sale of Talleres ............................. -- -- 4,303
Purchase of Touchstone ..................................... -- -- (3,900)
Other, net ................................................. 1,561 (454) (970)
---------- ---------- ----------
Net cash provided by (used in) investing activities ........ 12,407 (15,408) (36,941)
---------- ---------- ----------
Financing Activities
- --------------------
Repayment of preferred stock ............................... (1,056) -- --
Increase in intangibles .................................... (1,228) (2,688) --
Increase in restricted cash ................................ (2,043) (601) --
Payments of long-term debt ................................. (2,461) (475) (36,922)
Net borrowings under credit agreements ..................... (16,970) 27,667 52,870
Change in payable to Morrison Knudsen ...................... (32,477) 11,628 41,581
Funding of MKA operations prior to disposition ............. -- (3,771) --
Dividends paid ............................................. -- (1,372) (36,972)
Proceeds from public sale of common stock .................. -- -- 88,237
Capital contributions ...................................... -- -- 11,669
---------- ---------- ----------
Net cash (used in) provided by financing activities ........ (56,235) 30,388 120,463
Effect of exchange rates on cash ........................... -- -- 2,207
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents ....... (460) (6,763) 588
Cash and cash equivalents at beginning of year ............. 5,696 12,459 11,871
---------- ---------- ----------
Cash and cash equivalents at end of year ................... $ 5,236 $ 5,696 $ 12,459
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
25
<PAGE>
<TABLE>
<CAPTION>
MOTIVEPOWER INDUSTRIES, INC.
(formerly known as MK Rail Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
Year Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
Supplemental Disclosures of Cash Flow Information:
<S> <C> <C> <C>
Interest paid .......................................... $ 1,126 $ 3,244 $ 5,795
Income taxes paid (refunded) ........................... (169) 610 6,263
Noncash Investing and Financing Activities:
Reduction of payable to Morrison Knudsen:
Payable to Morrison Knudsen .......................... 18,816 29,500 --
Additional paid-in capital ........................... (14,902) (18,600) --
Deferred income taxes ................................ (3,914) (10,900) --
Deferred compensation .................................. 78 54 152
Issuance of equity securities to settle obligation:
Preferred stock ...................................... -- (1,000) --
Common stock ......................................... -- (5) --
Additional paid-in capital ........................... -- (2,995) --
Commitments and contingencies ........................ -- (4,000) --
Acquisition of assets for stock:
Property, plant and equipment and other assets ...... -- -- 12,619
Goodwill and other intangibles ...................... -- -- 19,840
Liabilities assumed ................................. -- -- (9,952)
Additional paid-in capital ............................. -- -- 241
Exchange of locomotive lease for raw materials ......... -- -- 910
Assumption of debt ..................................... -- -- (22,900)
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
MOTIVEPOWER INDUSTRIES, INC.
(Formerly known as MK Rail Corporation)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Thousands of dollars)
Additional Retained Cumulative
Common Paid-In Earnings Translation Deferred
Stock Capital (Deficit) Adjustments Compensation
--------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1993 ... $ 111 $ 85,952 $ 13,944 $ 54 $ --
Net loss .................... -- -- (42,793) -- --
Proceeds from initial public
offering, net of related
expenses of $7,763 ....... 60 88,177 -- -- --
Dividends, including special
dividend ................. -- (20,525) (17,133) -- --
Capital contribution, net of
debt assumed ............. -- 11,276 -- -- --
Cumulative translation
adjustment, net of
deferred taxes of
$1,145 ................... -- -- -- (5,023) --
Compensatory stock options
granted .................. -- 152 -- -- (152)
Compensation expense ........ -- -- -- -- 24
--------- --------- --------- --------- ---------
Balance December 31, 1994 ... $ 171 $ 165,032 $ (45,982) $ (4,969) $ (128)
Net loss .................... -- -- (40,414) -- --
Dividends ................... -- -- (686) -- --
Sale of MKA, impact on
cumulative translation
adjustment ............... -- -- -- (136) --
Issuance of equity securities
to settle litigation ..... 5 2,995 -- -- --
Capital contribution,
reduction of payable to
Morrison Knudsen,
net of deferred taxes
of $10,900 ............... -- 18,600 -- -- --
Accretion of preferred
stock .................... -- -- (25) -- --
Compensatory stock options
granted .................. -- 54 -- -- (54)
Compensation expense ........ -- -- -- -- 64
--------- --------- --------- --------- ---------
Balance December 31, 1995 ... $ 176 $ 186,681 $ (87,107) $ (5,105) $ (118)
Net income .................. -- -- 11,509 -- --
Capital contribution,
reduction of payable to
Morrison Knudsen,
net of deferred taxes
of $ 3,914 ............... -- 14,902 -- -- --
Accretion of preferred
stock .................... -- -- (31) -- --
Compensatory stock options
granted .................. -- 78 -- -- (78)
Compensation expense ........ -- -- -- -- 73
--------- --------- --------- --------- ---------
Balance December 31, 1996 ... $ 176 $ 201,661 $ (75,629) $ (5,105) $ (123)
========= ========= ========= ========= =========
</TABLE>
27
The accompanying notes are an integral part of the financial statements.
<PAGE>
MOTIVEPOWER INDUSTRIES, INC.
(Formerly known as MK Rail Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Operations and Basis of Accounting
The consolidated financial statements include the accounts of
MotivePower Industries, Inc. (the "Company"), formerly known as MK Rail
Corporation, formed in April 1993, which was a wholly-owned subsidiary of
Morrison Knudsen Corporation ("Morrison Knudsen"). The Company acquired certain
assets of the Rail Systems Group of Morrison Knudsen, including the Locomotive
Division, which have been included in the financial statements for all periods
presented on a pooling-of-interests basis for entities under common control.
On April 26, 1994, the Company, then a wholly-owned subsidiary of
Morrison Knudsen, commenced an initial public offering of 6 million shares of
its Common Stock at an offering price of $16 a share which decreased Morrison
Knudsen's interest in the Company to 65%. Effective as of September 11, 1996, as
part of its bankruptcy plan, Morrison Knudsen distributed all of its ownership
in the Company to its creditors and certain of its then current stockholders.
Morrison Knudsen is no longer a stockholder in the Company.
The Company and its subsidiaries design, manufacture and distribute
engineered locomotive components and parts; provide locomotive fleet
maintenance, overhauling and remanufacturing locomotives; and manufacture
environmentally friendly switcher, commuter and mid-range DC traction, diesel
electric and liquefied natural gas locomotives up to 4,000 horsepower. The
consolidated financial statements include the following:
Subsidiaries (Wholly Owned):
Boise Locomotive Company ("Boise Locomotive"), formed in 1972, performs
locomotive remanufacturing, overhauling and manufacturing as its principal
business.
Clark Industries Company ("Clark"), acquired in 1993, is a manufacturer of
cylinder heads, pistons and liner assemblies.
Engine Systems Company, Inc. (formerly known as MK Engine Systems Company, Inc.)
("Engine Systems"), formed in 1994, remanufactures turbochargers for locomotive,
industrial and marine engines.
MK Gain S.A. de C.V. ("MK Gain"), a Mexican variable stock corporation formed in
1994, performs locomotive fleet maintenance as its principal business, almost
exclusively for one customer, Ferrocarriles Nacionales de Mexico ("Mexican
National Railway").
Motor Coils Manufacturing Company ("Motor Coils"), acquired in 1991, is a
remanufacturer of locomotive traction motors and a manufacturer of rotating
electrical components.
Power Parts Company ("Power Parts"), acquired in 1992, is a supplier of new and
replacement engine and nonengine parts for locomotives.
28
<PAGE>
Touchstone Company ("Touchstone"), acquired in 1994, manufactures,
remanufactures and distributes locomotive radiators, oil coolers, brake
adjusters and other industrial heat exchangers.
Affiliates:
MK Rail Systems of Argentina, S.A., the Company's 19% investment in Morrison
Knudsen Rail Systems of Argentina, S.A. ("MKRSA"), is accounted for by the cost
method and has been valued at zero.
Trenes de Buenos Aires S.A. ("TBA"), a 19%-owned affiliate which operates a
concession contract to operate the Mitre and Sarmiento railway passenger lines
in Buenos Aires is accounted for by the cost method and has been valued at zero.
On July 6, 1995, the Company sold its interest in Morrison Knudsen of
Australia, Ltd. (MKA) to Morrison Knudsen. In consideration, the Company
received a nominal cash payment and MKA's redeemable preferred stock bearing a
9% cumulative dividend. The Company has valued this stock at zero.
On October 25, 1996, the Company sold substantially all of the assets
of the Company's Power Parts Sign Co. ("Sign") for $1.3 million plus the
assumption of certain trade payables. In addition, on July 26, 1996, the Company
sold substantially all of the assets of the Company's Alert Manufacturing and
Supply Co. ("Alert") for $3.9 million plus the assumption of trade payables of
$750,000. The Company recorded gains of $783,000 and $700,000 on the sale of the
assets of Sign and Alert, respectively.
2. Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and all of its majority-owned subsidiaries. Sales
between the Company and its subsidiaries are billed at prices consistent with
sales to third parties and are eliminated in consolidation. Investments in
affiliates in which the Company's ownership is less than 20% are accounted for
using the cost method.
Revenue Recognition: The Company recognizes revenues on locomotive
remanufacturing and manufacturing contracts on the percentage of
completion-units delivered method, and on component part sales when product is
shipped to the customer. Contract revenues and cost estimates are reviewed and
revised periodically and adjustments are reflected in the accounting period when
known. Provisions are made currently for estimated losses on uncompleted
contracts. Unbilled accounts receivable represent shipments for which invoices
have not been processed.
Revenue recognized on the MK Gain long-term maintenance contract is
based upon a percentage of the expected gross margin. Under the terms of the
maintenance contract, significant costs are incurred in the early years
(locomotive overhauls and fleet normalization), while payments from the customer
remain relatively constant throughout the life of the contract. By using a
percentage of the expected gross margin to recognize revenue under the
maintenance contract appropriate consideration is given to the risks associated
with the contract. Costs and estimated earnings in excess of billings
("Underbillings") and billings in excess of costs and estimated earnings
("Overbillings") on the contract in progress are recorded on the balance sheet
and are classified as current or non-current based upon the expected timing of
their realization or liquidation.
29
<PAGE>
Remanufactured locomotives are warranted for a period from one to three
years, and component parts are warranted for a period from one to four years.
Additionally, the Company provides an overhaul reserve on owned locomotives.
Estimated costs for product warranty are recognized at the time the products are
sold. Overhaul reserves are recorded on a straight-line basis over the period of
time from acquisition of the locomotive to the estimated date of the related
overhaul. Warranty and overhaul reserves of $7.1 million and $4.4 million at
December 31, 1996 and 1995, respectively, are included in accrued expenses in
the consolidated balance sheets.
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash Equivalents: Cash equivalents consist of investments in highly liquid debt
securities having an original maturity of three months or less. Such securities
are considered to be held to maturity.
Inventories: Inventories are stated at the lower of cost or market. Locomotive
inventories under long-term contracts consist of actual direct material, labor
and manufacturing overhead and are allocated to individual units based on the
estimated average production costs of units to be produced under a contract.
Locomotive inventories under contract were $3.5 million and $2.5 million at
December 31, 1996 and 1995, respectively. Component part inventories are valued
at purchase cost using the last-in first-out (LIFO) method or average production
cost.
Credit Risks: Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash equivalents and accounts
receivable. The Company, by policy, limits the amount of credit exposure to any
one financial institution and places its investments with financial institutions
that the Company believes are financially sound. The Company provides its
products and services to the Class I Railroads in North America, to metropolitan
transit and commuter rail authorities, to Amtrak, to original equipment
manufacturers and to other customers internationally. A relatively small number
of customers has represented a significant percentage of the Company's revenues
in most years. Collectively, the Company's top five customers accounted for 63%,
62%, and 57% of sales in the years ended December 1996, 1995 and 1994,
respectively. The Company performs ongoing credit evaluations of its customers
and their accounts with the Company. The Company historically has not incurred
any significant credit-related losses.
Locomotive Lease Fleet: Equipment on operating leases includes the Company's
locomotive lease fleet. The locomotives are depreciated on a straight-line basis
over their estimated useful lives of five to 15 years. Cost and accumulated
depreciation at December 31, 1996 were $3.6 million and $1.5 million,
respectively. Cost and accumulated depreciation at December 31, 1995 were $17.9
million and $3.1 million, respectively.
Property, Plant and Equipment: Buildings and improvements and machinery and
equipment are recorded at cost and depreciated on the straight-line method over
periods from three to 30 years. The cost and accumulated depreciation associated
with property and equipment that is disposed of are removed from the
30
<PAGE>
accounts, and gains or losses from such disposals are included in income.
Leasehold improvements are capitalized and amortized on the straight-line method
over the terms of the related leases. Expenditures for repairs and maintenance
are charged to expense as incurred.
Goodwill and Other Intangibles: Goodwill and other intangibles consist of the
following:
Goodwill - Cost in excess of tangible assets of businesses acquired in
purchase transactions is amortized on the straight-line method over 15
years from the date of acquisition. The unamortized cost of goodwill
was $17.8 million at December 31, 1996 and $19.5 million at December
31, 1995.
Covenants Not To Compete - These agreements are recorded at cost and
amortized on the straight-line method over the terms of the agreements.
Terms of the agreements range from three to 10 years. The unamortized
cost was $4.5 million at December 31, 1996 and $5.3 million at December
31, 1995.
Loan Origination Fees - These fees are associated with the origination
of the Company's debt. The fees are recorded at cost and amortized on
the straight-line method over the terms of the respective loan
agreements. The unamortized cost was $2.1 million at December 31, 1996
and $2.5 million at December 31, 1995.
Patent Costs - Patent costs related to proprietary technology have been
deferred and are amortized on the straight-line method over three
years. The unamortized cost was $217,000 at December 31, 1996 and
$417,000 at December 31, 1995.
Accumulated amortization at December 31, 1996 and 1995 was $8.0 million
and $4.1 million, respectively. The Company evaluates the realization of
intangible assets on a quarterly basis and adjusts, if necessary, the carrying
value or useful life accordingly.
Research and Development: Research and development costs are expensed as
incurred and include research and development expenses for new product
development and costs to improve existing products. The Company does not engage
in research and development activities in the normal course of business, but
rather in point of use engineering.
Foreign Currency Translation: During 1995, due to changes in the sourcing of
component parts to U.S. suppliers at MK Gain and the U.S. dollar-denominated
financing secured by MK Gain in 1995, it was determined that MK Gain's
functional currency was the U.S. dollar and not the Mexican peso. As a result,
MK Gain remeasures monetary assets and liabilities at year end exchange rates
and inventory, property and nonmonetary assets and liabilities at historical
rates. Income and expense accounts are remeasured at the average rates in effect
during the year, except that depreciation, amortization and cost of sales are
remeasured at historical rates. Adjustments resulting from the remeasurement are
included in the result of operations as they occur. Gains and losses resulting
from foreign currency transactions are
31
<PAGE>
included in income based upon the provisions of Statement of Financial
Accounting Standards No. 52 Foreign Currency Translation. MK Gain has a contract
that provides for escalation adjustments to the base contract based upon, among
other things, changes in the exchange rate. Such escalation adjustments are
included in revenues when realized.
Income Taxes: The provision for income taxes includes federal, state and foreign
income taxes currently payable and those deferred or prepaid because of
temporary differences between the financial statement and tax basis of assets
and liabilities. The carrying amounts of deferred tax assets and liabilities are
determined based on differences between the financial statement amounts and the
tax basis of assets and liabilities using the enacted tax rates in effect in the
years in which the differences are expected to reverse. The Company has recorded
a net deferred tax asset of $20 million reflecting the benefit of $71 million in
loss carryforwards, which expire in varying amounts between 2004 and 2010.
Realization is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that the net deferred tax asset
will be realized.
Asset Impairment: In March 1995, 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 121") was issued. The Company adopted SFAS 121
on January 1, 1996. Adoption of SFAS 121 did not have an effect on the Company's
financial position or results of operations.
Stock-based Compensation: In October 1995, Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") was
issued. SFAS 123 is effective for transactions entered into in fiscal years that
begin after December 15, 1995. The Company adopted SFAS 123 on January 1, 1996,
and as permitted by that standard the Company retained the recognition
provisions of Accounting Principles Board Opinion Number 25. Adoption of SFAS
123 did not have an impact on the Company's financial position or results of
operations.
Environmental Remediation Liabilities: In October 1996, the American Institute
of Certified Public Accountants issued Statement of Position 96-1,
"Environmental Remediation Liabilities" ("SOP 96-1"). SOP 96-1 is effective for
fiscal years beginning after December 15, 1996. The Company believes that its
liabilities have been recorded in compliance with SOP 96-1 and, therefore,
implementation of SOP 96-1 will have no impact on the Company's financial
position or results of operations.
Reclassifications: Certain reclassifications have been made to the 1995 and 1994
financial statements to conform to the current year presentation.
32
<PAGE>
3. Unusual Items
The Company incurred charges for Unusual Items in 1996, 1995 and 1994
which consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Provisions for impaired assets and lease losses ............... $ 2,126 $ -- $ --
High horsepower locomotive manufacturing and technology ....... -- 20,273 8,398
Mountaintop facility writedown ................................ -- 9,570 --
Locomotive lease fleet impairment ............................. -- 7,064 --
Provision for loss on disposition of Australian operations .... -- 2,849 --
Contract losses ............................................... -- 500 12,418
Provision for loss on disposition of Argentine operations ..... -- -- 11,060
Legal and finance (primarily attributable to stockholder
litigation), Other ......................................... -- 582 7,340
------- ------- -------
$ 2,126 $40,838 $39,216
======= ======= =======
</TABLE>
Year Ended December 31, 1996
As a continuation of the restructuring plan of the Company, which began
in early 1996, charges were incurred due to the impairment of certain assets,
facility rationalization and the restructuring of lease commitments.
Year Ended December 31, 1995
Charges for Unusual Items in 1995 were incurred principally due to the
Company's exit from the high-horsepower locomotive manufacturing business, the
writedown of the Mountaintop production facility, the impairment of the
locomotive lease fleet and the disposition of the Company's Australian
operations. These charges were incurred as part of the Company's restructuring
plan, which would allow the Company to concentrate efforts on its core
businesses.
Year Ended December 31, 1994
Charges for Unusual Items in 1994 were incurred due to losses on
high-horsepower locomotive manufacturing, contract losses for locomotive
remanufacturing, maintenance contracts, and losses on certain contracts in
Australia, the restructuring and disposition of Argentine operations and legal
costs incurred in connection with stockholder litigation. In 1994, the Company
experienced significant operational and financial management turnover and
incurred charges to provide for the losses on previously underbid contracts and
the decision to terminate manufacturing operations in Argentina.
33
<PAGE>
4. Inventories
Inventories consist of the following:
December 31,
-------------------
1996 1995
------- -------
(In thousands)
Raw materials .......................................... $50,699 $74,251
Work in process ........................................ 13,912 14,279
Finished goods ......................................... 13,827 10,929
------- -------
Total inventories ...................................... $78,438 $99,459
======= =======
Approximately $34 million and $37 million of total inventories at
December 31, 1996 and 1995, respectively, were valued on the LIFO cost method,
and the excess of current replacement cost of these inventories over the stated
LIFO value was $902,000 and $3.6 million, at December 31, 1996 and December 31,
1995, respectively. Two of the Company's domestic subsidiaries value inventory
on the LIFO basis.
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the
following:
December 31,
-----------------
1996 1995
------- -------
(In thousands)
Accrued payroll and benefits .......................... $ 8,075 $ 8,260
Warranty and overhaul accruals ........................ 7,053 4,402
Reserve for future losses ............................. 2,085 12,308
Other accrued liabilities ............................. 11,023 8,301
------- -------
Total ............................................ $28,236 $33,271
======= =======
6. Underbillings
During 1994, MK Gain entered into a long-term contract to provide
maintenance and other locomotive services. Details relative to cumulative costs
incurred and revenue recognized are as follows:
December 31,
----------------------
1996 1995
--------- ---------
(In thousands)
Costs incurred ....................................... $ 101,326 $ 56,602
Estimated earnings ................................... 12,682 6,655
--------- ---------
114,008 63,257
Less billings to date ................................ (94,447) (52,929)
--------- ---------
Underbillings ........................................ $ 19,561 $ 10,328
========= =========
7. Indebtedness
In August 1995, the Company and its subsidiaries entered into a $75
million loan agreement (the "Loan Agreement") with BankAmerica Business Credit
("BABC") which provided for revolving borrowings based on the amounts of
eligible accounts receivable, inventory, and certain other assets which,
together with property, plant and equipment, collateralized the amounts
borrowed.
The Loan Agreement was modified several times during 1995 and 1996 to
revise covenants, provide for term borrowings, and various other provisions and,
on September 10, 1996, was amended and renamed the Amended and Restated Loan and
Security Agreement (the "Restated Agreement"). On December 31, 1996, the
Restated Agreement was modified to effect reductions in rates on borrowings,
reinstate the Company's ability to convert borrowings to LIBOR-based rather than
base-rate loans, and to provide for a September 30, 1997 termination date for
the Restated Agreement at which time all outstanding principal and interest
would become due. In connection with the modifications to the Restated
Agreement, the Company repaid amounts owed certain participating lenders who are
no longer lenders under the Restated Agreement, as modified, and paid early
termination fees to those lenders. The early termination fees and a
proportionate unamortized portion of previously incurred deferred debt issuance
costs were expensed as an extraordinary item of $1,751,000 in the 1996 statement
of operations.
Under the terms of the Restated Agreement, as modified, the interest
rate on amounts drawn under the revolving portion of the facility was reduced to
the base rate plus .5% (as compared to the prior rate of the base rate plus
1.5%), and the rate on the term loan portion of the facility was reduced to the
base rate plus .75% (compared to the prior rate of the base rate plus 1.75%).
Additionally, the modifications enabled the Company to convert revolving
base-rate borrowings to LIBOR-based borrowings at LIBOR plus 2%. Under both the
Loan Agreement and the Restated Agreement, the Company was required to pay a
monthly fee based on the unused portion of its borrowing capacity. At December
31, 1996 and 1995, balances outstanding under the Restated Agreement and Loan
Agreement were $29.8 million and $59.8 million, respectively, and unused
borrowing capacity at those dates was $22.8 million and $3.1 million,
respectively. The interest rates in effect on amounts borrowed at Decmber 31,
1996 ranged from 8.75% to 9.00%, and at December 31,1995 was 10%.
The Restated Agreement provides for a maximum of $10 million of letters
of credit, of which approximately $4.3 million was outstanding at December 31,
1996. The Company pays a monthly fee of 1.5% per annum on the undrawn amount of
outstanding letters of credit.
The Restated Agreement provides certain restrictive covenants,
including attaining a minimum consolidated tangible net worth, fixed charge
coverage, limitations on capital expenditures, restrictions on the payment of
dividends and other financial covenants.
In November 1995, the Financial Accounting Standards Board Emerging
Issues Task Force reached a consensus on issue number 95-22, "Balance Sheet
Classification of Borrowings Outstanding under Revolving Credit Agreements that
Include both a Subjective Acceleration Clause and a Lock-Box Arrangement"("EITF
95-22"). In accordance with EITF 95-22, the Company has classified the balance
of the revolving loans due under the Loan Agreement as current.
On February 27, 1997, the Company and a syndicate of lenders led by
Bank of America NT and SA entered into a Second Amended and Restated Credit
Agreement to replace the Company's Restated Agreement with BABC. The facility
consists of a $20 million amortizing term loan and a $55 million revolving
credit line including a $15 million letter of credit subfacility. The entire $75
million facility is for a term of four years and is collateralized by
substantially all of the domestic assets of the Company. Interest rate spreads
charged under the new facility will reset at the end of each quarter based on
the ratio of the Company's quarter-ending debt to trailing 12-month cash flow.
Both base rate and LIBOR
34
<PAGE>
borrowings are available, at the Company's discretion. Interest rates range from
LIBOR plus 0.50% to LIBOR plus 2.0%, and base rate plus 0.0% to base rate plus
1.0%. For the first six months of the facility, interest rates may not go below
LIBOR plus 1.0% for LIBOR-based borrowings, and base rate plus 0.0% for base
rate borrowings.
On July 6, 1995, MK Gain entered into a $30 million loan agreement (the
"Agreement") with Bancomer, S.A. ("Bancomer"), a Mexican bank. Under the
Agreement, Bancomer will advance up to $30 million to finance 85% of the
purchase price of U.S.-manufactured locomotive parts and components exported to
Mexico for use in the overhaul of locomotives in connection with the Mexican
National Railway contract. Each advance under the Agreement is subject to
interest at the Funding Rate (5.9180% to 6.0625% at December 31, 1996), as
defined in the Agreement plus 2.5%. The Canadian Imperial Bank of Commerce
("CIBC") has agreed to fund Bancomer in connection with this transaction. The
Export-Import Bank of the United States ("Eximbank") has issued a credit
guarantee which covers repayment risk between Bancomer and CIBC. Upon funding,
Eximbank receives, from MK Gain, an Exposure Fee equal to 4.14% of each advance
under the Agreement.
Advances under the Agreement will be drawn over a period of up to 36
months from July 6, 1995 as documents evidencing MK Gain's receipt of U.S.
exports are presented to the satisfaction of Bancomer, CIBC and Eximbank.
Principal and interest payments on each advance are to be made in 10 semi-annual
installments due on May 15 and November 15 of each year with interest payments
beginning May 15, 1996 and principal payments beginning November 15, 1996. The
Agreement provides for a prepayment penalty under certain circumstances. The
balance outstanding at December 31, 1996 and 1995 was $18 million and $6
million, respectively. Maturities under the Agreement are as follows: 1997 to
2000 - $3,888,000 annually; and 2001 - $2,479,000.
The Agreement contains certain covenants, including a requirement that
MK Gain maintain specified cash-flow-to-debt-service and debt-to-equity ratios.
Additionally, the return of $13.7 million of the initial equity investment to
the Company from MK Gain is restricted by a subordination agreement. If MK Gain
maintains specified operating and financial ratios, the subordination agreement
permits payments of interest and principal on the intercompany debt concurrently
with payments to Bancomer under the Agreement.
In connection with the Agreement, MK Gain entered into a trust
agreement ("Trust Agreement") with a Mexican multiple banking institution
("Trustee"). The Trust Agreement provides that all monies received from the
Mexican National Railway contract are to be deposited into a trust. The Trustee
is required to maintain specified balances in a reserve fund established for
debt service. Once required debt service and other payments have been made, any
remaining amounts in excess of the reserve fund requirements are to be returned
to MK Gain. Amounts held in trust at the balance sheet date are classified as
restricted cash and have been included in other non-current assets in the
accompanying consolidated balance sheets at December 31, 1996 and 1995.
On December 16, 1996, MK Gain and Bancomer amended the Agreement. The
amendment is intended to provide MK Gain with greater financial flexibility by
way of, among other modifications, an increase in the maximum permitted monthly
disbursement from $1.1 million to $1.5 million, an increase in the maximum
amount of principal that MK Gain is permitted to have outstanding under this
facility from $23.5 million to $27.1 million, a change in the calculation of the
success fee payable to Bancomer from 5.56% of net after-tax cash flow without
limitation to a series of 11 fixed semi-annual payments of $75,000 each, and an
initial payment of $90,000 which was made in December 1996. The amendment did
not modify the interest rate or term of the facility.
35
<PAGE>
On December 16, 1996, MK Gain entered into an additional credit
agreement with Bancomer which will provide up to $3.5 million in U.S. dollar
financing, non-recourse to MotivePower, to support MK Gain's investments in
property, plant and equipment. At December 31, 1996 and 1995, a domestic
subsidiary of the Company had other outstanding debt obligations of $1.8 million
and $2.2 million, respectively. These obligations consist primarily of
Industrial Revenue Bonds ("IRB") in the amount of $1.4 million in 1996 and $1.6
million in 1995, and bear interest at rates ranging from 4.5% to 10%. Maturities
under these obligations at December 31, 1996 were as follows: 1997 - $411,000;
1998 - $444,000; 1999 - $477,000; and 2000 - $471,000. Total maturities under
long-term obligations are as follows: 1997 - $11,626,000; 1998 - $4,332,000;
1999 - $4,365,000; 2000 - $4,359,000; 2001 - $2,479,000.
8. Redeemable Preferred Stock
In September 1995, the Company deposited 10,000 shares of Class A
Preferred Stock into a joint settlement account in connection with the
settlement of certain class action suits. Effective as of May 15, 1996, the
Company exercised its right to replace the Class A Preferred Stock with $1
million in cash and issued 10,000 shares of Class B Preferred Stock to The
Fidelity & Casualty Company of New York in consideration of $1 million, which
was in turn paid to the plaintiffs to satisfy the Company's obligations to
settle the class action suits, and all of the previously issued shares of Class
A Preferred Stock were simultaneously canceled. On December 6, 1996, the Company
exercised its option to redeem all of the outstanding shares of Class B
Preferred Stock at a price of $1.1 million including accrued dividends.
9. Stock Option Plans
The Company has established two stock option plans which are described
below. The Company applies APB Opinion 25 and related Interpretations in
accounting for its plans.
The compensation cost that has been charged against income was $775,000
and $63,000 for 1996 and 1995, respectively. Had compensation cost for the
Company's plans been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of SFAS 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
1996 1995
---- ----
Net income (loss) As reported.... $ 11,509 $ (40,414)
Pro forma...... $ 11,104 $ (40,414)
Earnings (loss) per share As reported.... $ .66 $ (2.34)
Pro forma...... $ .63 $ (2.34)
The following weighted-average assumptions were used to estimate the
fair value of each option grant on the grant date using the Black-Scholes
option-pricing model in 1996 and 1995, respectively; dividend yield of zero
percent for all years; expected volatility of 72% and 69%; risk free interest
rates of 6.5% and 6.0%; and expected lives of 10 years for all plans.
In the MotivePower Industries, Inc. Stock Incentive Plan (the
"Incentive Plan"), a maximum of 2.5 million shares may be issued upon the
exercise of stock options granted or through limited stock appreciation rights.
Officers and other key employees of the Company or its subsidiaries are eligible
to receive awards. The exercise price, term and other conditions applicable to
each award are determined by
36
<PAGE>
the Compensation Committee of the Board of Directors at the time of the grant of
each award and may vary with each award granted. Awards, which are made at not
less than current market prices at date of grant, have been granted to
executives and directors under the Incentive Plan in the form of stock options.
Options granted generally vest either over a five-year period, 20% on each
anniversary date following the grant, or a four-year period 25% on each
anniversary date following the grant. All unexercised options expire 10 years
from the date of grant, subject to acceleration in certain cases.
Restricted stock awards for a total of 150,000 shares of the Company's
Common Stock have been granted to certain key management employees. The weighted
average grant date fair value of restricted stock granted was $5.27 per share.
Sale restrictions on the restricted stock lapse between January 1, 1997 and June
30, 2001. The Company recorded an expense of $155,000 in 1996 related to the
restricted stock.
In the MotivePower Industries, Inc. Stock Option Plan for Non-Employee
Directors (the "Non-Employee Directors Plan"), a maximum of 150,000 shares may
be granted. The price per share of the options shall be equal to 50% of the fair
market value of the stock on the grant date. All options granted shall vest over
a three-year period, one-third on each anniversary date. Unearned compensation,
representing the difference between the fair market value at the grant date and
the exercise price is charged to income over the vesting period.
A summary of the status of the Company's two stock option plans as of
December 31, 1996 and 1995 and the changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1995
------------------------ --------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year ...................... 1, 271,000 $ 5.26 1,476,250 $ 14.91
Granted ............................................... 1,261,500 $ 4.96 532,000 $ 7.72
Forfeited ............................................. (792,000) $ 10.59 (737,250) $ 15.82
---------- -----------
Outstanding at end of year ............................ 1,740,500 $ 7.08 1,271,000 $ 5.26
========== ==========
Options exercisable at year end ....................... 457,396 313,292
Weighted average fair value of options
granted during the year ............................... $ 3.98 $ 6.20
</TABLE>
37
<PAGE>
The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ -----------------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise price Exercisable Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<C> <C> <C> <C> <C> <C> <C>
$4.75 to $16.00 374,000 7.5 $ 14.26 282,500 $ 13.74
$5.375 to $8.00 105,000 8.6 $ 7.00 41,396 $ 6.64
$2.84 to $8.00 1,261,500 9.3 $ 4.96 150,000 $ 3.81
--------- -------
1,740,500 457,396
========= =======
</TABLE>
10. Taxes on Income
The Company and its domestic subsidiaries file a consolidated federal
income tax return and certain combined or separate state income tax returns. MK
Gain files an income tax return in Mexico. For tax periods ended prior to May 3,
1994, the Company filed consolidated federal income tax returns and certain
combined state income tax returns with Morrison Knudsen and its subsidiaries.
The Company is responsible for all taxes attributable to the Company with
respect to periods ending after May 3, 1994.
The components of income tax (expense) benefit are as follows:
Year ended December 31,
--------------------------------
1996 1995 1994
(In thousands)
-------- -------- --------
Currently payable:
U.S. federal ............ $ (1,687) $ -- $ (2,370)
State and local ......... (625) (447) (505)
Foreign ................. -- -- (133)
-------- -------- --------
(2,312) (447) (3,008)
-------- -------- --------
Deferred:
U.S. federal ............ (4,235) 16,957 15,067
State and local ......... 345 3,172 332
Foreign ................. (1,512) 212 (326)
-------- -------- --------
(5,402) 20,341 15,073
-------- -------- --------
Total income tax (expense) benefit $ (7,714) $ 19,894 $ 12,065
======== ======== ========
For the year ended December 31, 1996, income tax expense was $7.7
million, and the extraordinary loss on debt extinguishment produced an income
tax benefit of $687,000.
38
<PAGE>
As discussed in Note 12, on September 10, 1996, the Company repurchased
for $34.6 million all of the debt plus accrued interest of the Company owed to
Morrison Knudsen, which totaled $56.6 million. This settlement decreased the net
deferred tax asset by $3.9 million. On June 15, 1995 the Company and Morrison
Knudsen entered into an agreement under which the Company's net intercompany
account was reduced by $29.5 million. This settlement decreased the net deferred
tax asset by $10.9 million.
At December 31, 1996, MK Gain had a net operating loss carryforward of
approximately $23.4 million expiring in various amounts during 2004-2005, and
the Company had a consolidated U.S. federal net operating loss carryforward of
approximately $48 million expiring in various amounts during 2009- 2010. Due to
an ownership change on September 11, 1996, the Company will be restricted as to
annual use of certain tax attributes.
For the years ended December 31, 1996, 1995 and 1994 foreign income
(loss) before income tax (benefit) was $4.6 million, ($3.2) million and ($12.3)
million, respectively.
Deferred tax assets and liabilities as of December 31, 1996 and 1995
consist of the following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
---------------------------- ------------------------------
Assets Liabilities Total Assets Liabilities Total
------ ----------- ----- ------ ----------- -----
(In thousands) (In thousands)
Provision for estimated
<S> <C> <C> <C> <C> <C> <C>
losses ............................. $ 18,624 $ -- $ 18,624 $ 22,818 $ -- $ 22,818
Depreciation .......................... -- (3,022) (3,022) -- (5,753) (5,753)
Revenue recognition ................... -- (3,293) (3,293) -- (5,230) (5,230)
Employee benefit plans ................ 2,249 -- 2,249 1,246 -- 1,246
Deferred costs ........................ -- (538) (538) -- (1,834) (1,834)
Affiliate earnings .................... 3,222 -- 3,222 3,519 -- 3,519
Other ................................. 260 -- 260 854 -- 854
Net operating loss
carryforwards ...................... 8,792 -- 8,792 22,400 -- 22,400
-------- ------- -------- -------- -------- --------
Subtotal .............................. 33,147 (6,853) 26,294 50,837 (12,817) 38,020
Valuation allowance ................... (6,311) -- (6,311) (9,408) -- (9,408)
-------- ------- -------- -------- -------- --------
Net deferred tax assets
(liabilities) ...................... $ 26,836 $(6,853) $ 19,983 $ 41,429 $(12,817) $ 28,612
======== ======= ======== ======== ======== ========
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The Company
has established a valuation allowance for certain net operating loss
carryforwards not expected to be utilized and for losses anticipated to produce
no tax benefit.
39
<PAGE>
The provision for income taxes differ from the amounts computed by
applying the statutory U.S. Corporate income tax rate of 35% for all years shown
for the following reasons:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1996 1995 1994
------- -------- --------
(In thousands)
<S> <C> <C> <C>
U.S. corporate income tax (expense) benefit at statutory rate $(7,100) $ 21,108 $ 19,547
Research and development tax credits ........................ -- -- 149
State income taxes, net of federal benefit .................. (855) 1,187 2,205
Foreign income taxes ........................................ -- 680 328
Losses involving jurisdictions without tax benefit .......... -- (1,590) (4,242)
Valuation allowance ......................................... 1,762 (2,156) (6,063)
Other ....................................................... (1,521) 665 141
------- -------- --------
Income tax (expense) benefit ................................ $(7,714) $ 19,894 $ 12,065
======= ======== ========
</TABLE>
11. Benefit Plans
Retirement: Beginning in May 1994, the Company established a defined
contribution, 401(k) savings plan to replace the former Morrison Knudsen plan.
In January 1996, the Company suspended Company contributions to the 401(K)
savings plan. On January 1, 1997 the Company partially reinstated those
contributions equal to 1% of an eligible employees gross salary in the form of
Company stock. The program may be fully reinstated (2%) later in 1997 dependent
upon the achievement of certain performance goals. The Company's costs of this
plan were $71,000, $752,000 and $446,000 for 1996, 1995 and 1994, respectively.
In addition, Company salaried employees participated through April
1994 in a Morrison Knudsen Employee Stock Ownership Plan ("ESOP"). Compensation
expense was $281,000 in 1994. The Company's employees had the option of
transferring their contributions into the Company's new 401(k) plan or leaving
their contributions in the Morrison Knudsen ESOP.
40
<PAGE>
One of the Company's subsidiaries sponsored a non-contributory
defined benefit pension plan covering certain nonunion salaried employees of
that subsidiary. During 1994, the subsidiary curtailed its plan resulting in a
loss of $233,000. In 1996 the plan was settled which resulted in a gain of
$309,000. Pension cost included the following components:
Year ended December 31,
-----------------------
1996 1995 1994
----- ----- -----
(In thousands)
Service cost of benefits earned during year . $ -- $ -- $ 39
Interest cost on projected benefit obligation -- 61 16
Prior service cost .......................... 311 -- --
Return on plan assets ....................... -- (96) (10)
Net amortization and deferral ............... -- (22) 10
----- ---- ------
Net periodic pension (income) cost .......... 311 (57) 55
Curtailment loss ............................ -- -- 233
Settlement gain ............................. (309) -- --
----- ---- ------
Pension (income) cost ....................... $ 2 $(57) $ 288
===== ==== ======
The funded status of the plan is as follows:
December 31,
--------------
1996 1995
---- ----
(In thousands)
Accumulated benefit obligation (all vested) ........... $ -- $ (868)
====== =======
Projected benefit obligation .......................... -- $ (868)
Plan assets at fair value ............................. -- 1,183
------ -------
Excess of plan assets over projected benefit obligation -- 315
Unrecognized net gains ................................ -- (309)
------ -------
Prepaid pension liability ............................. $ -- $ 6
====== =======
The discount rates used in determining the actuarial present value of
the accumulated benefit obligation were 7.5% and 8.5% for 1995 and 1994,
respectively. The expected long-term rate of return was 8.5% for 1995 and 1994.
The Company participates in multiemployer pension, and health and
welfare plans. The plans are defined contribution plans and provide benefits for
craft employees covered under collective bargaining agreements at Boise
Locomotive and Motor Coils. Costs under the plan amounted to $2.1 million, $2.3
million and $3.8 million for 1996, 1995 and 1994, respectively.
The Company adopted two long-term incentive plans for selected
employees in 1994. The plans provide deferred compensation based upon total
shareholder return or return on total capital. No compensation expense was
recognized in connection with these plans in 1996, 1995 or 1994.
41
<PAGE>
Health Care: Certain health care benefits are provided for employees who
retired prior to July 1, 1993. Employees who have retired, or will retire,
thereafter must pay the full cost of postretirement health care benefits.
Retirees who retired before July 1, 1990 pay no contributions for coverage while
those who retired after July 1, 1990 and before July 1, 1993 make monthly
contributions equal to 1% of their final annual pay.
Net post-retirement health care cost includes the following
components:
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(In thousands)
Interest cost on accumulated postretirement
benefit obligation ..................... $122 $138 $79
Net amortization and deferral ............. 25 20 17
---- ---- ---
Net postretirement health care cost ....... $147 $158 $96
==== ==== ===
The plans' funded status was as follows:
December 31,
---------------------------
1996 1995 1994
---- ---- ----
(In thousands)
Actuarial present value of benefit obligation:
Retirees ................................ $(1,578) $(1,800) $(1,678)
======= ======= =======
Accumulated postretirement benefit
obligations in excess of plan assets .... (1,578) (1,800) (1,678)
Unrecognized net loss ........................ 266 505 455
------- ------- -------
Accrued postretirement health care
obligation ................................... $(1,312) $(1,295) $(1,223)
======= ======= =======
Assumptions used for the Company's retiree health care plans as of
December 31 include:
1996 1995 1994
---- ---- ----
Discount rate for determining benefit obligations 7.5% 7.0% 8.5%
Discount rate for interest cost 7.0% 8.5% 7.0%
The annual rate increase in the per capita cost of health care
benefits is assumed to be 9% in 1996, decreasing to 8% in 1999 and then grading
down .5% per year to 4.5% in 2006 and thereafter, over the projected payout
period of the benefits. A 1% increase in the health care cost trend rate would
increase accumulated postretirement benefit obligation as of December 31, 1996
by $133,347 and the aggregate of the service and interest cost components for
the year then ended by $13,052.
42
<PAGE>
12. Related Party Transactions
As of December 31, 1995, the Company's note payable to Morrison
Knudsen was $52.1 million. This note related to various items, including
advances made to the Company by Morrison Knudsen net of repayments made by the
Company to Morrison Knudsen.
On June 15, 1995, in order to settle their good faith dispute
regarding the intercompany account and the various transactions related thereto,
the Company and Morrison Knudsen entered into an agreement under which the
Company's net intercompany account was reduced by $29.5 million from $81.7
million as of May 31, 1995 to $52.2 million.
The $52.2 million original balance of the net intercompany account
was evidenced by an unsecured promissory note, due May 31, 2000, bearing
interest at the prime rate. On September 10, 1996, the Company repurchased for
$34.6 million all of the debt of the Company owed to Morrison Knudsen. The
amount of the debt outstanding as of the date of repurchase, including accrued
interest, was $56.6 million. The effect of this transaction was an increase to
additional paid-in capital of $14.9 million, a decrease in the Deferred Tax
Asset of $3.9 million and a reduction in amounts due to Morrison Knudsen of
$56.6 million.
The Company leases certain facilities from certain directors and
former directors and officers of the Company. Lease payments, including
utilities, to these individuals totaled $1.1 million, $986,000 and $900,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
The Company incurred $1.9 million and $3.6 million of legal fees and
expenses from a firm in which a former officer of the Company is a shareholder,
for the years ended December 31, 1996 and 1995, respectively.
13. Commitments and Contingencies
The Company has commitments and performance guarantees arising from
locomotive remanufacturing contracts and maintenance agreements, and warranties
from the sale of new locomotives, remanufactured locomotives and locomotive
components.
Environmental: The Company is subject to federal, state, local and foreign
environmental laws and regulations concerning the discharge, storage, handling
and disposal of hazardous or toxic substances and petroleum products
(collectively referred to as "waste"). Examples of regulated activities are the
disposal of lubricating oil, the discharge of water used to clean parts and to
cool machines, the maintenance of underground storage tanks and the release of
particulate emissions produced by Company operations. For some activities the
Company must obtain permits.
Violation of environmental laws or regulations could subject the
Company and its management to civil and criminal penalties and other
liabilities. In addition, third parties may make claims for personal injuries
and property damage associated with releases of waste. A current or prior owner
or operator of property may be required to investigate and clean up waste
releases and may be liable to governmental entities or some other third party
for their investigation and remediation costs in connection with the
contamination. The Company arranges for the disposal or treatment of waste at
disposal or treatment facilities owned by third parties. The Company could be
liable for the costs of removing or remediating a release of waste at such
facilities.
Because it owns and operates property, the Company may have
responsibility and liability even if it does not know of or cause the presence
of contaminants. Liability is often joint and several and is generally not
limited. The cost to investigate, remediate and remove waste may be substantial
43
<PAGE>
and may even exceed the value of the property or the aggregate assets of the
owner or operator. The Company may have difficulty selling or renting
contaminated property or borrowing against such property. The government
sometimes creates liens against property for damages and costs it incurs in
connection with contamination. The Company has potential liabilities associated
with its and its predecessor's past waste disposal activities, including
disposal activities at plants currently being operated by the Company.
Boise, Idaho
Heavy equipment repair and locomotive remanufacturing commenced at Boise
Locomotive in 1972. At the time, solvents were used in the process of cleaning
parts and equipment as part of the repair/remanufacturing process at the
facility. Wastewater generated from the equipment cleaning process containing
solvents was discharged during the process to in-ground wastewater separation
basins that were connected to buried drain fields. This wastewater treatment
system was in place until 1984. In 1985, the Company's predecessor received
notices from the Idaho Department of Health and Welfare, Division of
Environmental Quality and the United States Environmental Protection Agency,
indicating that it was in violation of state and federal environmental laws with
respect to this treatment system at Boise Locomotive. Related regulatory
requirements led to the closure of the buried drain fields and a buried trench
that was used for disposal of waste material. Further requirements led to the
issuance in 1991 of a Resource Conservation and Recovery Act Part B Post Closure
Permit (the "Permit"), which is the formal permit pursuant to which a detailed
corrective action plan is specified for groundwater cleanup and for protection
of the public and environment following the "closure" or termination of the
releases which created the problem. In compliance with the Permit, about 57
wells have been drilled on the Boise Locomotive property and on adjacent
property to monitor, collect, and treat contaminated shallow groundwater, to
monitor any movement of the contaminated plume, and to monitor the deeper
groundwater systems at the facility. The Company has estimated the expected
aggregate undiscounted costs to be incurred over the next 24 years, adjusted for
inflation at 3% per annum, to be $4.8 million, based on the Permit's corrective
action plan, and $4.4 million for contingent additional Permit compliance
requirements related to off-site groundwater contamination. The discounted
liability at December 31, 1996, using a discount rate of 6.5%, was $2.1 million
based on the Permit's corrective action plan, and $2 million for contingent
additional Permit compliance requirements related to off-site groundwater
contamination. The estimated outlays for each of the five succeeding years from
1997 to 2001 are: $253,000, $260,000, $268,000, $317,000 and $284,000. The
Company was in compliance with the Permit at December 31, 1996. In addition,
Boise Locomotive would be liable for any damages resulting from hazardous
substances migrating from the facility to deeper groundwater systems, including
the regional aquifer system which serves most of the domestic and industrial
users of groundwater in the area (which includes and extends beyond Boise).
Three private off-site wells are known to have been impacted by shallow
groundwater contamination. Two of these wells are used for residential domestic
purposes, and the third well is used for supply to a pond and landscape watering
for a residential subdivision. Boise Locomotive has entered into agreements
whereby the residential domestic use of the wells will be abandoned and domestic
water will be provided via a public water supply hook-up. In the event of
contamination of the regional aquifer, Boise Locomotive would be required, among
other things, to provide potable water to affected users and to install a
treatment system to clean up the polluted water, and could incur other
liabilities, the combined cost of which cannot be estimated, but would be
expected to be material in amount. The regional aquifer system, however, occurs
at a depth which is approximately 200 feet below the shallow
44
<PAGE>
contaminated groundwater that is currently being remediated. While management
believes there is no evidence that the regional aquifer system is currently
threatened by releases of contaminants from Boise Locomotive, no assurance can
be given in this regard.
Mexico
Through its MK Gain, S.A. de C.V. ("MK Gain") subsidiary, the Company
has operational responsibility for facilities in Acambaro and San Luis Potosi in
Mexico, pursuant to a contract with the Mexican National Railway. Under the
contract, MK Gain is responsible for performing certain work related to
environmental protection at the facilities, such as waste water treatment, storm
water control, tank repair, and spill prevention and control. The costs of this
work are either to be directly reimbursed to MK Gain by the Mexican National
Railway or recoverable through fees payable under the contract, which has been
structured to account for such cost. No assurance can be given, however, that
the Mexican National Railway will not dispute any submissions for reimbursement
or that the fee structure under the contract will, in fact, cover costs. MK
Gain's operations are subject to Mexican environmental laws and regulations. It
has obtained, or is in the process of obtaining, environmental permits, licenses
and approvals required for its operations.
Mountaintop, Pennsylvania
The Comprehensive Environmental Response, Compensation and Liability
Act (also known as "CERCLA" or "Superfund") is a federal law regarding abandoned
hazardous waste sites which imposes joint and several liability, without regard
to fault or the legality of the original act, on certain classes of persons,
including those who contribute to the release of a "hazardous substance" into
the environment. Foster Wheeler Energy Corporation ("FWEC") is named as a
potentially responsible party with respect to the Company's Mountaintop,
Pennsylvania plant, which has been listed by the EPA in its data base of
potential hazardous waste sites, the Comprehensive Environmental Response,
Compensation and Liability Information System ("CERCLIS"). FWEC, the seller of
the Mountaintop property to the Company's predecessor in 1989, agreed to
indemnify the Company's predecessor against any liabilities associated with this
Superfund site. Management believes that this indemnification arrangement is
enforceable for the benefit of the Company and, although such obligation is
unsecured and therefore structurally subordinate to secured indebtedness of
FWEC, that FWEC has the financial resources to honor its obligations under this
indemnification arrangement. This indemnification does not alter the Company's
potential liability to third parties (other than FWEC) or governmental agencies
under CERCLA but creates contractual obligations on the part of FWEC for such
liabilities.
Richland Township, Pennsylvania
Motor Coils owns a vacant lot in Richland Township, Pennsylvania which
has been subject to unauthorized dumping by unknown parties. The Company has not
yet tested the soil at the site or materials disposed there. Based on a visual
inspection, Motor Coils cannot yet estimate the cost to remove and properly
dispose of the material, and does not believe that the removal will have a
material adverse impact on the Company's financial position or results of
operations.
St. Louis, Missouri Motor Coils completed voluntary remediation of
surficial contamination resulting from a release of xylene in connection with a
storage tank leak at its St. Louis, Missouri facility. Motor Coils
45
<PAGE>
notified the relevant state regulatory agency of its remediation plan and, with
the concurrence of the state agency, initiated site remediation in 1994. Based
on monitoring results, the Company discontinued site remediation in 1996.
The Company believes that its planned expenditures are adequate to meet
its known environmental obligations and liabilities, including those under the
Permit, and under CERCLA and similar legislation. The Company's knowledge of its
environmental obligations and liabilities is, for the majority of its
facilities, based on assessments and due diligence conducted by its
predecessor's personnel and Phase I and/or Phase II environmental assessments
conducted by third-party consultants. No assurance can be given, however, that
stricter interpretation and enforcement of existing environmental laws or
regulations, the adoption of new laws or regulations, the discovery of currently
unknown waste or contamination for which the Company may be liable, the
inability of the Company to enforce the indemnification with respect to the
Mountaintop plant or the continued spread of the hazardous waste plume through
off-site groundwater near Boise Locomotive will not result in significantly
higher environmental costs to the Company.
Environmental laws and regulations are subject to change at any time.
Compliance with current or future laws and regulations could potentially
necessitate significant capital outlays by the Company, affect the economics of
a given project or cause material changes or delays in intended activities.
Leases: The Company leases office and manufacturing facilities under operating
leases with terms ranging from one to 12 years, excluding renewal options.
The Company has also financed its locomotive lease fleet with operating
leases arising from sale and leaseback transactions. The Company has sold
remanufactured locomotives to various financial institutions and leased them
back under operating leases with terms from five to 20 years.
Total net rental expense (income) charged (or credited) to operations
in 1996, 1995 and 1994 was $(799,000), $(504,000), and $3 million, respectively.
Certain of the Company's equipment rental obligations under operating leases
pertain to locomotives which are subleased to customers under both short-term
and long-term agreements. The above amounts are shown net of sublease rentals of
$8.7 million, $7.8 million, and $5.7 million for the years 1996, 1995 and 1994,
respectively. Future minimum rental payments under operating leases with
remaining noncancelable terms in excess of one year are as follows (in
thousands):
Sublease
Year Real Estate Equipment Rentals Total
----- -------- -------- -------- --------
1997 $ 1,005 $ 6,139 $ (4,751) $ 2,393
1998 999 5,933 (4,395) 2,537
1999 1,041 4,852 (2,750) 3,143
2000 1,039 4,748 (2,750) 3,037
2001 1,044 4,616 (2,376) 3,284
2002 and after 4,188 33,039 (12,805) 24,422
Legal Proceedings: In December 1995, Morrison Knudsen, the Company and certain
of Morrison Knudsen's directors and officers were named as defendants in a
complaint (the "Pilarczyk Lawsuit") filed in the United States District Court
for the Northern District of New York by plaintiffs who were
46
<PAGE>
principals in and/or held substantial stock in TMS, Inc. ("TMS"), a New York
corporation acquired by Morrison Knudsen on December 30, 1992. The complaint
alleges, among other things, violations of Section 10(b), Rule 10b-5 and Section
20(a) of the Securities Exchange Act of 1934, breach of contract, unjust
enrichment, negligent misrepresentation and common law fraud during Morrison
Knudsen's acquisition of TMS in 1992. Plaintiffs assert that the Company, which
was not formed by Morrison Knudsen until 1993, is fully responsible for the acts
of Morrison Knudsen. However, the actions complained of occurred before the
Company was formed and the Company did not assume such liabilities of Morrison
Knudsen. A motion to dismiss, filed in April 1996 on behalf of all defendants to
the Pilarczyk Lawsuit, is still pending. Counsel to the Company believes the
causes of action in the Pilarczyk Lawsuit relating to the Company are without
merit and the Company expects that it will be successful on this motion, even if
the suit is not dismissed as to all defendants. If the Company is successful,
the Company intends to make appropriate requests to the court to seek to require
the plaintiff to pay the Company's legal fees and costs.
In June 1995, the Company was named as defendant in a complaint filed
with the Idaho Human Rights Commission (the "Idaho Commission") and the Equal
Employment Opportunity Commission by a female employee on behalf of herself and
other women employed by the Company alleging discrimination based on sex, which
complaint was amended in December 1995 to include allegations of retaliatory
discharge. In 1996, the idaho Commission announced that it found no probable
cause to believe either discrimination or retaliatory discharge had occurred as
alleged in the complaint and, accordingly, the proceeding was dismissed.
The Company is engaged in a commercial dispute with a former supplier,
Samyoung Machinery Industrial Co. and Samyoung (America), Inc. (collectively,
"Samyoung"). The Company filed suit on April 16, 1996 alleging delivery of
defective product and seeking damages in excess of $1 million. Samyoung denies
that the product was defective and countersued to recover $300,000 under the
contract, and $10 million for trade libel and interference with prospective
economic relationships as a result of the Company allegedly making false
disparaging statements concerning the diesel engine assembly liners to
customers. The Company believes that Samyoung's claims are without merit, and,
to date, no evidence supporting Samyoung's counterclaims has come to light
through the discovery being conducted by the parties. The Company intends to
vigorously prosecute its own claims and defend against Samyoung's counterclaims.
In the ordinary course of its business, the Company is involved in
legal proceedings incident to the normal conduct of its business, including
contract claims and employee matters. Although the outcome of any pending legal
proceeding cannot be predicted with certainty, at December 31, 1996, the Company
had accrued approximately $405,000 for these matters. In part because of this
accrual, and based upon the information obtained to date, management believes
that such legal proceedings, individually and in the aggregate, will not have a
material adverse effect on the consolidated operations or financial condition of
the Company.
47
<PAGE>
14. Geographic Information and Major Customers
A summary of the Company's operations for the years ended December 31,
1996, 1995 and 1994 and the operating assets employed at the end of such years
by geographic area as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
Sales
<S> <C> <C> <C>
United States ............................... $ 253,026 $ 234,300 $ 315,323
Mexico ...................................... 51,196 46,032 17,919
Australia ................................... -- 1,830 36,041
Argentina ................................... -- -- 4,923
United States sales to other geographic areas (12,815) (18,444) (5,669)
--------- --------- ---------
Net sales to customers ................. $ 291,407 $ 263,718 $ 368,537
========= ========= =========
</TABLE>
Year Ended December 31,
-------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
Operating income (loss)
United States .............. $ 19,051 $(48,319) $(38,447)
Mexico ..................... 5,181 1,691 1,705
Australia .................. -- (4,485) (674)
Argentina .................. -- -- (12,561)
-------- -------- --------
Operating income (loss) $ 24,232 $(51,113) $(49,977)
======== ======== ========
Year Ended December 31,
-----------------------
1996 1995
---- ----
(In thousands)
Identifiable assets
United States ................ $181,131 $238,258
Mexico ....................... 52,913 42,690
-------- --------
Total identifiable assets $234,044 $280,948
======== ========
The following table shows the annual percentage of the Company's sales
to customers who accounted for 10% or more of the Company's sales for the three
years ended December 31, 1996:
Year Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
Burlington Northern/Santa Fe....... 19% 18% 12%
Union Pacific/Southern Pacific..... 16% 21% 32%
Mexican National Railway........... 14% 14% 5%
48
<PAGE>
The Mexican National Railway has the right, exercisable at any time, to
rescind its contract with the Company. While it is not presently determinable
what effect, if any, this would have, if the contract is rescinded, the Company
has the right to collect a termination payment intended to provide for the
recovery of the Company's investment. In addition, the contract with the Mexican
National Railway is subject to certain governmental privatization actions.
15. Supplemental Pro Forma Earnings Per Share
Supplemental pro forma earnings per share for the year ended December
31, 1994 is determined by dividing the adjusted net income for the period by the
number of shares determined as follows due to the initial public offering:
Common stock outstanding
prior .................................. 11,149,000
Incremental shares of
common stock ........................... 5,111,005
Weighted average shares
since May 3, 1994 ...................... 592,663
----------
Weighted average shares ................... 16,852,668
==========
The net loss for the year ended December 31, 1994, was adjusted to
reflect the additional interest expense on a $19 million debt from January 1,
1994, through February 25, 1994, transferred from Morrison Knudsen and assumed
by the Company and the reduction of interest expense resulting from the assumed
payment of $35.6 million dividend notes and $39.6 million gross intercompany
debt due Morrison Knudsen as if such debt had been paid at the beginning of
1994.
16. Financial Instruments
The estimated fair values of financial instruments have been determined
by the Company, using available market information and appropriate valuation
methodologies. Although considerable judgment is necessarily required in
interpreting market data to develop estimates of fair value, due to the small
notional amount of outstanding letters of credit, in the estimation of the
Company's management, the fair values of the Company's financial instruments are
not materially different from their carrying values on the Company's financial
statements. In management's estimation, based on the variable interest rates
applicable to outstanding long-term debt, the fair value of the long-term debt
is not materially different from its carrying value.
49
<PAGE>
17. Quarterly Financial Information (unaudited)
The following information summarizes the Company's quarterly financial
results. Information for the first and second quarters of 1995 has been restated
for the effects of certain accounting adjustments.
<TABLE>
<CAPTION>
Quarter
---------------------------------------------------------
First Second Third Fourth Total
----- ------ ----- ------ -----
(In thousands, except per share data)
1996
- ----
<S> <C> <C> <C> <C> <C>
Net sales ................. $ 69,655 $ 66,581 $ 69,046 $ 86,125 $ 291,407
Unusual items ............. -- -- -- (2,126) (2,126)
Gross profit .............. 13,786 12,885 12,716 17,460 56,847
Income before extraordinary
items ..................... 2,584 2,437 2,588 4,964 12,573
Extraordinary item ........ -- -- -- (1,064) (1,064)
Net income ................ 2,584 2,437 2,588 3,900 11,509
Earnings per share before
extraordinary items ....... 0.15 0.14 0.15 0.28 0.72
Earnings per share ........ 0.15 0.14 0.15 0.22 0.66
1995
- ----
Net sales ................. $ 78,404 $ 60,669 $ 57,189 $ 67,456 $ 263,718
Unusual items ............. -- (2,849) (125) (37,864) (40,838)
Gross profit (loss) ....... 10,181 6,642 10,822 (32,812) (5,167)
Net loss .................. (4,155) (3,735) (3,212) (29,312) (40,414)
Loss per share ............ (0.24) (0.22) (0.19) (1.67) (2.34)
</TABLE>
18. Subsequent Event
On March 6, 1997 the Company signed a letter of intent to sell its
Mountaintop, Pa. plant for $2.9 million. The transaction, which is subject to
certain conditions, is expected to close later this year.
50
<PAGE>
<PAGE>
PART III
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of the
Company is set forth under the captions "Election of
Directors" and "Information Concerning Executive Officers" in
the company's proxy statement related to the 1997 annual
meeting of stockholders (the "Proxy Statement") and is
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information required by this item is set forth under the
caption "Compensation" in the Proxy Statement and, except for
the information under the caption "Executive Compensation -
Report of the Compensation Committee" and "Executive
Compensation - Performance Information", is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this item is set forth under the
caption "Security Ownership" in the Proxy Statement and is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth under the
caption "Certain Relationships and Related transactions" in
the Proxy Statement and is incorporated by reference herein.
51
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, REPORTS ON FORM 8-K
(a) Documents filed as a part of this Report:
(1) A list of the financial statements filed as a part of this Annual
Report on Form 10-K is set forth on page 22 hereof.
(2) See Item 14(d) below, for a description of the financial statement
schedule filed as a part of this Annual Report on Form 10-K.
(3) The following Exhibits are included as a part of this Annual Report
on Form 10-K or are incorporated herein by reference:
Exhibit No. Document Description
- ----------- --------------------
3.01[1] Form of Amended and Restated Certificate of Incorporation of the
Company
3.02[18] Form of Amended and Restated By-Laws of the Company as of
December 26, 1996
3.03[7] Designation of Rights and Preferences of Class A Preferred Stock
3.04[7] Designation of Rights and Preferences of Class B Preferred Stock
3.05[9] Certificate of Designations of Series C Junior Participating
Preferred Stock
3.06[12] Certificate of Designations of Class B Preferred Stock
3.07[18] Certificate of Ownership and Merger of MotivePower Industries,
Inc. Into MK Rail Corporation dated December 26, 1996.
4.01[9] Rights Agreement, dated as of January 19, 1996, between the
Company and Chemical Mellon Shareholder Services, L.L.C.
4.02[9] Form of Right Certificate
4.03[11] Amendment to Rights Agreement dated as of April 5, 1996 between
the Company and Chase Mellon Shareholder Services, L.L.C.
(Formerly Chemical Mellon Shareholder Services, L.L.C.)
4.04[13] Second Amendment to Rights Agreement dated as of June 20, 1996
between the Company and Chase Mellon Shareholder Services, L.L.C.
10.01[2] Environmental Liability Transfer Agreement between the Company
and Morrison Knudsen Corporation
10.02[2] Corporate Support and Professional Services Agreement between the
Company and Morrison Knudsen Corporation
10.03[2] Form of Tax Matters Agreement between the Company and Morrison
Knudsen Corporation
10.04[1] Agreement between Morrison Knudsen Corporation and Local 370 of
the International Union of Operating Engineers, effective July 1,
1992
10.05[1] Agreement between Motor Coils Manufacturing Company and Local 606
of the International Union of Electronic, Electrical, Salaried,
Machine and Furniture Workers, AFL-CIO, effective August 1, 1990
52
<PAGE>
10.06[1] Agreement between Motor Coils Manufacturing Company and Local 607
of the International Union of Electronic, Electrical, Salaried,
Machine and Furniture Workers, AFL-CIO, effective November 1,
1990
10.07[1] Agreement between Motor Coils Manufacturing Company and Local 823
of the International Union of Electronic, Electrical, Salaried,
Machine and Furniture Workers, AFL-CIO, effective July 1, 1992
10.08[3]+ Railroad Equipment Lease Agreement between Caterpillar Financial
Services Corporation and Morrison Knudsen Corporation, dated
December 27, 1991
10.09[3]+ Railroad Equipment Lease Agreement between Caterpillar Financial
Services Corporation and Morrison Knudsen Corporation, dated
December 21, 1993
10.10[3]+ Master Equipment Lease Agreement between Pitney Bowes Credit
Corporation and Morrison Knudsen Corporation, dated December 21,
1991
10.11[3]+ Master Equipment Lease Agreement between Pitney Bowes Credit
Corporation and Morrison Knudsen Corporation, dated December 10,
1993
10.12[1] Passenger Railway Service Joint Venture Agreement between Benito
Roggio e Hijos, S.A., Cometrans, S.A., Burlington Northern
Railroad Company and Morrison Knudsen Corporation, dated June 1,
1992
10.13[1] Joint Venture Agreement between Morrison Knudsen Corporation and
Cometrans S.A. and IDESA S.A., dated May 7, 1993
10.14[3] Concession Agreement between the Argentine Government Ministry of
Economy and Public Works and Services and Metrovias S.A.
10.15[6] Waiver and Amendment Letter Agreement dated February 7, 1995
between the Company and PNC Bank, National Association
10.16[2] Form of MotivePower Industries , Inc. Stock Incentive Plan
10.17[1] Credit Agreement between Morrison Knudsen Corporation and CIBC,
Inc., dated as of February 18, 1994
10.18[6] Lease between M & T Partners and Motor Coils Manufacturing Co.,
dated July 16, 1991, and Amendment dated January 30, 1995
10.19[1] Lease between Pittsburgh Flatroll Company and Motor Coils
Manufacturing Company, dated March 1, 1991
10.20[6] Lease between MotivePower Industries, Inc. and SCI North Carolina
Limited Partnership dated May 17, 1995
10.21[6] Lease between MotivePower Industries, Inc. and M & T Partners
effective April 1, 1994
10.22[10] Employment Agreement between the Company and Joseph Fearon
10.23[2] Form of Employment Agreement between the Company and Michael J.
Farrell
10.24[3] Master Lease Purchase Agreement, dated December 29, 1993, between
MetLife Capital Corporation and Morrison Knudsen Corporation.
10.25[5] Revolving Credit and Letter of Credit Insurance Agreement and
Receivables Purchase Agreement dated September 30, 1994 among
MotivePower Industries, Inc., Touchstone, Inc. MK Engine Systems
Company, Inc., Motor Coils Manufacturing Co., Power Parts Company
and PNC Bank, National Association
10.26[4] Form of Company's Indemnification Agreement and a schedule of
individuals with whom the Company has entered into such
agreements
10.27[5] A schedule listing additional individuals with whom the Company
has entered into Indemnification Agreements
53
<PAGE>
10.28[5] Employment Agreement between Company and Joseph S. Crawford dated
as of March 29, 1994
10.29[5] Receivables Purchase Agreement dated as of September 30, 1994,
among the Company, Touchstone, Inc., MK Engine Systems Company,
Inc., Motor Coils Manufacturing Co., Power Parts Company, and
Clark Industries, Inc., and PNC Bank, National Association
10.30[5] Indemnification Agreement between the Company and Morrison
Knudsen Corporation, dated as of October 20, 1994
10.31[5] MotivePower Industries, Inc. Deferred Compensation Plan
10.32[6] Amended and Restated Revolving Credit and Letter of Credit
Issuance Agreement dated March 31, 1995 among MotivePower
Industries, Inc., Touchstone, Inc., MK Engine Systems Company,
Inc., Motor Coils Manufacturing Co., Power Parts Company, Power
Parts Sign Company, Alert Manufacturing & Supply Company, Clark
Industries, Inc. and PNC Bank, National Association
10.33[6] Agreement on Transfer of Rights and Corporate Governance with
Cometrans dated February 21, 1995
10.34[6] Agreement with Benito Roggio e Hijos S.A. regarding sale of
interest in Metrovias dated February 21, 1995
10.35[6] Development Agreement and Manufacturing and License Agreement by
and between MotivePower Industries, Inc. and CSX Intermodal,
Inc., dated March 30, 1995 (The Iron Highway)
10.36[7] Global Settlement Agreement dated June 15, 1995 between the
Company and Morrison Knudsen Corporation
10.37[6] Share Purchase Agreement dated June 15, 1995 between the Company
and Morrison Knudsen Corporation
10.38[8] Credit Line Agreement dated July 6, 1995 among Bancomer, S.A.,
Institution De Banca Multiple, Grupo Financiero Bancomer and MK
Gain S.A. De C.V. (Translated version from Spanish to English)
10.39[7] Loan and Security Agreement dated August 31, 1995, among the
financial institutions named as lenders and BankAmerica Business
Credit, Inc., as agent, and the Company, Motor Coils
Manufacturing Co., MK Engine Systems Co., Inc., Clark Industries,
Inc., Power Parts, Inc., Touchstone, Inc., Power Parts Sign Co.
and Alert Mfg. & Supply Co.
10.40[8] Waiver and First Amendment to the Loan and Security Agreement
dated November 7, 1995, among the financial institutions named as
lenders and BankAmerica Business Credit, Inc., as agent, and the
Company, Motor Coils Manufacturing Co., MK Engine Systems Co.,
Inc., Clark Industries, Inc., Power Parts, Inc., Touchstone,
Inc., Power Parts Sign Co. and Alert Mfg. & Supply Co.
10.41[7] Memorandum of Understanding between Plaintiffs and the Individual
Defendants re: Newman v. Agee, et al. and Susser v. Agee, et al.
and side letters thereto
10.42[7] Memorandum of Understanding between Plaintiffs, the Underwriter
Defendants, MotivePower Industries and MK re: Newman v. Agee, et
al. and Susser v. Agee, et al. and side letter thereto
10.43[7] MotivePower Industries Derivative Litigation Memorandum of
Understanding re: Wohlgelernter v. Agee, et al.
10.44[10] Employment Agreement between Company and John C. Pope dated as of
December 29, 1995
10.45[10] Stipulation of Settlement between Plaintiffs, the Underwriter
Defendants, the Individual Defendants, Deloitte & Touche LLP and
the Insurers re: Newman v. Agee, et al. and Susser v. Agee, et
al.
10.46[10] Stipulation of Settlement between Plaintiffs acting derivatively,
Defendants and the Insurers re: Wohlgelernter v. Agee, et al.
10.47[10] Second Amendment to the Loan and Security Agreement dated January
22, 1996, among the financial institutions named as lenders and
BankAmerica Business Credit, Inc., as agent, and the Company,
Motor Coils Manufacturing Co., MK Engine Systems Co., Inc., Clark
Industries, Inc., Power Parts, Inc., Touchstone, Inc., Power
Parts Sign Co. and Alert Mfg. & Supply Co.
10.48[10] Waiver and Amendment No. 3 to the Loan and Security Agreement
dated February 15, 1996, among the financial institutions named
as lenders and BankAmerica Business Credit, Inc., as agent, and
the Company, Motor Coils Manufacturing Co., MK Engine Systems
Co., Inc., Clark Industries, Inc., Power Parts, Inc., Touchstone,
Inc., Power Parts Sign Co. and Alert Mfg. & Supply Co.
10.49[14] Locomotive Purchase Agreement dated as of April 8, 1996 between
the Company and Helm Financial Corporation.
10.50[14] Representative Agreement dated as of March 20, 1996 between the
Company and Helm Financial Corporation.
10.51[14] Agreement dated April 16, 1996 between the Company and Helm
Financial Corporation.
10.52[14] Locomotive Lease Agreement dated as of April 1, 1996 between MK
Gain S.A. de C.V. and Helm Financial Corporation.
10.53[17] Note Cancellation and Restructuring Agreement dated as of June
20, 1996, by and among MK Rail Corporation, Morrisson Knudsen
Corporation, a Delaware corporation, and Morrison Knudsen
Corporation, an Ohio Corporation
10.54[17] Stockholders Agreement dated as of June 20, 1996 between MK Rail
Corporation and Morrison Knudsen Corporation
10.55[17] Agreement for the Purchase and sale of Assets dated June 27, 1996
by and among MK Rail Corporation, Alert Manufacturing & Supply
Co. and All-State Industrial
Rubber Co., Inc.
10.56[15] Closing Agreement dated July 29, 1996 among the Company, Alert
Manufacturing & Supply Co. and All-State Industrial Rubber Co.,
Inc.
10.57[16] Asset Purchase Agreement dated October 15, 1996 among Power Parts
Sign Company and RI-DEL MFG. INC.
10.58[18] Amendment No. 1 and Waiver to Amended and Restated Loan and
Security Agreement dated December 30, 1996
54
<PAGE>
10.59[18] Second Amended and Restated Credit Agreement dated February 27,
1997 among MotivePower Industries, Inc., as borrower, and Bank of
America National Trust and Savings Association, as Agent and
Lender, and The Other Financial Institutions Party Hereto, as
lenders
10.60[18] Form of Employment Agreement and Exhibits thereto, dated July 1,
1996 between MotivePower Industries, Inc. and Michael A. Wolf
10.61[18] Form of Amendment to the Credit Agreement dated December 13,1996
between Bancomer, A.A., Multiple Banking Institution, Bancomer
Financial Group and MK Gain, S.A. de C.V.(Translated version from
Spanish to English)
10.62[18] Form of Loan Agreement dated December 13,1996 between Bancomer,
A.A., Multiple Banking Institution, Bancomer Financial Group and
MK Gain, S.A. de C.V.(Translated version from Spanish to English)
11.01[10] Computation of Per Share Earnings
21.01[10] Subsidiaries of the Company
23.01[18] Consent of Independent Auditor
27.01[18] Article 5 Financial Data Schedule for the Year Ended December 31,
1996
99.01[2] Form of MotivePower Industries, Inc. Executive Incentive Plan
99.02[2] Form of MotivePower Industries, Inc. Stock Option Plan for
Non-Employee Directors
99.03[2] Form of MotivePower Industries, Inc. Long-Term Performance
Compensation Benefit Plan
99.04[6] Form of MotivePower Industries, Inc. Long Term Incentive Plan
99.05[6] Class Action Complaint filed in the case of Newman v. Agee, et
al., United States District Court, District of Idaho (Case No.
CIV 94-0478-S-EJL).
99.06[6] Class Action Complaint filed in the case of Susser v. Agee, et
al., United States District Court, District of Idaho (Case No.
CIV 94-0477-S-LMB).
99.07[6] Derivative Complaint filed in the District Court of the Fourth
Judicial District of the State of Idaho in the case of
Wohlgelernter v. Agee, et al. (Case No. CV OC 9500656 D).
99.08[9] First Amended Complaint, Pilarczyk et al. v. Morrison Knudsen ,
Inc., MotivePower Industries, Inc. et al., U.S. District Court,
Northern District of New York, Civil Action No. 95-CV-1835
99.09[14] Complaint of Vicki Kovash dated June 19,1995, as amended December
21, 1995, filed with the Idaho Human Rights Commission and the
United States Equal Employment Opportunity Commission.
- ------------------------
1. Incorporated by reference to the Company's Registration Statement
on Form S-1 filed with the Commission on February 24, 1994.
2. Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form S-1 filed with the Commission on
March 29, 1994.
3. Incorporated by reference to Amendment No. 3 to the Company's
Registration Statement on Form S-1 filed with the Commission on
April 18, 1994.
4. Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1994.
5. Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the Quarter ended September 30, 1994.
6. Incorporated by reference to the Company's Annual Report on Form
10-K for the Year ended December 31, 1994.
7. Incorporated by reference to the Company's Report on Form 8-K
filed with the Commission on September 18, 1995.
8. Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the Quarter ended September 30, 1995.
55
<PAGE>
9. Incorporated by reference to the Company's Report on Form 8-K
filed with the Commission on January 31, 1996.
10. Incorporated by reference to the Company's Annual Report on Form
10-K for the Year ended December 31, 1995.
11. Incorporated by reference to the Company's Amendment No. 1 on
Form 8-A/A filed with the Commission on April 25, 1996.
12. Incorporated by reference to the Company's Current Report on Form
8-K filed with the Commission on April 18, 1995.
13. Incorporated by reference to the Company's Amendment No. 2 on
Form 8-A/A filed with the Commission on July 3, 1996.
14. Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1996.
15. Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1996.
16. Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the Quarter ended September 30, 1996.
17. Incorporated by reference to the Company's Current Report on Form
8-K filed with the Commission on July 3, 1996.
18. Filed herewith.
+ Subject to Freedom of Information Act request for confidential treatment.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
(c) Exhibits
The exhibits listed under Item 14(a)(3) are filed herewith or are incorporated
by reference herein.
(d) Financial Statement Schedules
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts is filed herewith.
56
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
MotivePower Industries, Inc.:
We have audited the consolidated financial statements of MotivePower Industries,
Inc. and subsidiaries as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996, and have issued our report
thereon dated February 10, 1997 (except for Note 7, as to which the date is
February 27, 1997 and Note 18, as to which the date is March 6, 1997); such
report is included elsewhere in this Form 10-K. Our audits also included the
consolidated financial statement schedule of MotivePower Industries, Inc.,
listed in Item 14. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 10, 1997
57
<PAGE>
<TABLE>
<CAPTION>
Schedule II
MotivePower Industries, Inc.
Valuation and Qualifying Accounts
(In thousands)
Additions -
Balance at Additions - Charged to
beginning Charged to other Balance at
of costs and accounts end of
Description period expenses - describe Deductions period
- ----------- ------ -------- ---------- ---------- ------
Year Ended December 31,
1996
- -----------------------
<S> <C> <C> <C> <C> <C>
Loss reserves ................. $ 15,176 $ 2,841 $ -- $ (5,896) $ 12,121
Warranty and overhaul reserves 4,402 5,450 -- (2,799) 7,053
Inventory reserves ............ 13,028 4,072 -- (13,554) 3,546
Allowance for doubtful accounts 531 97 -- (344) 284
Valuation allowance - taxes ... 9,408 -- -- (3,097) 6,311
Environmental reserves ........ 4,060 18 -- -- 4,078
Year Ended December 31,
1995
- -----------------------
Loss reserves ................. $ 14,903 $ 10,458 $ -- $(10,185) $ 15,176
Warranty and overhaul reserves 5,434 6,370 -- (7,402) 4,402
Inventory reserves ............ 865 12,263 -- (100) 13,028
Allowance for doubtful accounts 205 450 -- (124) 531
Valuation allowance - taxes ... 7,252 2,156 -- -- 9,408
Environmental reserves ........ 2,653 1,451 -- (44) 4,060
Year Ended December 31,
1994
- -----------------------
Loss reserves ................. $ 797 $ 15,790 $ -- $ (1,684) $ 14,903
Warranty and overhaul reserves 4,032 4,315 -- (2,913) 5,434
Inventory reserves ............ 351 790 -- (276) 865
Allowance for doubtful accounts 111 651 -- (557) 205
Valuation allowance - taxes ... -- 6,063 1,189(a) -- 7,252
Environmental reserves ........ 2,669 160 -- (176) 2,653
<FN>
Notes:
(a) Effect of valuation allowance related to deferred income taxes resulting
from translation gains and losses deferred as a separate component of
stockholders' equity.
</FN>
</TABLE>
58
<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.
MotivePower Industries, Inc.
By:/s/ Michael A. Wolf
Michael A. Wolf
President and Chief Executive Officer
Date: March 13, 1997
59
<PAGE>
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 on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John C. Pope Non-Executive Chairman and March 13, 1997
- ----------------------------- Director
John C. Pope
/s/ Michael A. Wolf President and Chief Executive March 13, 1997
- ----------------------------- Officer and Director
Michael A. Wolf (Principal Executive Officer)
/s/ William F. Fabrizio Senior Vice President March 13, 1997
- ----------------------------- and Chief Financial Officer
William F. Fabrizio (Principal Financial Officer)
/s/ William D. Grab Vice President, Controller and March 13, 1997
- ----------------------------- Principal Accounting Officer
William D. Grab
/s/ Gilbert E. Carmichael Vice Chairman and Director March 13, 1997
- -----------------------------
Gilbert E. Carmichael
Director March 13, 1997
- -----------------------------
Ernesto Fernandez Hurtado
/s/ Lee B. Foster II Director March 13, 1997
- -----------------------------
Lee B. Foster II
/s/ James P. Miscoll Director March 13, 1997
- -----------------------------
James P. Miscoll
/s/ Nicholas J. Stanley Director March 13, 1997
- -----------------------------
Nicholas J. Stanley
60
<PAGE>
Exhibit 3.02
MOTIVEPOWER INDUSTRIES, INC.
AMENDED AND RESTATED
BY-LAWS
Reflecting changes through December 26, 1996
<PAGE>
MOTIVEPOWER INDUSTRIES, INC.
AMENDED AND RESTATED
BY-LAWS
TABLE OF CONTENTS
Page
STOCKHOLDER'S MEETINGS...................................................1
1. Time and Place of Meetings.........................1
2. Annual Meeting.....................................1
3. Special Meetings...................................1
4. Notice of Meetings.................................1
5. Inspectors.........................................1
6. Quorum.............................................2
7. Voting.............................................2
8. Order of Business..................................2
DIRECTORS ...................................................4
9. Function...........................................4
10. Number, Election, and Terms........................4
11. Vacancies and Newly Created Directorship...........4
12. Removal............................................4
13. Nominations of Directors; Election.................5
14. Resignation........................................6
15. Regular Meetings...................................6
16. Special Meetings...................................6
17. Quorum.............................................6
18. Participation in Meetings by Telephone Conference..6
19. Committees.........................................6
20. Compensation.......................................7
21. Rules..............................................7
NOTICES ...................................................8
22. Generally..........................................8
23. Waivers............................................8
<PAGE>
OFFICERS ...................................................8
24. Generally..........................................8
25. Compensation.......................................8
26. Succession.........................................9
27. Authority and Duties.............................. 9
STOCK .................................................. 9
28. Certificates...................................... 9
29. Classes of Stock.................................. 9
30. Lost, Stolen, or Destroyed Certificates........... 9
31. Record Dates......................................10
INDEMNIFICATION.........................................................10
32. Damages and Expenses..............................10
33. Insurance, Contracts, and Funding.................11
GENERAL ..................................................11
34. Fiscal Year.......................................11
35. Seal..............................................11
36. Reliance upon Books, Reports, and Records.........11
37. Time Periods......................................12
38. Amendments........................................12
39. Certain Defined Terms.............................12
<PAGE>
STOCKHOLDERS' MEETINGS
1. Time and Place of Meetings. All meetings of the
stockholders for the election of Directors or for any other purpose will be held
at such time and place, within or without the State of Delaware, as may be
designated by the Board or, in the absence of a designation by the Board, the
Chairman, the President, or the Secretary, and stated in the notice of meeting.
The Board may postpone and reschedule any previously scheduled annual or special
meeting of the stockholders.
2. Annual Meeting. An annual meeting of the stockholders will
be held at such date and time as may be designated from time to time by the
Board, at which meeting the stockholders will elect by a plurality vote the
Directors to succeed those whose terms expire at such meeting and will transact
such other business as may properly be brought before the meeting in accordance
with By-Law 8.
3. Special Meetings. Special meetings of the stockholders may
be called only by (i) the Chairman and (ii) the Secretary within 10 calendar
days after receipt of the written request of a majority of the Whole Board. Any
such request by a majority of the Whole Board must be sent to the Chairman and
the Secretary and must state the purpose or purposes of the proposed meeting.
Special meetings of holders of the outstanding Preferred Stock, if any, may be
called in the manner and for the purposes provided in the applicable Preferred
Stock Designation.
4. Notice of MEETINGS. Written notice of every meeting of the
stockholders, stating the place, date, and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
will be given not less than 10 nor more than 60 calendar days before the date of
the meeting to each stockholder of record entitled to vote at such meeting,
except as otherwise provided herein or by law. When a meeting is adjourned to
another place, date, or time, written notice need not be given of the adjourned
meeting if the place, date, and time thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the adjournment is
for more than 30 calendar days, or if after the adjournment a new record date is
fixed for the adjourned meeting, written notice of the place, date, and time of
the adjourned meeting must be given in conformity herewith. At any adjourned
meeting, any business may be transacted which properly could have been
transacted at the original meeting.
5. Inspectors. The Board may appoint one or more inspectors of
election to act as judges of the voting and to determine those entitled to vote
at any meeting of the stockholders, or any adjournment thereof, in advance of
such meeting. The Board may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the presiding officer of
the meeting may appoint one or more substitute inspectors.
1
<PAGE>
6. Quorum. Except as otherwise provided by law or in a
Preferred Stock Designation, the holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, will constitute a quorum at all meetings of the stockholders for the
transaction of business thereat. If, however, such quorum is not present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, will have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present or represented.
7. Voting. Except as otherwise provided by law, by the
Certificate of Incorporation, or in a Preferred Stock Designation, each
stockholder will be entitled at every meeting of the stockholders to one vote
for each share of stock having voting power standing in the name of such
stockholder on the books of the Company on the record date for the meeting and
such votes may be cast either in person or by written proxy. Every proxy must be
duly executed and filed with the Secretary. A stockholder may revoke any proxy
that is not irrevocable by attending the meeting and voting in person or by
filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary. The vote upon any question
brought before a meeting of the stockholders may be by voice vote, unless
otherwise required by the Certificate of Incorporation or these By-Laws or
unless the Chairman or the holders of a majority of the outstanding shares of
all classes of stock entitled to vote thereon present in person or by proxy at
such meeting otherwise determine. Every vote taken by written ballot will be
counted by the inspectors of election. When a quorum is present at any meeting,
the affirmative vote of the holders of a majority of the stock present in person
or represented by proxy at the meeting and entitled to vote on the subject
matter and which has actually been voted will be the act of the stockholders,
except in the election of Directors or as otherwise provided in these By-Laws,
the Certificate of Incorporation, a Preferred Stock Designation, or by law.
8. Order of Business. (a) The Chairman, or such other officer
of the Company designated by a majority of the Whole Board, will call meetings
of the stockholders to order and will act as presiding officer thereof. Unless
otherwise determined by the Board prior to the meeting, the presiding officer of
the meeting of the stockholders will also determine the order of business and
have the authority in his or her sole discretion to regulate the conduct of any
such meeting, including without limitation by imposing restrictions on the
persons (other than stockholders of the Company or their duly appointed proxies)
who may attend any such stockholders' meeting, by ascertaining whether any
stockholder or his proxy may be excluded from any meeting of the stockholders
based upon any determination by the presiding officer, in his sole discretion,
that any such person has unduly disrupted or is likely to disrupt the
proceedings thereat, and by determining the circumstances in which any person
may make a statement or ask questions at any meeting of the stockholders.
(b) At any annual meeting of the stockholders, only such
business will be conducted or considered as is properly brought before the
meeting. To be properly brought before an annual meeting, business must be (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board in accordance with By-Law 4, (ii) otherwise
2
<PAGE>
properly brought before the meeting by the presiding officer or by or at the
direction of a majority of the Whole Board, or (iii) otherwise properly
requested to be brought before the meeting by a stockholder of the Company in
accordance with By-Law 8(c).
(c) For business to be properly requested by a stockholder to
be brought before an annual meeting, the stockholder must (i) be a stockholder
of the Company of record at the time of the giving of the notice for such annual
meeting provided for in these By-Laws, (ii) be entitled to vote at such meeting,
and (iii) have given timely notice thereof in writing to the Secretary. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company not less than 60 calendar days
prior to the annual meeting; provided, however, that in the event public
announcement of the date of the annual meeting is not made at least 75 calendar
days prior to the date of the annual meeting, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th
calendar day following the day on which public announcement is first made of the
date of the annual meeting. A stockholder's notice to the Secretary must set
forth as to each matter the stockholder proposes to bring before the annual
meeting (A) a description in reasonable detail of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (B) the name and address, as they appear on the Company's
books, of the stockholder proposing such business and the beneficial owner, if
any, on whose behalf the proposal is made, (C) the class and number of shares of
the Company that are owned beneficially and of record by the stockholder
proposing such business and by the beneficial owner, if any, on whose behalf the
proposal is made, and (D) any material interest of such stockholder proposing
such business and the beneficial owner, if any, on whose behalf the proposal is
made in such business. A stockholder must also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder with respect to the matters set forth in this By-Law
B(c). For purposes of this By-Law 8(c) and By-Law 13, "public announcement"
means disclosure in a press release reported by the Dow Jones News Service,
Associated Press, or comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange Commission pursuant to
Sections 13, 14, or 15(d) of the Securities Exchange Act of 1934, as amended, or
furnished to stockholders. Nothing in this By-Law 8(c) will be deemed to affect
any rights of stockholders to request inclusion of proposals in the Company's
proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of
1934, an amended.
(d) At a special meeting of stockholders, only such business
may be conducted or considered as is properly brought before the meeting. To be
properly brought before a special meeting, business must be (i) specified in the
notice of the meeting (or any supplement thereto) given by or at the direction
of the Chairman or a majority of the Whole Board in accordance with By-Law 4 or
(ii) otherwise properly brought before the meeting by the presiding officer or
by or at the direction of a majority of the Whole Board.
(e) The determination of whether any business sought to be
brought before any annual or special meeting of the stockholders is properly
brought before such meeting in
3
<PAGE>
accordance with this By-Law 8 will be made by the presiding officer of such
meeting. If the presiding officer determines that any business is not properly
brought before such meeting, he or she will so declare to the meeting and any
such business will not be conducted or considered.
DIRECTORS
9. Function. The business and affairs of the Company will be
managed under the direction of its Board.
10. Number, Election, and Terms. (a) Subject to the rights, if
any, of any series of Preferred Stock to elect additional Directors under
circumstances specified in a Preferred Stock Designation and to the minimum and
maximum number of authorized Directors provided in the Certificate of
Incorporation, the authorized number of Directors may be determined from time to
time only by a vote of a majority of the Whole Board. The Directors, other than
those who may be elected by the holders of any series of the Preferred Stock,
will be classified with respect to the time for which they severally hold office
in accordance with the Certificate of Incorporation.
(b) Notwithstanding anything contained in the Certificate of
Incorporation or these By-Laws to the contrary, the term of any Director who is
also an officer of the Company will terminate automatically, without any further
action on the part of the Board or such Director, upon the termination for any
reason of such Director in his or her capacity as an officer of the Company.
Notwithstanding anything contained in the Certificate of Incorporation or these
ByLaws to the contrary, the affirmative vote of at least 66-23% of the Directors
then in office will be required to amend, repeal, or adopt any provision
inconsistent with this By-Law 10(b).
11. Vacancies and Newly Created Directorships. Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board resulting from death,
resignation, disqualification, removal, or other cause will be filled solely by
the affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board, or by a sole remaining Director;
provided, however, that at the sole option of the Board, effected by a
resolution of the Board of Directors, one or more such vacancies or newly
created directorships may be filled by the stockholders at a meeting of the
stockholders called by the Board of Directors. Any Director elected in
accordance with the preceding sentence will hold office for the remainder of the
full term of the class of Directors in which the new directorship was created or
the vacancy occurred and until such Director's successor is elected and
qualified. No decrease in the number of Directors constituting the Board will
shorten the term of an incumbent Director.
12. Removal. Subject to the rights, if any, of the holders of
any series of Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock
4
<PAGE>
Designation, any Director may be removed from office by the stockholders only
for cause and only in the manner provided in the Certificate of Incorporation
and, if applicable, any amendment to this By-Law 12.
13. Nominations of Directors: Election. (a) Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, only persons who are nominated in accordance with the following
procedures will be eligible for election at a meeting of stockholders as
Directors of the Company.
(b) Nominations of persons for election as Directors of the
Company may be made only at an annual meeting of stockholders (i) by or at the
direction of the Board or (ii) by any stockholder who is a stockholder of record
at the time of giving of notice provided for in this By-Law 13, who is entitled
to vote for the election of Directors at such meeting, and who complies with the
procedures set forth in this By-Law 13. All nominations by stockholders must be
made pursuant to timely notice in proper written form to the Secretary.
(c) To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the Company not
less than 60 calendar days prior to the annual meeting of stockholders;
provided, however, that in the event that public announcement of the date of the
annual meeting is not made at least 75 calendar days prior to the date of the
annual meeting, notice by the stockholder to be timely must be so received no
later than the close of business on the 10th calendar day following the day an
which public announcement is first made of the date of the annual meeting. To be
in proper written form, such stockholder's notice must set forth or include (i)
the name and address, as they appear on the Company's books, of the stockholder
giving the notice and of the beneficial owner, if any, on whose behalf the
nomination is made; (ii) a representation that the stockholder giving the notice
is a holder of record of stock of the Company entitled to vote at such annual
meeting and intends to appear in person or by proxy at the annual meeting to
nominate the person or persons specified in the notice; (iii) the class and
number of shares of stock of the Company owned beneficially and of record by the
stockholder giving the notice and by the beneficial owner, if any on whose
behalf the nomination is made; (iv) a description of all arrangements or
understandings between or among any of (A) the stockholder giving the notice,
(B) the beneficial owner on whose behalf the notice is given, (C) each nominee,
and (D) any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the stockholder giving the
notice; (v) such other information regarding each nominee proposed by the
stockholder giving the notice as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee been nominated, or intended to be nominated, by the
Board; and (vi) the signed consent of each nominee to serve as a Director of the
Company if so elected. At the request of the Board, any person nominated by the
Board for election as a Director must furnish to the Secretary that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. The presiding officer of any annual meeting will, if the facts
warrant, determine that a nomination was not made in accordance with the
procedures
5
<PAGE>
prescribed by this By-Law 13, and if he or she should so determine, he or she
will so declare to the meeting and the defective nomination will be disregarded.
A stockholder must also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this By-Law 13.
14. Resignation. Any Director may resign at any time by giving
written notice of his resignation to the Chairman or the Secretary. Any
resignation will be effective upon actual receipt by any such person or, if
later, as of the date and time specified in such written notice.
15. Regular Meetings. Regular meetings of the Board may be
held immediately after the annual meeting of the stockholders and at such other
time and place either within or without the State of Delaware as may from time
to time be determined by the Board. Notice of regular meetings of the Board need
not be given.
16. Special Meetings. Special meetings of the Board may be
called by the Chairman or the President on one day's notice to each Director by
whom such notice is not waived, given either personally or by mail, telephone,
telegram, telex, facsimile, or similar medium of communication, and will be
called by the Chairman or the President in like manner and on like notice on the
written request of three or more Directors. Special meetings of the Board may be
held at such time and place either within or without the State of Delaware as is
determined by the Board or specified in the notice of any such meeting.
17. Quorum. At all meetings of the Board, a majority of the
total number of Directors then in office will constitute a quorum for the
transaction of business. Except for the designation of committees as hereinafter
provided and except for actions required by these ByLaws or the Certificate of
Incorporation to be taken by a majority of the Whole Board, the act of a
majority of the Directors present at any meeting at which there is a quorum will
be the act of the Board. If a quorum is not present at any meeting of the Board,
the Directors present thereat may adjourn the meeting from time to time to
another place, time, or date, without notice other than announcement at the
meeting, until a quorum is present.
18. Participation in Meetings by Telephone Conference. Members
of the Board or any committee designated by the Board may participate in a
meeting of the Board or any such committee, as the case may be, by means of
telephone conference or similar means by which all persons participating in the
meeting can hear each other, and such participation in a meeting will constitute
presence in person at the meeting.
19. Committees. (a) The Board, by resolution passed by a
majority of the Whole Board, will designate an executive and finance committee
("Executive and Finance Committee") of not less than three members of the Board,
one of whom will be the Chairman. The Executive and Finance Committee will have
and may exercise the powers of the Board, except the power to amend these
By-Laws or the Certificate of Incorporation (except, to the extent authorized by
a resolution of the Whole Board, to fix the designation, preferences, and other
terms
6
<PAGE>
of any series of Preferred Stock), adopt an agreement of merger or
consolidation, authorize the issuance of stock, declare a dividend, or recommend
to the stockholders the sale, lease, or exchange of all or substantially all of
the Company's property and assets, a dissolution of the Company, or a revocation
of a dissolution, and except an otherwise provided by law.
(b) The Board, by resolution passed by a majority of the Whole
Board, may designate one or more additional committees, each such committee to
consist of one or more Directors and each to have such lawfully delegable powers
and duties as the Board may confer.
(c) The Executive and Finance Committee and each other
committee of the Board will serve at the pleasure of the Board or as may be
specified in any resolution from time to time adopted by the Board. The Board
may designate one or more Directors as alternate members of any such committee,
who may replace any absent or disqualified member at any meeting of such
committee. In lieu of such action by the Board, in the absence or
disqualification of any member of a committee of the Board, the members thereof
present at any such meeting of such committee and not disqualified from voting,
whether or not they constitute a quorum, may unanimously appoint another member
of the Board to act at the meeting in the place of any such absent or
disqualified member.
(d) Except as otherwise provided in these By-Laws or by law,
any committee of the Board, to the extent provided in By-Law 19(a) or, if
applicable, in the resolution of the Board, will have and may exercise all the
powers and authority of the Board in the direction of the management of the
business and affairs of the Company. Any such committee designated by the Board
will have such name as may be determined from time to time by resolution adopted
by the Board. Unless otherwise prescribed by the Board, a majority of the
members of any committee of the Board will constitute a quorum for the
transaction of business, and the act of a majority of the members present at a
meeting at which there is a quorum will be the act of such committee. Each
committee of the Board may prescribe its own rules for calling and holding
meetings and its method of procedure, subject to any rules prescribed by the
Board, and will keep a written record of all actions taken by it.
20. Compensation. The Board may establish the compensation
for, and reimbursement of the expenses of, Directors for membership on the Board
and on committees of the Board, attendance at meetings of the Board or
committees of the Board, and for other services by Directors to the Company or
any of its majority-owned subsidiaries.
21. Rules. The Board may adopt rules and regulations for the
conduct of meetings and the oversight of the management of the affairs of the
Company.
7
<PAGE>
NOTICES
22. Generally. Except as otherwise provided by law, these
By-Laws, or the Certificate of Incorporation, whenever by law or under the
provisions of the Certificate of Incorporation or these By-Laws notice in
required to be given to any Director or stockholder, it will not be construed to
require personal notice, but such notice may be given in writing, by mail,
addressed to such Director or stockholder, at the address of such Director or
stockholder as it appears on the records of the Company, with postage thereon
prepaid, and such notice will be deemed to be given at the time when the same is
deposited in the United States mail. Notice to Directors may also be given by
telephone, telegram, telex, facsimile, or similar medium of communication or as
otherwise nay be permitted by these By-Laws.
23. Waivers. Whenever any notice is required to be given by
law or under the provisions of the Certificate of Incorporation or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to such notice, whether before or after the time of the event for which notice
is to be given, will be deemed equivalent to such notice. Attendance of a person
at a meeting will constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction, of any business because the meeting is not
lawfully called or convened.
OFFICERS
24. Generally. The officers of the Company will be elected by
the Board and will consist of a Chairman, a Chief Executive Officer, a President
(who may also be the Chief Executive Officer), a Secretary, and a Treasurer. The
Board of Directors may also choose any or all of the following: one or more Vice
Chairmen (which Vice Chairman for all purposes shall possess all the rights and
powers of the Chairman), one or more Assistants to the Chairman, one or more
Vice Presidents (who may be given particular designations with respect to
authority, function, or seniority), and such other officers as the Board may
from time to time determine. Notwithstanding the foregoing, by specific action
the Board may authorize the Chairman, or the President to appoint any person to
any office other than Chairman, President, Secretary, or Treasurer. Any number
of offices may be held by the same person. Any of the offices may be left vacant
from time to time as the Board may determine. In the case of the absence or
disability of any officer of the Company or for any other reason deemed
sufficient by a majority of the Board, the Board may delegate the absent or
disabled officer's powers or duties to any other officer or to any Director.
25. Compensation. The compensation of all officers and agents
of the Company who are also Directors of the Company will be fixed by the Board
or by a committee of the Board. The Board may fix, or delegate the power to fix,
the compensation of other officers and agents of the Company to an officer of
the Company.
8
<PAGE>
26. Succession. The officers of the Company will hold office
until their successors are elected and qualified. Any officer may be removed at
any time by the affirmative vote of a majority of the Whole Board. Any vacancy
occurring in any office of the Company may be filled by the Board or by the
Chairman as provided in By-Law 24.
27. Authority and Duties. Each of the officers of the Company
will have such authority and will perform such duties as are customarily
incident to their respective offices or as may be specified from time to time by
the Board.
STOCK
28. Certificates. Certificates representing shares of stock of
the Company will be in such form as is determined by the Board, subject to
applicable legal requirements. Each such certificate will be numbered and its
issuance recorded in the books of the Company, and such certificate will exhibit
the holder's name and the number of shares and will be signed by, or in the name
of, the Company by the Chairman and the Secretary or an Assistant Secretary, or
the Treasurer or an Assistant Treasurer, and will also be signed by, or bear the
facsimile signature of, a duly authorized officer or agent of any properly
designated transfer agent of the Company. Any or all of the signatures and the
seal of the Company, if any, upon such certificates may be facsimiles, engraved,
or printed. Such certificates may be issued and delivered notwithstanding that
the person whose facsimile signature appears thereon may have ceased to be such
officer at the time the certificates are issued and delivered.
29. Classes of Stock. The designations, preferences, and
relative participating, optional, or other special rights of the various classes
of stock or series thereof, and the qualifications, limitations, or restrictions
thereof, will be set forth in full or summarized on the face or back of the
certificates which the Company issues to represent its stock or, in lieu
thereof, such certificates will set forth the office of the Company from which
the holders of certificates may obtain a copy of such information.
30. Lost, Stolen, or Destroyed Certificates. The Secretary may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Company alleged to have
been lost, stolen, or destroyed, upon the making of an affidavit of that fact,
satisfactory to the Secretary, by the person claiming the certificate of stock
to be lost, stolen, or destroyed. As a condition precedent to the issuance of a
new certificate or certificates, the Secretary may require the owners of such
lost, stolen, or destroyed certificate or certificates to give the Company a
bond in such sum and with such surety or sureties as the Secretary may direct as
indemnity against any claims that may be made against the Company with respect
to the certificate alleged to have been lost, stolen, or destroyed or the
issuance of the new certificate.
9
<PAGE>
31. Record Dates. (a) In order that the Company may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board may fix a record date, which will not be
more than 60 nor less than 10 calendar days before the date of such meeting. If
no record date is fixed by the Board, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders will
be at the close of business on the calendar day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the
calendar day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of the stockholders will apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
(b) In order that the Company may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion, or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date will not be
more than 60 calendar days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose will be at the
close of business on the calendar day on which the Board adopts the resolution
relating thereto.
(c) The Company will be entitled to treat the person in whose
name any share of its stock is registered as the owner thereof for all purposes,
and will not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Company has
notice thereof, except as expressly provided by applicable law.
INDEMNIFICATION
32. Damages and Expenses. (a) Without limiting the generality
or effect of Article Ninth of the Certificate of Incorporation, the Company will
go the fullest extent permitted by applicable law as then in effect indemnify
any person (an "Indemnitee") who is or was involved in any manner (including
without limitation as a party or a witness) or is threatened to be made so
involved in any threatened, pending, or completed investigation, claim, action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(including without limitation any action, suit, or proceeding by or in the right
of the Company to procure a judgment in its favor) (a "Proceeding") by reason of
the fact that such person is or was or had agreed to become a director, officer,
employee, or agent of the Company, or is or was serving at the request of the
Board or an officer of the Company as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
whether for profit or not for profit, or anything done or not by such person in
any such capacity, against all expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by such
person in connection with such proceeding. Such indemnification will be a
contract right and will include the right to receive payment in advance of any
expenses incurred by an Indemnitee in connection with such Proceeding upon
receipt of an undertaking by or on behalf of
10
<PAGE>
such person to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Company as authorized by this By-Law 32 or
otherwise.
(b) The right of indemnification provided in this By-Law 32
will not be exclusive of any other rights to which any person seeking
indemnification may otherwise be entitled and will be applicable to Proceedings
commenced or continuing after the adoption of this By-Law 32, whether arising
from acts or emissions occurring before or after such adoption.
(c) The indemnification and advancement of expenses provided
by, or granted pursuant to, this By-Law 32 shall, unless otherwise provided when
authorized or ratified, continue as to a person-who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such person.
33. Insurance, Contracts, and Funding. The Company may
purchase and maintain insurance to protect itself and any Indemnitee against any
expenses, judgments, fines, and amounts paid in settlement or incurred by any
Indemnitee in connection with any Proceeding referred to in By-Law 32 or
otherwise, to the fullest extent permitted by applicable law as then in effect.
The Company may enter into contracts with any person entitled to indemnification
under By-Law 32 or otherwise, and may create a trust fund, grant a security
interest, or use other means (including without limitation a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in By-Law 32.
GENERAL
34. Fiscal Year. The fiscal year of the Company will end
December 31st of each year or such other date as may be fixed from time to time
by the Board.
35. Seal. The Board may adopt a corporate seal and use the
same by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
36. Reliance upon Books, Reports, and Records. Each Director,
each member of a committee designated by the Board, and each officer of the
Company will, in the performance of his or her duties, be fully protected in
relying in good faith upon the records of the Company and upon such information,
opinions, reports, or statements presented to the Company by any of the
Company's officers or employees, or committees of the Board, or by any other
person or entity as to matters the Director, committee member, or officer
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Company.
11
<PAGE>
37. Time Periods. In applying any provision of these By-Laws
that requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days will be used unless otherwise
specified, the day of the doing of the act will be excluded, and the day of the
event will be included.
38. Amendments. Except as otherwise provided by law or by the
Certificate of Incorporation or these By-Laws, these By-Laws or any of them may
be amended in any respect or repealed at any time, either (i) at any meeting of
stockholders, provided that any amendment or supplement proposed to be acted
upon at any such meeting has been described or referred to in the notice of such
meeting, or (ii) at any meeting of the Board, provided that no amendment adopted
by the Board may vary or conflict with any amendment adopted by the
stockholders.
39. Certain Defined Terms. Terms used herein with initial
capital-letters that are not otherwise defined are used herein as defined in the
Certificate of Incorporation.
12
<PAGE>
Exhibit 3.07
Certificate of Ownership and Merger
of
MotivePower Industries, Inc. (Subsidiary)
(a Delaware corporation)
into
MK Rail Corporation (Parent)
(a Delaware corporation)
Pursuant to Section 253 of the General Corporation Law of the State of Delaware,
MK Rail Corporation (the "Parent"), a Delaware corporation and the parent
corporation to its wholly-owned subsidiary, MotivePower Industries, Inc. (the
"Subsidiary"), a Delaware corporation, hereby certifies that:
1. Attached hereto as Exhibit A are resolutions (the "Resolutions of
Merger") duly adopted on December 16, 1996 by the Board of Directors of
the Parent, pursuant to which the Subsidiary shall be merged into the
Parent, and the name of the surviving parent corporation shall be
changed from "MK Rail Corporation" to "MotivePower Industries, Inc.,"
which Resolutions of Merger have been approved and adopted by the Board
of Directors of the Parent in accordance with the requirements of the
General Corporation Law of the State of Delaware.
2. The Certificate of Incorporation of the surviving corporation shall be
the Certificate of Incorporation of the Parent as in effect immediately
prior to the merger (except the name shall be changed as provided in
the Resolutions of Merger and as noted in paragraph 1 of this
Certificate).
3. The Resolutions of Merger are on file at 1200 Reedsdale Street,
Pittsburgh, Pennsylvania 15233, the principal place of business of the
surviving corporation.
4. The merger shall be effective at 12:01 a.m. on January 1, 1997.
IN WITNESS WHEREOF, this Certificate is executed by the undersigned duly
authorized officer on behalf of MK Rail Corporation, a Delaware corporation,
this 26th day of December, 1996.
MK Rail Corporation
(a Delaware corporation)
By: /s/ William D. Grab
Name: William D. Grab
Title: Vice President
122714.WPD
<PAGE>
Exhibit A
Resolutions of the Board of Directors of MK Rail Corporation (the
"Company") Adopted at a Meeting of the Board of Directors on December
16, 1996
WHEREAS, MotivePower Industries, Inc., a Delaware corporation, was
incorporated on August 26, 1996; and
WHEREAS, the Company owns all of the issued and outstanding stock of
MotivePower Industries, Inc.; and
WHEREAS, the Company desires to merge MotivePower Industries, Inc. into
the Company under Sections 253 of the Delaware General Corporation Law
(the "DGCL"); and
WHEREAS, the Company shall be the surviving corporation of the said
merger; and
WHEREAS, as a result of said merger, the name of Company shall change
to MotivePower Industries, Inc.;
RESOLVED, that the merger of MotivePower Industries, Inc., which is a
wholly-owned subsidiary of the Company, with and into the Company shall
be, and hereby is, approved in all respects; and further
RESOLVED, that as a result of the merger, all stock of MotivePower
Industries, Inc. outstanding immediately prior to the merger shall be
cancelled and all stock of the Parent outstanding immediately prior to
the merger shall continue to be stock of the surviving corporation
after the merger; and further
RESOLVED, that the Certificate of Incorporation of the Company in
effect immediately prior to the merger shall be the Certificate of
Incorporation of the Company as the surviving corporation at and after
the effective date of the merger, except that the name of the surviving
corporation shall be changed from MK Rail Corporation to MotivePower
Industries, Inc.; and further
RESOLVED, that the merger shall be effective on January 1, 1997; and
further
RESOLVED, that the President or any Vice President of the Company is
hereby authorized, empowered and directed to execute for and on behalf
of the Company a Certificate of Ownership and Merger and such other
documents, all containing such terms as any such officer approves, such
approval to be conclusively evidenced by any such officer's execution
and delivery thereof, and to perform such other acts as any such
officer shall deem necessary or appropriate to effectuate such merger
in the State of Delaware; and further
RESOLVED, that the President and any Vice President and Secretary of
the Company be, and each of them hereby is, authorized, empowered and
directed, for and on behalf of the Company, and as its corporate act
and deed, to execute and deliver all other documents, instruments,
certificates, and agreements, and to do all acts and things as may be
necessary and appropriate to carry out the purpose and intent of these
resolutions.
<PAGE>
Exhibit 10.58
AMENDMENT NO. 1 AND WAIVER TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Amendment No. 1 and Waiver (this "Amendment") is entered into as
of December 30, 1996 by and among MK Rail Corporation, a Delaware corporation
("MKR"), with its chief executive office at 1200 Reedsdale Street, Pittsburgh,
Pennsylvania 15233; Motor Coils Manufacturing Co., a Pennsylvania corporation
("Motor Coils"); MK Engine Systems Company, Inc., a New York Corporation
("MKES"); Clark Industries, Inc., an Illinois corporation ("Clark"); Power Parts
Company, a Nevada corporation ("Power Parts"); Touchstone, Inc., a Tennessee
corporation ("Touchstone"); Power Parts Sign Co., an Illinois corporation
("Sign") (each of MKR and the Component Subsidiaries a "Borrower" and
collectively the "Borrowers"), and BankAmerica Business Credit, Inc., a Delaware
corporation, individually as a lender ("Lender") and as agent ("Agent").
RECITALS
A. The Borrowers, the Agent and the Lender are party to that certain
Amended and Restated Loan and Security Agreement dated as of September 10, 1996
(as previously amended, the "Credit Agreement"). Unless otherwise specified
herein, capitalized terms used in this Amendment shall have the meanings
ascribed to them by the Credit Agreement.
B. Immediately prior to the execution of this Amendment, the Agent and
the Lender entered into Assignment and Acceptance Agreements dated the date
hereof (the "Assignment Agreements") with each of Heller Financial, Inc., Green
Tree Financial Servicing Corporation and Star Bank, N.A (collectively, the
"Former Lenders"), pursuant to which the Lender purchased from such Persons all
of their outstanding Loans and commitments under the Credit Agreement (the
"Buyout"), and paid them (on behalf of and with the consent of the Borrowers) a
prepayment fee for agreeing to the Buyout, plus any and all unpaid accrued
interest and fees owed by the Borrowers through the date hereof or the Effective
Date, whichever is later, all amounts as set forth in each Exhibit A to the
Assignment Agreements.
C. The Borrowers intend to implement a corporate restructuring,
effective as of January 1, 1997, as set forth in Exhibit A hereto.
D. The Borrowers, the Lender and the Agent wish to amend the Credit
Agreement and waive certain provisions thereof with respect to (a) the corporate
restructuring, (b) the maturity date of the Loans and (c) the rate of interest
on the Loans, all pursuant to the terms as set forth below.
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<PAGE>
Now, therefore, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
1. Amendment to Credit Agreement. Upon the "Effective Date" (as defined
below), the Credit Agreement shall be amended as follows:
(a) The following definitions in Section 1.1 are amended in their
entirety to read as follows:
o "'Stated Termination Date' means September 30, 1997."
o "'Applicable Revolver Base Rate Margin' shall mean one half of one
percent (0.50%)."
o "'Applicable Revolver LIBOR Margin' shall mean two percent (2%)."
o "'Applicable Term Base Rate Margin' shall mean three-quarters of
one percent (0.75%)."
o "'Applicable Term LIBOR Margin' shall mean two and one-quarter
percent (2.25%)."
o "'Default Rate' means a fluctuating per annum interest rate at all times
------------ ---------
equal to the sum of (a) the Interest Rate for each Loan or Obligation
which would be derived by applying the otherwise Applicable
Margin, plus (b) two percent (2.0%). Each Default Rate shall be
----
adjusted simultaneously with any change in the applicable Interest
Rate. In addition, with respect to Letters of Credit, the Default Rate
shall mean an increase in the Letter of Credit Fee by two percent
(2.0%) per annum."
(b) The second sentence of Section 2.2(c) is amended in its entirety to
read as follows:
"The Term Loan Notes delivered to the Agent (on
behalf of the Lenders) shall be dated the Closing Date and the
principal amount of the Term Loan shall mature in thirteen
(13) monthly installments. Each of the first twelve (12)
installments of principal shall be payable in an amount equal
to $133,334 (and paid ratably by the Borrowers receiving Term
Loans) and shall be payable on the first day of each month,
commencing on October 1, 1996 and ending on September 1, 1997,
and the final installment of principal on the Term Loan shall
be payable in an amount equal to $6,399,992 or, if
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<PAGE>
different, the then remaining principal balance of the Term Loan, and shall be
payable on the Stated Termination Date."
(c) Thefirst paragraph of Section 3.1(a)(iii) is amended in its entirety to
read as follows:
"(iii) Without limiting any other restrictions herein on the
availability of LIBOR Rate Loans, the Borrowers shall not have
the option to elect, designate, continue or convert any Loans
into LIBOR Rate Loans on the Closing Date (through October 31,
1996) or at any time when a Default or an Event of Default has
occurred and is continuing." (d) Section 3.1(b) is amended in its
entirety to read as follows:
"(b). Intentionally Omitted."
(e) Section 3.2(c) is amended in its entirety to
read as follows:
"(c) If upon the expiration of any Interest
Period applicable to LIBOR Rate Loans, MKR
has failed to select timely a new Interest
Period to be applicable to LIBOR Rate Loans
or if any Default or Event of Default then
exists, then the applicable Borrower shall
be deemed to have elected to convert such
LIBOR Rate Loans into Base Rate Loans
effective as of the expiration date of such
Interest Period."
(f) Section 4.2 is amended in its entirety to
read as follows:
"4.2 Termination of Facility; Prepayments.
The Borrowers may terminate this Agreement
upon at least ten (10) Business Days' prior
written notice from MKR to the Agent and the
Lenders, upon (a) the payment in full in
cash of all outstanding Loans, together with
accrued interest thereon, and the
cancellation of all outstanding Letters of
Credit, (b) the payment in full in cash of
all other Obligations together with accrued
interest thereon, and (c) with respect to
any LIBOR Rate Loans prepaid in connection
with such termination prior to the
expiration date of the Interest Period
applicable thereto, the payment of the
amounts described in Section 5.4."
(g) Schedules 8.5 and 8.7 are deleted and
Schedules 8.5 and 8.7 attached hereto are
hereby substituted in their entirety
therefor.
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<PAGE>
(h) The Lender's signature page to the Credit
Agreement is amended and substituted in its
entirety by the form of signature page
signed by the Lender and attached to this
Amendment.
2. Consent and Waiver.
(a) Notwithstanding anything to the contrary set
forth in Section 9.21 of the Credit Agreement, the Agent and Lender
consent to MKR creating the following new wholly-owned subsidiaries as
of January 1, 1997:
(i) MotivePower Investments Ltd., a Delaware corporation;
(ii) MotivePower Investments, Inc., a Delaware corporation;
(iii) Boise Locomotive Company, a Delaware corporation; and
(iv) Motive Power Foreign Sales Corporation, a Barbados
corporation;
provided, however, that the consent in this paragraph (a) is
conditioned on the Borrower's acknowledgment and agreement that each of
these subsidiaries shall not (i) conduct business or business
operations, (ii) start operations without the written consent of the
Agent and (iii) have assets or liabilities of any kind in excess of
$10,000 in the aggregate.
(b) Notwithstanding anything to the contrary set
forth in Section 9.9 of the Credit Agreement, the Agent and the Lender consent
to (a) the merger of MotivePower Industries, Inc. into MKR to be effective as of
January 1, 1997 and (b) the dissolution of Sign and AMS Manufacturing Company
(f/k/a Alert Mfg. & Supply Co.) to be effective as of January 1, 1997.
(c) Notwithstanding anything to the contrary set
forth in Section 7.3(j) of the Credit Agreement, the Agent and the Lender
consent to the Borrowers name changes as set forth in Exhibit A hereto.
(d) No later than January 6, 1997, the Borrowers
shall provide to the Agent and the Lender written evidence in form and substance
acceptable to the Agent and the Lender of the effectiveness of (i) the Merger of
MotivePower Industries, Inc. into MKR, (ii) the dissolution of Sign and AMS
Manufacturing Company (f/k/a Alert Mfg. & Supply Co.), and (iii) the name
changes as set forth in Exhibit A hereto.
3. Representations and Warranties of the Borrower.
Each of the Borrowers represents and warrants that:
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<PAGE>
(a) The execution, delivery and performance by the
Borrowers of this Amendment have been duly authorized by all necessary
corporate action and that this Amendment is a legal, valid and binding
obligation of the Borrowers enforceable against the Borrowers in
accordance with its terms, except as the enforcement thereof may be
subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally and (ii) general principles of equity (regardless of whether
such enforcement is sought in a proceeding in equity or at law);
(b) Each of the representations and warranties
contained in the Credit Agreement is true and correct in all material
respects on and as of the date hereof as if made on the date hereof;
(c) The execution, delivery and performance by the
Borrowers of this Amendment, and the performance by the Borrowers of
the Credit Agreement (as amended hereby) do not and will not (i)
violate any provision of any law, rule or regulation applicable to the
Borrowers, the Certificate or Articles of Incorporation or Bylaws of
the Borrowers or any order, judgment or decree of any court or other
agency or government binding on any Borrower, (ii) conflict with,
result in a breach of or constitute (with due notice or lapse of time
or both) a default under any contract, agreement, mortgage or
obligation of any Borrower except where the Borrowers shall have
obtained waivers or consents from the other parties to such agreements
and disclosed the same to the Agent, (iii) result in or require the
creation or imposition of any lien upon any of the Borrowers'
properties or assets (other than Liens permitted under Section 9.19 of
the Credit Agreement) or (iv) require any approval of stockholders or
any approval or consent of any Person under any contract, agreement,
mortgage or obligation to which any Borrower is a party (or by which
its assets or properties are bound) except for the approvals or
consents which will be obtained on or before the date hereof and
disclosed in writing to the Agent.
(d) After giving effect to this Amendment, no Default
or Event of Default has occurred and is continuing.
(e) The Borrowers authorize and agree that on the
Effective Date (i) MKR will be deemed to have made a Revolving Loan
borrowing (and to have provided the funds to the Agent for the use set
forth below) in an aggregate amount equal to the prepayment fee as set
forth on each Exhibit A to the Assignment Agreements of approximately
$1,000,000 in the aggregate (the "Prepayment Fee"), plus any and all
unpaid accrued interest and fees owed by the Borrowers to the Former
Lenders through the date hereof or the Effective Date, whichever is
later as set forth on each Exhibit A to the Assignment Agreements (the
"Payoff Amount"),and (ii) the Agent will use the proceeds of such
Revolving Loan borrowing on behalf of the Borrowers to pay to the
Former Lenders the Prepayment Fee, plus the Payoff Amount as
consideration for consenting to the Buyout.
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<PAGE>
4. Effective Time. Sections 1 and 2 of this Amendment shall
become effective - upon:
(a) the execution and delivery hereof by the
Borrowers, the Lender and the Agent;
(b) the payment by the Borrowers to BankAmerica
Business Credit, Inc., individually, on the date hereof of a prepayment
fee of $500,000 in immediately available funds, which fee shall be
deemed fully earned and non-refundable on the date hereof, and MKR
hereby authorizes such payment to be made as a revolving loan advance
to MKR;
(c) the delivery of a legal opinion from Doepken
Keevican & Weiss, counsel to the Borrowers, as to all the transactions
described herein;
(d) receipt by the Agent of evidence of the corporate
restructuring and the other documents and deliveries as set forth in
the Closing Memorandum attached hereto as Exhibit B all in form and
substance acceptable to the Agent; and
(e) the execution and delivery of that certain
Commitment Letter and Fee Letter among MKR, Bank of America Illinois,
Bank of America NT & SA and BA Securities, Inc.
In the event the Effective Time has not occurred on or before 5:00 p.m. (Chicago
time) December 31, 1996, Sections 1 and 2 hereof shall not become operative and
shall be of no force or effect.
5. Reference to and Effect Upon the Credit Agreement.
(a) Except as specifically amended above, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy
of the Agent or any Lender under the Credit Agreement or any Loan
Document, nor constitute a waiver of any provision of the Credit
Agreement or any Loan Document, except as specifically set forth
herein. Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of similar import shall mean and be a reference to the Credit
Agreement as amended hereby.
6. Costs and Expenses.
(a) The Borrower hereby affirms its obligation under
Section 15.7 of the Credit Agreement to reimburse the Agent and the
Lender for all reasonable costs, internal
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<PAGE>
charges and out-of-pocket expenses paid or incurred by the Agent in
connection with the preparation, negotiation, execution and delivery of
this Amendment, including but not limited to the attorneys' fees and
time charges of attorneys (and the allocated cost of in-house counsel)
for the Agent with respect thereto.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS; PROVIDED THAT THE LENDERS AND THE AGENT
SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
8. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
9. Counterparts. This Amendment may be executed in any number
of counterparts, each of which when so executed shall be deemed an original but
all such counterparts shall constitute one and the same instrument.
10. JURY TRIAL WAIVER. THE BORROWERS, THE AGENT AND THE
LENDERS HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND AND RIGHTS UNDER THIS AMENDMENT, THE LOAN DOCUMENTS OR UNDER
ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY LENDING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AMENDMENT OR ANY LOAN DOCUMENT,
AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
11. Releases. In further consideration of the execution of
this Amendment by the Agent and the Lenders, the Borrowers hereby release the
Agent and the Lenders and all current and future holders of assignments of or
participations in the Obligations and their respective affiliates, officers,
employees, directors, agents and attorneys (collectively, the "Releasees") from
any and all claims, demands, liabilities, responsibilities, disputes, causes of
action (whether at law or in equity) and obligations of every nature whatsoever,
whether liquidated or unliquidated, known or unknown, matured or unmatured,
fixed or contingent (collectively, "Claims") that the Borrowers may have against
the Releasees which arise from or relate to any actions which the Releasees may
have taken or omitted to take on or prior to the date hereof with respect to the
Obligations, any Collateral, the Credit Agreement, any other Loan Document and
any third parties liable in whole or in part for the Obligations. For purposes
of the release contained in this paragraph, the term "Borrowers" shall mean and
include the Borrowers and their successors and assigns, including, without
limitation, any trustees acting on behalf of such parties and any
debtor-in-possession in respect of any such party.
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<PAGE>
12. Reaffirmation of Guaranty. Each of the Borrowers as a
guarantor under Article 16 of the Credit Agreement hereby (i) acknowledges and
reaffirms all of its obligations and undertakings under the guaranty under
Article 16 of the Credit Agreement, and (ii) acknowledges and agrees that
subsequent to, and taking into account this Amendment, the guaranty under
Article 16 of the Credit Agreement is and shall remain in full force and effect
in accordance with the terms thereof.
13. Date Down on Title Insurance. If on March 31, 1997 the
Lender still has any outstanding Commitment under the Credit Agreement, the
Borrowers shall deliver to the Agent and the Lender date down endorsements for
the title policies with respect to the Mortgages in form and substance
acceptable to the Agent.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date and year first above written.
"BORROWERS"
Power Parts Company MK Rail Corporation
By: By:
Title: Title:
Touchstone, Inc. Motor Coils Manufacturing Co.
By: By:
Title: Title:
Power Parts Sign Co. MK Engine Systems Company, Inc.
By: By:
Title: Title:
Clark Industries, Inc.
By:
Title:
Acknowledged and agreed to:
AMS Manufacturing Company
(f/k/a Alert Mfg & Supply Co.)
By:
Title:
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<PAGE>
Commitment: $75,000,000 BANKAMERICA BUSINESS CREDIT, INC.,
individually as a Lender and as Agent
Revolving Loan
Commitment: $67,000,000
By:
Term Loan
Commitment: $8,000,000 Its:
Pro Rate Share: 100%
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EXHIBIT A
Corporate Restructuring
Existing Name New Name as of January 1, 1997
- ------------- ------------------------------
-11-
<PAGE>
EXHIBIT B
Closing Memorandum
<PAGE>
-12-
Exhibit 10.59
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of February 27, 1997
among
MOTIVEPOWER INDUSTRIES, INC.,
as Borrower
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent and Lender,
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO,
as Lenders
Arranged By
BANCAMERICA SECURITIES, INC.
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TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS..........................................................2
1.01 Certain Defined Terms..........................................2
1.02 Other Interpretive Provisions.................................31
1.03 Accounting Principles.........................................32
1.04 Amendment and Restatement.....................................32
ARTICLE II
THE CREDITS.........................................................33
2.01 Amounts and Terms of Commitments..............................33
(a) The Term Credit...................................33
(b) The Revolving Credit..............................34
(c) Letters of Credit.................................34
2.02 Loan Accounts; Notes..........................................40
--------------------
2.03 Procedure for Borrowing.......................................40
-----------------------
2.04 Conversion and Continuation Elections.........................41
-------------------------------------
2.05 Voluntary Termination or Reduction of Commitments.............42
-------------------------------------------------
2.06 Optional Prepayments..........................................43
--------------------
2.07 Mandatory Prepayments of Loans; Mandatory Commitment
----------------------------------------------------
Reductions.................................................43
(a) Asset Dispositions................................43
(b) Subordinated Debt Issuance........................44
(c) Overadvances......................................44
(d) General...........................................44
(e) Reduction of Commitment...........................45
2.08 Repayment.....................................................45
---------
(a) The Term Credit...................................45
---------------
(b) The Revolving Credit..............................45
--------------------
2.09 Interest......................................................46
2.10 Fees..........................................................46
(a) Arrangement, Agency Fees..............................46
(b) Commitment Fees...................................47
(c) Compensation for Letters of Credit................47
2.11 Computation of Fees and Interest..............................48
--------------------------------
2.12 Payments by the Borrower......................................48
------------------------
2.13 Payments by the Lenders to the Agent..........................49
------------------------------------
2.14 Sharing of Payments, Etc......................................50
-------------------------
2.15 Security and Guaranty.........................................50
---------------------
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY..............................50
3.01 Taxes.........................................................50
3.02 Illegality....................................................51
3.03 Increased Costs and Reduction of Return.......................52
3.04 Funding Losses................................................53
3.05 Inability to Determine Rates..................................54
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Section Page
3.06 Reserves on Offshore Rate Loans..............................54
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3.07 Certificates of Lenders......................................54
-----------------------
3.08 Substitution of Lenders......................................54
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3.09 Survival.....................................................55
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ARTICLE IV
CONDITIONS PRECEDENT...............................................55
4.01 Conditions of Initial Closing................................55
(a) Credit Agreement and Notes.......................55
(b) Resolutions; Incumbency..........................55
(c) Organization Documents; Financials and Solvency;
Good Standing....................................55
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(d) Legal Opinions...................................56
--------------
(e) Payment of Fees..................................56
---------------
(f) Collateral Documents.............................56
--------------------
(g) Insurance Policies...............................58
------------------
(h) Environmental Review.............................58
--------------------
(i) Certificate......................................58
-----------
(j) Borrower Reorganization..........................59
-----------------------
(k) Repayment of Eurodollar Loans to BABC............59
-------------------------------------
(l) Assignment of BABC Loans.........................59
------------------------
(m) Documentation of Borrowing Subsidiary Loans......59
-------------------------------------------
(n) Termination of PTRA and HBTC Liens...............59
----------------------------------
(o) Other Documents..................................59
---------------
4.02 Conditions to All Borrowings.................................59
(a) Notice of Borrowing or Conversion/Continuation
................................................60
(b) Continuation of Representations and Warranties
................................................60
(c) No Existing Default..............................60
(d) Availability.....................................60
ARTICLE V
REPRESENTATIONS AND WARRANTIES.....................................60
5.01 Corporate Existence and Power................................60
5.02 Corporate Authorization; No Contravention....................61
5.03 Governmental Authorization...................................61
5.04 Binding Effect...............................................61
5.05 Litigation...................................................62
5.06 No Default...................................................62
5.07 ERISA Compliance.............................................62
5.08 Use of Proceeds; Margin Regulations..........................63
5.09 Title to Properties..........................................63
5.10 Taxes........................................................63
5.11 Financial Condition..........................................63
5.12 Environmental Matters........................................64
5.13 Collateral Documents.........................................65
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Section Page
5.14 Regulated Entities...........................................66
5.15 No Burdensome Restrictions...................................66
5.16 Copyrights, Patents, Trademarks and Licenses, etc.
.........................................................66
5.17 Capitalization and Subsidiaries..............................67
-------------------------------
5.18 Insurance....................................................67
---------
5.19 Solvency.....................................................67
--------
5.20 Swap Obligations.............................................67
----------------
5.21 Full Disclosure..............................................67
---------------
ARTICLE VI
AFFIRMATIVE COVENANTS..............................................68
6.01 Financial Statements and Borrowing Base Certificate
.........................................................68
6.02 Certificates; Other Information..............................69
-------------------------------
6.03 Notices......................................................70
-------
6.04 Preservation of Corporate Existence, Etc.....................72
----------------------------------------
6.05 Maintenance of Property; Locomotives.........................72
------------------------------------
6.06 Insurance....................................................72
---------
6.07 Payment of Obligations.......................................73
----------------------
6.08 Compliance with Laws.........................................73
--------------------
6.09 Compliance with ERISA........................................74
---------------------
6.10 Inspection of Property and Books and Records.................74
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6.11 Environmental Laws...........................................74
------------------
6.12 Use of Proceeds..............................................74
---------------
6.13 Location and Perfection of Collateral........................75
-------------------------------------
6.14 Further Assurances...........................................75
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ARTICLE VII
NEGATIVE COVENANTS.................................................76
7.01 Limitation on Liens..........................................76
7.02 Disposition of Assets........................................78
7.03 Restriction on Fundamental Changes; Acquisitions.............79
7.04 Loans and Investments........................................82
7.05 Limitation on Indebtedness...................................84
7.06 Transactions with Affiliates.................................84
7.07 Use of Proceeds..............................................85
7.08 Contingent Obligations.......................................85
7.09 Joint Ventures; Subsidiaries.................................86
7.10 Lease Obligations............................................87
7.11 Restricted Payments; No Permitted Restrictions for
Subsidiaries..............................................87
7.12 ERISA........................................................88
7.13 Change in Business; Holding Companies; FSC Operations
.........................................................88
7.14 Accounting Changes...........................................89
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7.15 Capital Expenditures.........................................89
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Section Page
7.16 Maximum Ratio of Funded Debt to Cash Flow....................89
-----------------------------------------
7.17 Minimum Tangible Net Worth...................................89
--------------------------
7.18 Minimum Fixed Charges Coverage Ratio.........................89
------------------------------------
ARTICLE VIII
EVENTS OF DEFAULT..................................................90
8.01 Event of Default.............................................90
(a) Non-Payment......................................90
-----------
(b) Representation or Warranty.......................90
--------------------------
(c) Specific Defaults................................90
-----------------
(d) Other Defaults...................................90
--------------
(e) Cross-Default....................................90
-------------
(f) Insolvency; Voluntary Proceedings................91
---------------------------------
(g) Involuntary Proceedings..........................91
-----------------------
(h) ERISA............................................91
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(i) Monetary Judgments...............................92
------------------
(j) Non-Monetary Judgments...........................92
----------------------
(k) Change of Control................................92
-----------------
(l) Loss of Licenses.................................92
----------------
(m) Adverse Change...................................92
--------------
(n) Guarantor Defaults...............................92
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(o) Collateral.......................................93
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(p) Cross-Acceleration to MK Gain Debt...............93
----------------------------------
(q) Locomotive Leases................................93
-----------------
8.02 Remedies.....................................................93
--------
8.03 Specified Swap Contract Remedies.............................94
--------------------------------
8.04 Rights Not Exclusive.........................................94
--------------------
8.05 Certain Financial Covenant Defaults..........................96
-----------------------------------
ARTICLE IX
THE AGENT..........................................................96
9.01 Appointment and Authorization; "Agent".......................96
9.02 Delegation of Duties.........................................97
9.03 Liability of Agent...........................................97
9.04 Reliance by Agent............................................97
9.05 Notice of Default............................................98
9.06 Credit Decision..............................................98
9.07 Indemnification of Agent.....................................99
9.08 Agent in Individual Capacity.................................99
9.09 Successor Agent.............................................100
9.10 Withholding Tax.............................................100
9.11 Collateral Matters..........................................102
ARTICLE X
MISCELLANEOUS.....................................................102
10.01 Amendments and Waivers.....................................102
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Section Page
10.02 Notices.....................................................103
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10.03 No Waiver; Cumulative Remedies..............................104
------------------------------
10.04 Costs and Expenses..........................................105
------------------
10.05 Borrower Indemnification....................................105
------------------------
10.06 Marshalling; Payments Set Aside.............................107
-------------------------------
10.07 Successors and Assigns......................................107
----------------------
10.08 Assignments, Participations, etc............................107
---------------------------------
10.09 Confidentiality.............................................109
---------------
10.10 Set-off.....................................................110
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10.11 Intentionally Omitted.......................................110
---------------------
10.12 Notification of Addresses, Lending Offices, Etc.
.........................................................110
10.13 Counterparts................................................110
------------
10.14 Severability................................................111
------------
10.15 No Third Parties Benefited..................................111
--------------------------
10.16 Governing Law and Jurisdiction..............................111
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10.17 Waiver of Jury Trial........................................111
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10.18 Entire Agreement............................................112
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SCHEDULES
Schedule 1.1A Terms of Reorganization
Schedule 2.01 Commitments
Schedule 2.01(c) Outstanding Letters of Credit as of Closing
Schedule 2.07 Motor Coils Machine Shop Equipment
Schedule 5.05 Litigation
Schedule 5.07 ERISA
Schedule 5.11 (A) December 31, 1996 Unaudited
Financials
(B) Off Balance Sheet Liabilities
(C) Pro Forma
(D) Projections
Schedule 5.12 Environmental Matters
Schedule 5.13 List of UCC Filing Jurisdictions
Schedule 5.17 Capitalization and Subsidiaries
Schedule 5.18 Insurance Matters
Schedule 6.05 Owned Railroad Locomotives
Schedule 6.13 Location of Collateral
Schedule 7.01 Permitted Liens
Schedule 7.05 Permitted Indebtedness
Schedule 7.06 Affiliate Transactions
Schedule 7.08 Contingent Obligations
Schedule 10.02 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Compliance Certificate (Section 1.01)
Exhibit B Form of Amended and Restated Guaranty (Section
1.01)
Exhibit C Form of Notice of Borrowing (Section 1.01)
Exhibit D Form of Notice of Conversion/Continuation
(Section 1.01)
Exhibit E Form of Revolving Loan Note (Section 1.01)
Exhibit F Form of Amended and Restated Term Loan Note
(Section 1.01)
Exhibit G Form of Amended and Restated Security Agreement
(Borrower)(Section 1.01)
Exhibit H Form of Amended and Restated Security Agreement
(Guarantors) (Section 1.01)
Exhibit I Form of Legal Opinion of Borrower's Counsel
(Section 4.01)
Exhibit J Form of Borrowing Base Certificate (Section
6.01)
Exhibit K Form of Assignment and Acceptance (Section
10.08)
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SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of
February 27, 1997, among MotivePower Industries, Inc., a Delaware corporation
(the "Borrower"), the several financial institutions from time to time party to
this Agreement (collectively, the "Lenders"; individually, a "Lender"), and Bank
of America National Trust and Savings Association, as agent for the Lenders (the
"Agent").
WHEREAS, MotivePower Industries, Inc. (f/k/a MK Rail Corporation), a
Delaware corporation, Motor Coils Manufacturing Company (f/k/a Motor Coils
Manufacturing Co.), a Pennsylvania corporation ("Motor Coils"), Engine Systems
Company, Inc. (f/k/a MK Engine Systems Company, Inc.), a New York corporation
("Engine"), Clark Industries Company (f/k/a Clark Industries, Inc.), an Illinois
corporation ("Clark"), Touchstone Company (f/k/a Touchstone, Inc.), a Tennessee
corporation ("Touchstone"), Power Parts Company, a Nevada corporation ("Power
Parts") (each an "Existing Borrower" and collectively, the "Existing
Borrowers"), and BankAmerica Business Credit, Inc., a Delaware corporation
individually as a lender and as agent ("BABC"), are parties to that certain
Amended and Restated Loan and Security Agreement dated as of September 10, 1996
(as amended, the "Existing Loan Agreement");
WHEREAS, immediately prior to the effectiveness of this amendment and
restatement of the Agreement, BABC has resigned as agent and assigned to the
Agent all of its rights, duties and obligations as agent under the Existing Loan
Agreement (and Agent has assumed all such rights, duties and obligations as the
successor agent thereunder), and BABC has assigned to the Lenders all of its
rights and outstanding loans, commitments and letter of credit obligations under
the Existing Loan Agreement, and each Lender has assumed its ratable share of
such loans, commitments and letter of credit obligations in accordance with the
Pro Rata Shares (as defined below) hereunder;
WHEREAS, on the Closing Date (as defined below) the Borrower and its
Subsidiaries are undertaking a reorganization (the "Reorganization")of their
corporate structure as described in full on Schedule 1.1A hereto, pursuant to
which (among other things) the Borrower will become a holding company and no
longer conduct business operations;
WHEREAS, pursuant to the Borrower's request on the Closing Date, the
proceeds of the Loans (as defined below) hereunder, to the extent necessary, are
being applied in repayment of the outstanding loans to the Borrowing
Subsidiaries (as defined below) on the date hereof under the Existing Loan
Agreement and Boise Locomotive Company, a Delaware corporation ("Boise
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Locomotive"), provided, that such repayment shall not in any way release the
Borrowing Subsidiaries from their continuing obligations under the Guaranty (as
defined below); and
WHEREAS, the Agent, the Lenders and the Borrower have agreed to amend
and restate the Existing Loan Agreement (i) to continue to make available to the
Borrower credit facilities in an aggregate amount up to $75,000,000, which will
(among other things) be restated as a secured term loan which is increased to
$20,000,000 and a secured revolving credit facility which is reduced to
$55,000,000, all upon the terms and conditions set forth in this Agreement, (ii)
to amend and restate the guaranty obligations of the Borrowing Subsidiaries and
certain other Subsidiaries of the Borrower set forth in the Existing Loan
Agreement to continue such obligations as part of the Guaranty, and (iii) to
amend and restate the mortgages, security interests and liens granted by
Borrower, the Borrowing Subsidiaries and certain other Subsidiaries of the
Borrower in the Existing Loan Agreement and the other agreements contemplated
thereby to continue such mortgages, liens and security interests pursuant to the
Security Agreements and other Collateral Documents (as such terms are defined
below);
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms. The following terms have the
following meanings:
"Account Debtor" means the Person obligated in any way
on or in connection with an Account.
"Accounts" means all of the Borrower's, the Borrowing
Subsidiaries', Clark's and in certain limited circumstances, the FSC's
(on a consolidated basis) now owned or hereafter acquired or arising
accounts, and any other rights to payment for the sale or lease of
goods or rendition of services, whether or not they have been earned by
performance.
"Acquisition" means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly,
in (a) the acquisition of all or substantially all of the assets of a
Person, or of any business or division of a Person, (b) the acquisition
of in excess of 50% of the capital stock, partnership interests,
membership interests or equity of any Person, or otherwise
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causing any Person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than
a Person that is a Subsidiary) provided that the Borrower or the
Subsidiary is the surviving entity.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies of the other Person, whether through the
ownership of voting securities, membership interests, by contract, or
otherwise; provided, however, that neither Agent, Arranger or Bank of
America Illinois shall in any event be deemed to be Affiliates of the
Borrower or its Affiliates.
"Agent" means BofA in its capacity as agent for the Lenders
hereunder, and any successor agent arising under Section 9.09.
"Agent-Related Persons" means BofA and any successor agent
arising under Section 9.09, together with their respective Affiliates
(including, without limitation, in the case of BofA, the Arranger), and
the officers, directors, employees, agents and attorneys-in-fact of
such Persons and Affiliates.
"Agent's Payment Office" means the address for payments set
forth on Schedule 10.02 or such other address as the Agent may from
time to time specify.
"Agreement" means this Second Amended and Restated Credit
Agreement, as hereafter modified, amended or restated from time to
time.
"Applicable Margin" means the percentage as set forth below
then applicable to, respectively, the Commitment Fee, Offshore Rate
Loans, Base Rate Loans, documentary or commercial Letter of Credit fees
and stand-by Letter of Credit fees as determined by using the following
performance based grid after determining which of the pricing levels
(being I through V) specified thereon is then in effect:
3
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<TABLE>
<CAPTION>
Pricing Pricing Pricing
Level II: Level III: Level IV:
Ratio of: less than less than less than
(A) Funded Debt to Pricing 1.50x and 2.25x and 3.00x and Pricing
(B) Cash Flow Level I: greater than greater than greater than Level V:
less than or equal to or equal to or equal to greater than
1.00x 1.00x 1.50x 2.25x 3.00
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Commitment Fee: 0.20% 0.25% 0.30% 0.35% 0.375%
Offshore Rate Loans: 0.50% 0.75% 1.00% 1.50% 2.00%
Base Rate Loans: 0.00% 0.00% 0.00% 0.50% 1.00%
Documentary or
Commercial Letters
of Credit: 0.25% 0.375% 0.50% 0.75% 1.00%
Stand-by Letters of
Credit: 0.50% 0.75% 1.00% 1.50% 2.00%
</TABLE>
As of the Closing Date, the Applicable Margin shall mean the
percentages set forth under Pricing Level III and in no event will the
Applicable Margin be reduced below Pricing Level III for a period of
six (6) months after the Closing Date. Subject to the limitations of
the first sentence of this paragraph, the Pricing Level in effect and
thereby the Applicable Margin will first be subject to adjustment on
the third (3rd) Business Day following delivery of the financial
statements as required by Section 6.01(b) and the Compliance
Certificate as required by Section 6.02(b) for the Fiscal Quarter
ending June 27, 1997, and any such adjustment shall be effective as of
the third (3rd) Business Day following the delivery of such quarterly
financial statements for each Fiscal Quarter thereafter; provided,
however, that if the Borrower would be entitled to have the Applicable
Margin decreased based on the financial results for its Fiscal Quarter
ending in June, 1997 but for the operation of the first sentence of
this paragraph, then such decrease in the Applicable Margin shall
instead take effect as of the date which is the six (6) month
anniversary of the Closing Date, and the Applicable Margin shall be
readjusted again based on the financial results for the Borrower's
Fiscal Quarter ending in September 1997 and thereafter from time to
time in accordance with the above provision. The applicable pricing
level set forth in the grid above (and as such the Applicable Margin)
for the Commitment Fee, Offshore Rate Loans, Base Rate Loans,
documentary or commercial Letter of Credit fees and stand-by Letter of
Credit fees will be determined and adjusted (up or down) as necessary
quarterly based on which pricing level as set forth in the grid above
reflects the Borrower's ratio of Funded Debt to Cash Flow (as
determined pursuant to Section
4
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7.16) for the trailing twelve month period then ended as calculated
using the Borrower's quarterly consolidated financial statements.
Further, if Borrower's annual audited financial statements (as required
by Section 6.01(a)) and the Compliance Certificate as required by
Section 6.02(b) for any Fiscal Year as subsequently delivered
demonstrate that such ratio of Funded Debt to Cash Flow (as determined
pursuant to Section 7.16) calculated at the end of the final Fiscal
Quarter in such Fiscal Year was higher than was reported in the final
quarterly financial statement delivered during any such Fiscal Year,
then the Borrower shall pay to the Agent for the ratable benefit of
Lenders a make-up payment within five (5) days after delivery of the
Borrower's annual audited financial statements. The make-up payment
shall be equal to the difference between interest that should have been
paid during such Fiscal Year and interest actually paid.
Notwithstanding the foregoing, at any time during which the Borrower
has failed to deliver the financial statements for any Fiscal Quarter
end as required by Section 6.01(b) and the Compliance Certificate as
required by Section 6.02(b), or the annual audited financial statements
required by Section 6.01(a) hereof and the Compliance Certificate as
required by Section 6.02(b), the ratio of Funded Debt to Cash Flow
shall be deemed to be greater than or equal to 3.0 to 1.0 for purposes
of the calculation of which Pricing Level shall apply in determining
the Applicable Margin.
"Arranger" means BancAmerica Securities, Inc., a
Delaware corporation.
"Assignee" has the meaning specified in Section
10.08(a).
"Attorney Costs" means and includes all fees and disbursements
of any law firm or other external counsel, the allocated cost of
internal legal services and all disbursements of internal counsel.
"Availability" means, at any time, (a) the sum of (A)
eighty-five percent (85%) of the Net Amount of Eligible Accounts of the
Borrower, the Borrowing Subsidiaries, Clark and the FSC (on a
consolidated basis) plus (B) seventy percent (70%) of the aggregate
amount of all Eligible Inventory consisting of raw materials and
finished goods of the Borrower, the Borrowing Subsidiaries and Clark
(on a consolidated basis), plus (C) thirty percent (30%) of the
aggregate amount of all Eligible Inventory consisting of
work-in-process of the Borrower, the Borrowing Subsidiaries and Clark
(on a consolidated basis), minus (b) the sum of (i) reserves for
accrued interest on the Obligations, (ii) the Environmental Compliance
Reserve, and (iii) all other reserves which the Agent deems necessary
in the exercise of
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<PAGE>
its reasonable credit judgment to maintain with respect to the
Borrower's, the Borrowing Subsidiaries', Clark's and the FSC's Accounts
and/or Inventory, including, without limitation, reserves for any
amounts which the Agent or any Lender may be obligated to pay in the
future for the account of the Borrower or any Guarantor.
"BABC" means BankAmerica Business Credit, Inc., a
Delaware corporation.
"Bankruptcy Code" means the Federal Bankruptcy Reform
Act of 1978 (11 U.S.C. ss.101, et seq.).
"Base Rate" means, for any day, the higher of: (a) one-half of
one percent (0.50%) per annum above the latest Federal Funds Rate; and
(b) the rate of interest in effect for such day as publicly announced
from time to time by BofA in San Francisco, California, as its
"reference rate." (The "reference rate" is a rate set by BofA based
upon various factors including BofA's costs and desired return, general
economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such
announced rate.) Any change in the reference rate announced by BofA
shall take effect at the opening of business on the day specified in
the public announcement of such change.
"Base Rate Loan" means a Loan that bears interest based on the
Base Rate.
"BofA" means Bank of America National Trust and Savings
Association, a national banking association.
"Boise Locomotive" has the meaning set forth in the
recitals to this Agreement.
"Borrower" means MotivePower Industries, Inc., a
Delaware corporation.
"Borrower Pledge Agreement" means the Pledge Agreement of even
date herewith executed by the Borrower in favor of the Agent, on behalf
of the Lenders, pledging all the stock of its Subsidiaries (other than
MK Gain), and any amendments, modifications or restatements thereof, or
any pledge agreements entered into after the Closing Date by the
Borrower.
"Borrowing" means a borrowing hereunder consisting of Loans of
the same Type made to the Borrower on the same day by the Lenders under
Article II, and, other than in the case of Base Rate Loans, having the
same Interest Period.
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<PAGE>
"Borrowing Date" means any date on which a Borrowing occurs
under Section 2.03 or a letter of credit is issued under Section 2.01.
"Borrowing Subsidiary" or "Borrowing Subsidiaries" means,
individually or collectively, Engine Systems Company, Inc., a New York
corporation; Motor Coils Manufacturing Company, a Pennsylvania
corporation; Power Parts Company, a Nevada corporation; Touchstone
Company, a Tennessee corporation; and Boise Locomotive Company, a
Delaware corporation.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in Chicago are authorized or
required by law to close and, if the applicable Business Day relates to
any Offshore Rate Loan, means such a day on which dealings are carried
on in the applicable offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law,
in each case, regarding capital adequacy of any bank or of any
corporation controlling a bank.
"Capital Expenditures" means, all payments due (whether or not
paid) during a Fiscal Year in respect of the cost of any fixed asset or
improvement, or replacement, substitution, or addition thereto, which
has a useful life of more than one year, including, without limitation,
those costs arising in connection with the direct or indirect
acquisition of such asset by way of increased product or service
charges or offset items or in connection with a capital lease.
"Cash Flow" means, as to any Person and for any period for
which such amount is being determined, EBITDA minus Capital
Expenditures.
"CERCLA" has the meaning specified in the definition of
"Environmental Laws."
"Change of Control" means (a) that the Borrower shall cease to
own, directly or indirectly, all of the outstanding capital stock of
each Guarantor or MK Gain and its Subsidiaries; or (b) that any Person
or group of Persons (within the meaning of the Exchange Act) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under the
Exchange Act) of 20% or more of the issued and outstanding shares of
the Borrower's capital stock having the right to vote for the election
of directors of Borrower
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<PAGE>
under ordinary circumstances; or (c) that during any period of twelve
(12) consecutive calendar months, individuals who at the beginning of
such period constituted the Borrower's board of directors (together
with any new directors whose election by the Borrower's board of
directors or whose nomination for election by the Borrower's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason other than death or
disability to constitute a majority of the directors then in office.
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, and
regulations promulgated thereunder.
"Collateral" means all property and interests in property and
proceeds thereof now owned or hereafter acquired by the Borrower or any
Guarantor or any Borrowing Subsidiary (excluding the capital stock of
MK Gain), including, without limitation, any such property or interests
in property (or the proceeds thereof) in or upon which a Lien now or
hereafter exists in favor of the Lenders, or the Agent on behalf of the
Lenders, whether under this Agreement or under any other documents
executed by any such Person and delivered to the Agent or the Lenders.
"Collateral Documents" means, collectively, (i) the Security
Agreements, the Guaranty, the Mortgages, the Pledge Agreements and all
other locomotive mortgages and lease assignments, security agreements,
mortgages, deeds of trust, patent and trademark assignments, lease
assignments, guarantees and other similar agreements between the
Borrower or any Borrowing Subsidiary or any Guarantor and the Lenders
or the Agents for the benefit of the Agent (on behalf of the Lenders)
and/or the Lenders now or hereafter delivered to the Lenders or the
Agent pursuant to or in connection with the transactions contemplated
hereby, and all financing statements (or comparable documents now or
hereafter filed in accordance with the Uniform Commercial Code or
comparable law) against the Borrower, any Borrowing Subsidiary or any
Guarantor as debtor in favor of the Lenders or the Agent for the
benefit of the Lenders as secured party, and (ii) any amendments,
supplements, modifications, renewals, replacements, consolidations,
substitutions and extensions of any of the foregoing.
"Commitment", as to each Lender, means such Lender's Pro Rata
Share of each of the Term Commitment and the Revolving Commitment as
the same may be reduced under
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Section 2.05 or as a result of one or more assignments under Section
10.08.
"Commitment Fee" has the meaning specified in
Section 2.09.
"Compliance Certificate" means a certificate
substantially in the form of Exhibit A.
"Contingent Obligation" means, as to any Person, any direct or
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person (i) to purchase, repurchase or otherwise
acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such
primary obligation, or to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency
or any balance sheet item, level of income or financial condition of
the primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless
the holder of any such primary obligation against loss in respect
thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety
Instrument issued for the account of that Person or as to which that
Person is otherwise liable for reimbursement of drawings or payments;
(c) to purchase any materials, supplies or other property from, or to
obtain the services of, another Person if the relevant contract or
other related document or obligation requires that payment for such
materials, supplies or other property, or for such services, shall be
made regardless of whether delivery of such materials, supplies or
other property is ever made or tendered, or such services are ever
performed or tendered or (d) in respect of any Swap Contract.
"Contractual Obligation" means, as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other
instrument, document or agreement to which such Person is a party or by
which it or any of its property is bound.
"Conversion/Continuation Date" means any date on which, under
Section 2.04, the Borrower (a) converts Loans of one Type to another
Type, or (b) continues as Loans of the same Type, but with a new
Interest Period, Loans having Interest Periods expiring on such date.
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"Default" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured or
otherwise remedied during such time) constitute an Event of Default.
"Disposition" means (i) the sale, lease, conveyance or other
disposition of property or assets by the Borrower or any Subsidiary of
the Borrower and/or (ii) the sale or transfer by the Borrower or any
Subsidiary of the Borrower of any equity securities issued by any
Subsidiary of the Borrower and held by such transferor Person.
"Dollars", "dollars" and "$" each mean lawful money of
the United States.
"EBITDA" means, as to any Person and for any period as to
which such amount is being determined, the sum of the amounts (on a
consolidated basis) for such period of (i) net income from operations
(meaning, among other things, income exclusive of extraordinary gains
and losses), (ii) interest expense, (iii) provisions for taxes based on
income, (iv) depreciation expense, and (v) amortization expense.
"Eligible Accounts" means all Accounts of the Borrower, the
Borrowing Subsidiaries, Clark and the FSC (on a consolidated basis)
which the Agent in the exercise of its reasonable commercial discretion
determines to be Eligible Accounts. Without limiting the discretion of
the Agent to establish other criteria of ineligibility, Eligible
Accounts shall not include any Account:
(A) with respect to which more than 90 days have
elapsed since the date of the original invoice therefor or which is
more than 60 days past due except to the extent that such Account is
secured or payable by a letter of credit in form and substance and from
an issuer satisfactory to the Agent in its reasonable discretion (and
assigned to the Agent, for the benefit of the Lenders); provided,
however, that if the Account Debtor is either (i) a Class I Carrier (as
defined for carriers other than common and contract carriers of
passengers from time to time in the rules and regulations promulgated
by the Surface Transportation Board, Department of Transportation) or
(ii) a Specified Original Equipment Manufacturer, then up to $3,000,000
of Accounts owing by such Account Debtors otherwise deemed ineligible
by virtue of not having satisfied the requirements of the first part of
this clause (A) shall nonetheless be eligible so long as not more than
120 days have elapsed since the date of the original invoices therefor
and such Accounts are not more than 90 days past due and otherwise
satisfy the requirements for Eligible Accounts;
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(B) with respect to which any of the representations,
warranties, covenants, and agreements contained in any Security
Agreement are not or have ceased to be complete and correct or have
been breached;
(C) with respect to which, in whole or in part, a
check, promissory note, draft, trade acceptance or other instrument for
the payment of money has been received, presented for payment and
returned uncollected for any reason;
(D) which represents a progress billing (as
hereinafter defined), arises under a contract backed by a performance
bond, or as to which the Borrower has extended the time for payment
without the consent of the Agent; for the purposes hereof, "progress
billing" means any invoice for goods sold or leased or services
rendered under a contract or agreement pursuant to which the Account
Debtor's obligation to pay such invoice is conditioned upon the
Borrower's, such Borrowing Subsidiary's, Clark's or the FSC's
completion of any further performance under the contract or agreement;
(E) as to which any one or more of the following
events has occurred with respect to the Account Debtor on such Account:
death or judicial declaration of incompetency of an Account Debtor who
is an individual; the filing by or against the Account Debtor of a
request or petition for liquidation, reorganization, arrangement,
adjustment of debts, adjudication as a bankrupt, winding-up, or other
relief under the bankruptcy, insolvency, or similar laws of the United
States, any state or territory thereof, or any foreign jurisdiction,
now or hereafter in effect; the making of any general assignment by the
Account Debtor for the benefit of creditors; the appointment of a
receiver or trustee for the Account Debtor or for any of the assets of
the Account Debtor, including, without limitation, the appointment of
or taking possession by a "custodian", as defined in the Bankruptcy
Code; the institution by or against the Account Debtor of any other
type of insolvency proceeding (under the bankruptcy laws of the United
States or otherwise) or of any formal or informal proceeding for the
dissolution or liquidation of, settlement of claims against, or winding
up of affairs of, the Account Debtor; the nonpayment generally by the
Account Debtor of its debts as they become due; or the cessation of the
business of the Account Debtor as a going concern;
(F) if fifty percent (50%) or more of the aggregate
dollar amount of outstanding Accounts (excluding, however, any
so-called retainages which are not then due and owing) owed at such
time by the Account Debtor is classified
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as ineligible under the other criteria set forth herein or
otherwise established by the Agent;
(G) owed to the FSC or owed to any Person by an
Account Debtor which: (i) does not maintain its chief executive office
in the United States; or (ii) is not organized under the laws of the
United States or any state thereof; or (iii) is the government of any
foreign country or sovereign state, or of any state, province,
municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality
thereof; except to the extent that such Account is secured or payable
by a letter of credit or foreign credit insurance in form and substance
and from an issuer satisfactory to the Agent in its reasonable
discretion (and assigned to the Agent on behalf of the Lenders);
(H) owed by an Account Debtor which is an Affiliate
or employee of the Borrower or any Subsidiary of the Borrower
including, without limitation, the FSC or MK Gain and its Subsidiaries;
(I) except as provided in clause (K) below, as to
which either the perfection, enforceability, or validity of the Agent's
Lien in such Account, or the Agent's right or ability to obtain direct
payment to the Agent of the proceeds of such Account, is governed by
any federal, state, or local statutory requirements other than those of
the UCC;
(J) which is owed by an Account Debtor to which the
Borrower or any of its Subsidiaries is indebted in any way, or which is
subject to any right of setoff or recoupment by the Account Debtor,
unless the Account Debtor has entered into an agreement acceptable to
the Agent to waive setoff rights; or if the Account Debtor thereon has
disputed liability or made any claim with respect to any other Account
due from such Account Debtor; but in each such case only to the extent
of such indebtedness, setoff, recoupment, dispute, or claim;
(K) which is owed by the government of the United
States of America, or any department, agency, public corporation, or
other instrumentality thereof, unless the Federal Assignment of Claims
Act of 1940, as amended (31 U.S.C. ss. 3727 et seq.), and any other
steps necessary to perfect the Agent's Lien therein, have been complied
with to the Agent's satisfaction with respect to such Account;
(L) which is owed by any state, municipality, or
other political subdivision of the United States of America, or any
department, agency, public corporation, or other
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<PAGE>
instrumentality thereof and as to which the Agent determines
that its Lien therein is not or cannot be perfected;
(M) which represents a sale on a bill-and-hold,
guaranteed sale, sale and return, sale on approval, consignment, or
other repurchase or return basis;
(N) which is evidenced by a promissory note or
other instrument or by chattel paper;
(O) if Agent believes, in the exercise of its
reasonable judgment, that the prospect of collection of such Account is
impaired or that the Account may not be paid by reason of the Account
Debtor's financial inability to pay;
(P) with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, West Virginia, or any
other state requiring the filing of a Business Activity Report or
similar document in order to bring suit or otherwise enforce its
remedies against such Account Debtor in the courts or through any
judicial process of such state, unless the Borrower, any Borrowing
Subsidiary, Clark or the FSC, as applicable, has qualified to do
business in New Jersey, Minnesota, West Virginia, or such other state,
or has filed a Notice of Business Activities Report with the applicable
division of taxation, the department of revenue, or with such other
state offices, as appropriate, for the then-current year, or is exempt
from such filing requirement;
(Q) arises out of a sale not made in the ordinary
course of the Borrower's, any such Borrowing Subsidiary's,
Clark's, or the FSC's business;
(R) the goods giving rise to such Account have not
been shipped and delivered to and accepted by the Account Debtor or the
services giving rise to such Account have not been performed by the
Borrower or any applicable Borrowing Subsidiary or Clark, and, if
applicable, accepted by the Account Debtor, or the Account Debtor
revokes its acceptance of such goods or services;
(S) arising under a contract providing for
financial penalties for default that may be set-off against
such Account;
(T) which is not subject to a first priority and
perfected security interest in favor of the Agent for the
benefit of the Lenders;
(U) of Touchstone with respect to which the
Account Debtor is located in Minnesota; or
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(V) which is owed by an Account Debtor who has been
issued, granted or provided with a performance bond, surety contract or
other Surety Instrument with respect to Accounts which are related to a
contract so secured by such performance bond, surety contract or other
Surety Instrument.
If any Account at any time ceases to be an Eligible Account by
reason of any of the foregoing exclusions or any failure to meet any
other eligibility criteria established by the Agent in the exercise of
its reasonable discretion then such Account shall promptly be excluded
from the calculation of Eligible Accounts, and the Accounts of the FSC
shall not in any event be Eligible Accounts unless they satisfy all of
the restrictions above, including, without limitation clause (G) above,
and in addition the Borrower shall have provided the Agent (on behalf
of the Lenders) with a legal opinion from counsel licensed in Barbados
and such other documents as the Agent shall request all in form and
substance and from Persons acceptable to the Agent establishing that
Agent (on behalf of the Lenders) has a prior perfected security
interest in such Accounts and such other matters as the Agent shall
request on the FSC and further that the Agent shall be satisfied with
its ability to prosecute any claims related to such Accounts.
"Eligible Assignee" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $100,000,000; (b) a commercial
bank organized under the laws of any other country which is a member of
the Organization for Economic Cooperation and Development (the "OECD"),
or a political subdivision of any such country, and having a combined
capital and surplus of at least $100,000,000, provided that such bank
is acting through a branch or agency located in the United States; (c)
a Person that is primarily engaged in the business of commercial
banking and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of
a Person of which a Lender is a Subsidiary, or (iii) a Person of which
a Lender is a Subsidiary; (d) a commercial finance company or finance
subsidiary of a corporation organized under the laws of the United
States of America, or any State thereof, and having total assets in
excess of $100,000,000; (e) an insurance company organized under the
laws of the United States of America (or any State thereof) and having
total assets in excess of $100,000,000; (f) a savings bank or savings
and loan association organized under the laws of the United States of
America, or any State thereof, and having total assets in excess of
$100,000,000; (g) a pension fund or other institutional lender or
investor; (h) a corporation (other than a financial institution)
organized under the laws of any State of the United States of America
and having total assets in excess
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of $100,000,000; and (i) and any Lender party to this Agreement on the
Closing Date or any Affiliate of any thereof.
"Eligible Inventory" means all Inventory of the Borrower, the
Borrowing Subsidiaries and Clark (determined individually or on a
consolidated basis, as applicable), valued at the lower of cost or
market on a first-in, first out ("FIFO") basis, that constitutes raw
materials, work-in-process, and first quality finished goods and that:
(a) is not, in the Agent's reasonable opinion, obsolete, slow-moving or
unmerchantable; (b) is located at premises owned by the Borrower,
Borrowing Subsidiary or Clark or on premises otherwise reasonably
acceptable to the Agent, provided, however, that Inventory located on
premises leased to the Borrower, a Borrowing Subsidiary or Clark shall
not be Eligible Inventory unless the Agent shall have received a
written waiver or subordination agreement, duly executed on behalf of
the appropriate landlord and in form and substance acceptable to the
Agent, of all Liens which the landlord for such premises may be
entitled to assert against such Inventory; (c) is not in transit or
held on consignment or at a third party's premises; (d) upon which the
Agent for the benefit of the Lenders has a first priority perfected
security interest; (e) is not spare parts (for manufacturing equipment
or not otherwise held for sale in the ordinary course), packaging and
shipping materials, supplies, bill-and-hold Inventory, returned or
defective Inventory, or Inventory delivered to the Borrower, a
Borrowing Subsidiary or Clark on consignment; (f) is not raw materials,
work-in-process or finished goods identified to a specific contract as
to which progress payments have been received; (g) has excluded from
the value thereof freight-in and other transportation charges and
warehouse overhead; (h) is not raw materials, work-in-process or
finished goods inventory in excess of $3,000,000 in value (based on the
lower of cost or market value on a FIFO basis) in the aggregate to the
extent it has been identified to a specific contract for which
performance bonds or a surety contract or other Surety Instrument of
any kind has been issued or provided; or (i) the Agent, in the exercise
of its reasonable commercial discretion, deems eligible as the basis
for Revolving Loans based on such collateral and credit criteria as the
Agent may from time to time establish. If any Inventory at any time
ceases to be Eligible Inventory, such Inventory shall promptly be
excluded from the calculation of Eligible Inventory.
"Environmental Claims" means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability
or responsibility for violation of any Environmental Law, or for
release or injury to the environment or threat to public health,
personal injury
15
<PAGE>
(including sickness, disease or death), property damage, natural
resources damage, or otherwise alleging liability or responsibility for
damages (punitive or otherwise), investigation, cleanup, removal,
remedial or response costs, restitution, civil or criminal penalties,
injunctive relief, or other type of relief, resulting from or based
upon the presence, placement, discharge, emission or release (including
intentional and unintentional, negligent and non-negligent, sudden or
non-sudden, accidental or non-accidental, placement, spills, leaks,
discharges, emissions or releases) of any Hazardous Material at, in, or
from Property, whether or not owned by the Borrower or taken as
Collateral in connection with any operations of the Borrower.
"Environmental Compliance Reserve" means any reserves which
the Agent, after the Closing Date, establishes from time to time for
amounts that are reasonably likely to be expended by the Borrower (or
its Subsidiaries) in order for the Borrower (or its Subsidiaries) and
their operations and property to comply with any notice from a
Governmental Authority asserting material non-compliance with
Environmental Laws; provided, however, that such reserve shall be
limited to an amount reasonably likely to be expended by the Borrower
(or its Subsidiaries) prior to the Stated Maturity Date, all as
reasonably determined by Agent.
"Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
Governmental Authorities, in each case relating to environmental,
health, safety and land use matters; including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act
of 1972, the Solid Waste Disposal Act, the Federal Resource
Conservation and Recovery Act, the Toxic Substances Control Act, and
the Emergency Planning and Community Right-to-Know Act.
"ERISA" means the Employee Retirement Income Security Act of
1974, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of
the Code for purposes of provisions relating to Section 412 of the
Code).
"ERISA Event" means (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate
from a Pension Plan subject to Section 4063
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of ERISA during a plan year in which it was a substantial employer (as
defined in Section 4001(a)(2) of ERISA) or a cessation of operations
which is treated as such a withdrawal under Section 4062(e) of ERISA;
(c) a complete or partial withdrawal by the Borrower or any ERISA
Affiliate from a Multiemployer Plan or notification that a
Multiemployer Plan is in reorganization; (d) the filing of a notice of
intent to terminate, the treatment of a Plan amendment as a termination
under Section 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer
Plan; (e) an event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of,
or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title
IV of ERISA, other than PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.
"Estimated Remediation Costs" means all costs associated with
performing work to remediate contamination of real property or
groundwater, including engineering and other professional fees and
expenses, costs to remove, transport and dispose of contaminated soil,
costs to "cap" or otherwise contain contaminated soil, and costs to
pump and treat water and monitor water quality.
"Eurodollar Reserve Percentage" has the meaning
specified in the definition of "Offshore Rate".
"Event of Default" means any of the events or
circumstances specified in Section 8.01.
"Event of Loss" means, with respect to any property, any of
the following: (a) any loss, destruction or damage of such property;
(b) any pending or threatened institution of any proceedings for the
condemnation or seizure of such property or for the exercise of any
right of eminent domain; or (c) any actual condemnation, seizure or
taking, by exercise of the power of eminent domain or otherwise, of
such property, or confiscation of such property or the requisition of
the use of such property.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and regulations promulgated thereunder.
"Existing Borrowers" has the meaning set forth in the
recitals to this Agreement.
"Existing Loan Agreement" has the meaning set forth in
the recitals to this Agreement.
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"FDIC" means the Federal Deposit Insurance Corporation, and
any Governmental Authority succeeding to any of its principal
functions.
"Federal Funds Rate" means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New
York (including any such successor, "H.15(519)") on the preceding
Business Day opposite the caption "Federal Funds (Effective)"; or, if
for any relevant day such rate is not so published on any such
preceding Business Day, the rate for such day will be the arithmetic
mean as determined by the Agent of the rates for the last transaction
in overnight federal funds arranged prior to 9:00 a.m. (New York City
time) on that day by each of three leading brokers of federal funds
transactions in New York City selected by the Agent.
"Fee Letter" has the meaning specified in Section
2.10(a).
"Fiscal Month" means Borrower's fiscal month for accounting
purposes, which shall be the four or five week period ending on the
last Friday of each calendar month.
"Fiscal Quarter" means the Borrower's fiscal quarter for
accounting purposes, which shall be the three (3) Fiscal Month period
ending during the calendar months of March, June, September and
December of each year.
"Fiscal Year" means the Borrower's fiscal year for financial
accounting purposes. The current Fiscal Year of the Borrower will end
on December 31, 1997.
"Fixed Charges" means, as to any Person and for any period on
which such amount is to be determined, the sum of the amounts (on a
consolidated basis) for such period for (i) interest expense, (ii) rent
expenses pursuant to all operating leases, (iii) Capital Expenditures,
(iv) principal payments which such Person is obligated to make as
scheduled payments with respect to the Commitments, Loans and other
Indebtedness, (v) cash tax expense paid or due and (vi) cash dividends
paid.
"FRB" means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its
principal functions.
"FSC" means MotivePower Foreign Sales Corporation, a
Barbados corporation.
"Funded Debt" means, for any Person and for any period
for which such amount is being determined, the sum of the
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amounts for such period (without duplication) of (i) Indebtedness, (ii)
the aggregate drawn amount of all outstanding Letters of Credit, (iii)
the aggregate amount of payments which the Borrower is obligated to pay
at any time with respect to its redeemable preferred stock and (iv) the
aggregate amount of obligations with respect to capital leases.
"GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the
Closing Date and consistently applied.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guarantors" means each of the Borrowing Subsidiaries,
MotivePower Investments, Clark, FSC, and any other Person that becomes
a Subsidiary of the Borrower after the Closing Date other than MK Gain
and its Subsidiaries.
"Guaranty" means the Amended and Restated Guaranty of even
date herewith in substantially the form of Exhibit B executed by the
Guarantors in favor of the Agent, on behalf of the Lenders, together
with all amendments, modifications and supplements thereto consented to
by the Agent in writing.
"Guaranty Obligation" has the meaning specified in the
definition of "Contingent Obligation."
"Hazardous Materials" means all those substances that are
regulated by, or which may form the basis of liability or a standard of
conduct under, any Environmental Law, including any substance
identified under any Environmental Law as a pollutant, contaminant,
hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material, or toxic substance, or petroleum or
petroleum derived substance or waste.
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"HBTC" means the Houston Belt & Terminal Railway
Company, a corporation.
"Indebtedness" of any Person means, without duplication, (a)
all indebtedness for borrowed money; (b) all obligations issued,
undertaken or assumed as the deferred purchase price of property or
services (other than trade payables entered into in the ordinary course
of business on ordinary terms); (c) all non-contingent reimbursement or
payment obligations with respect to Surety Instruments; (d) all
obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (e) all
indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case
with respect to property acquired by the Person (even though the rights
and remedies of the seller or bank under such agreement in the event of
default are limited to repossession or sale of such property); (f) all
obligations with respect to capital leases; (g) all indebtedness
referred to in clauses (a) through (f) above secured by (or for which
the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property (including
accounts and contracts rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such
Indebtedness; and (h) all Guaranty Obligations in respect of
indebtedness or obligations of others of the kinds referred to in
clauses (a) through (g) above.
"Indemnified Liabilities" has the meaning specified in
Section 10.05.
"Indemnified Person" has the meaning specified in
Section 10.05.
"Independent Auditor" has the meaning specified in
Section 6.01(a).
"Insolvency Proceeding" means (a) any case, action or
proceeding before any court or other Governmental Authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding-up or relief of debtors, or (b) any general
assignment for the benefit of creditors, composition, marshalling of
assets for creditors, or other, similar arrangement in respect of its
creditors generally or any substantial portion of its creditors;
undertaken under U.S. federal, state or foreign law, including the
Bankruptcy Code.
"Interest Payment Date" means, (a) as to any Offshore
Rate Loan, the last day of each Interest Period applicable
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to such Offshore Rate Loan, (b) as to any Offshore Rate Loan with a 6-
or 12-month Interest Period, on each 3-month anniversary of the making
of such Offshore Rate Loan and the last day of the Interest Period of
such Offshore Rate Loan, and (c) as to any Base Rate Loan, the last
Business Day of each calendar quarter and each date such Loan is
converted into another Type of Loan.
"Interest Period" means, as to any Offshore Rate Loan, the
period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two,
three or six months (or if available, 12-months) thereafter as selected
by the Borrower in its Notice of Borrowing or Notice of
Conversion/Continuation; provided that:
(i) if any Interest Period would otherwise end
on a day that is not a Business Day, that Interest Period
shall be extended to the following Business Day unless the
result of such extension would be to carry such Interest
Period into another calendar month, in which event such
Interest Period shall end on the preceding Business Day;
(ii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest
Period; and
(iii) no Interest Period for any Loan shall extend
beyond the Stated Maturity Date.
"Inventory" means all of the Borrower's, the Borrowing
Subsidiaries' and Clark's (on a consolidated basis) now owned and
hereafter acquired inventory, goods, merchandise, and other personal
property, wherever located, to be furnished under any contract of
service or held for sale, all returned goods, raw materials, other
materials and supplies of any kind, nature or description which are or
might be consumed in such Person's business or used in connection with
the packing, shipping, advertising, selling or finishing of such goods,
merchandise and such other personal property, and all documents of
title or other documents representing them but excluding, in any event,
railroad locomotives and rolling stock held for lease.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
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"Issuing Bank" shall initially mean BofA, and any other bank
selected by the Agent from time to time to issue Letters of Credit
under Section 2.01(c).
"Joint Venture" means a partnership, limited liability
company, joint venture or other similar legal arrangement (whether
created by contract or conducted through a separate legal entity) now
or hereafter formed by the Borrower or any of its Subsidiaries with
another Person in order to conduct a common venture or enterprise with
such Person.
"Lenders" means the institutions specified in the introductory
clause hereto. Unless the context otherwise clearly requires, "Lender"
includes any such institution in its capacity as Specified Swap
Provider or the Issuing Bank. Unless the context otherwise clearly
requires, references to any such institution as a "Lender" shall also
include any of such institution's Affiliates that may at any time of
determination be Specified Swap Providers or the Issuing Bank.
"Lending Office" means, as to any Lender, the office or
offices of such Lender specified as its "Lending Office" or "Domestic
Lending Office" or "Offshore Lending Office", as the case may be, on
Schedule 10.02, or such other office or offices as the Lender may from
time to time
notify the Borrower and the Agent.
"Lien" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale or
other title retention agreement, the interest of a lessor under a
capital lease, any financing lease having substantially the same
economic effect as any of the foregoing, or the filing of any financing
statement naming the owner of the asset to which such lien relates as
debtor, under the Uniform Commercial Code or any comparable law), but
not including the interest of a lessor under an operating lease.
"Letter of Credit" has the meaning specified in
Section 2.01(c).
"Loan" means an extension of credit by a Lender to the
Borrower under Article II, and may be a Base Rate Loan or an Offshore
Rate Loan (each, a "Type" of Loan), and includes any Revolving Loan or
Term Loan.
"Loan Documents" means this Agreement, the Notes, the
Collateral Documents, the Fee Letter, any documents evidencing or
related to Specified Swap Contracts or Letters
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of Credit, and all other documents delivered to the Agent, any Lender,
a Specified Swap Provider or the Issuing Bank in connection with the
transactions contemplated by this Agreement.
"Majority Lenders" means, at any time, Lenders then holding at
least 66-2/3% of the then aggregate unpaid principal amount of the
Loans, or, if no such principal amount is then outstanding, Lenders
then having at least 66-2/3% of the Commitments.
"Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change
in, or a material adverse effect upon, the operations, business,
properties, condition (financial or otherwise) or prospects of the
Borrower or the Borrower and its Subsidiaries taken as a whole; (b) a
material impairment of the ability of the Borrower or any Guarantor to
perform under any Loan Document and to avoid any Event of Default; or
(c) a material adverse effect upon (i) the legality, validity, binding
effect or enforceability against the Borrower or any Guarantor of any
Loan Document, or (ii) the perfection or priority of any Lien granted
under any of the Collateral Documents.
"MK Gain" means (i) initially MK Gain, S.A. de C.V., a
Mexican corporation, and its direct and indirect wholly
owned subsidiaries and (ii) thereafter MPI de Mexico, S.A.
de C.V. if and when the Agent is notified in writing of the
consummation of the Borrower's corporate reorganization of
its Mexican operations, pursuant to which a newly formed
holding company, MPI de Mexico, S.A. de C.V., shall become a
Wholly-Owned Subsidiary of the Borrower and all of the
assets and operations of MK Gain, S.A. de C.V. shall have
been merged into or contributed to such Person.
"Mortgage" means any deed of trust, mortgage, leasehold
mortgage, assignment of rents or other document creating a Lien on real
property or any interest in real property.
"Mortgaged Property" means all property subject to a
Lien pursuant to a Mortgage.
"MotivePower Investments" means MotivePower Investments
Limited, a Delaware corporation and a direct Wholly-Owned subsidiary of
the Borrower.
"MotivePower Investments Pledge Agreement" means the Pledge
Agreement of even date herewith executed by MotivePower Investments in
favor of the Agent, on behalf of the Lenders, pledging all the stock of
its Subsidiaries, and
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any amendments, modifications or restatements thereof, or any pledge
agreements entered into after the Closing Date by MotivePower
Investments.
"Multiemployer Plan" means a "Multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which the Borrower or any
ERISA Affiliate makes, is making, or is obligated to make contributions
or, during the preceding three calendar years, has made, or been
obligated to make, contributions.
"Net Amount of Eligible Accounts" means, at any time, the
gross amount of Eligible Accounts less sales, excise or similar taxes,
and less returns, discounts, claims, credits and allowances of any
nature at any time issued, owing, granted, outstanding, available or
claimed.
"Net Issuance Proceeds" means, as to any issuance of debt or
equity by any Person, cash proceeds and non-cash proceeds received or
receivable by such Person in connection therewith, net of reasonable
out-of-pocket costs and expenses paid or incurred in connection
therewith in favor of any Person not an Affiliate of such Person, such
costs and expenses not to exceed 5% of the gross proceeds of such
issuance.
"Net Proceeds" means, as to any Disposition by a Person,
proceeds in cash, checks or other cash equivalent financial instruments
as and when received by such Person, net of: (a) the direct costs
relating to such Disposition excluding amounts payable to such Person
or any Affiliate of such Person, (b) sales, use or other transaction
taxes paid or payable by such Person as a direct result thereof, and
(c) amounts required to be applied to repay principal, interest and
prepayment premiums and penalties on Indebtedness secured by a Lien on
the asset which is the subject of such Disposition. "Net Proceeds"
shall also include proceeds paid on account of any Event of Loss, net
of (i) all money actually applied to repair or reconstruct the damaged
property or property affected by the condemnation or taking, (ii) all
of the costs and expenses reasonably incurred in connection with the
collection of such proceeds, award or other payments, and (iii) any
amounts retained by or paid to parties having superior rights to such
proceeds, awards or other payments.
"Note" or "Notes" means the Revolving Loan Note and the
Term Loan Note.
"Notice of Borrowing" means a notice in substantially
the form of Exhibit B.
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"Notice of Conversion/Continuation" means a notice in
substantially the form of Exhibit C.
"Obligations" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document owing
by the Borrower, the Borrowing Subsidiaries and any other Guarantor to
any Lender, the Agent, the Issuing Bank, a Specified Swap Provider
and/or any Indemnified Person, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become
due, now existing or hereafter arising.
"Offshore Rate" means, for any Interest Period, with respect
to Offshore Rate Loans comprising part of the same Borrowing, the rate
of interest per annum (rounded upward to the next 1/16th of 1%)
determined by the Agent as follows:
Offshore Rate = LIBOR
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect
on such day (whether or not applicable to any Lender) under
regulations issued from time to time by the FRB for
determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement)
with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"); and
"LIBOR" means the rate of interest per annum determined
by the Agent to be the arithmetic mean (rounded upward to the
next 1/16th of 1%) of the rates of interest per annum notified
to the Agent by each Reference Lender as the rate of interest
at which dollar deposits in the approximate amount of the
amount of the Loan to be made or continued as, or converted
into, an Offshore Rate Loan by such Reference Lender and
having a maturity comparable to such Interest Period would be
offered to major banks in the London interbank market at their
request at approximately 11:00 a.m. (London time) two Business
Days prior to the commencement of such Interest Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
"Offshore Rate Loan" means a Loan that bears interest based on
the Offshore Rate.
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"Organization Documents" means, for any corporation, the
certificate or articles of incorporation, the bylaws, any certificate
of determination or instrument relating to the rights of preferred
shareholders of such corporation, any shareholder rights agreement, and
all applicable resolutions of the board of directors (or any committee
thereof) of such corporation.
"Other Taxes" means any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies
which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents.
"Participant" has the meaning specified in Section
10.08(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions
under ERISA.
"Pension Plan" means a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA which the Borrower
sponsors, maintains, or to which it makes, is making, or is obligated
to make contributions, or in the case of a multiple employer plan (as
described in Section 4064(a) of ERISA) has made contributions at any
time during the immediately preceding five (5) plan years.
"Permitted Acquisitions" has the meaning specified in
Section 7.03.
"Permitted Liens" has the meaning specified in
Section 7.01.
"Person" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) which the Borrower sponsors or maintains or to which the
Borrower makes, is making, or is obligated to make contributions and
includes any Pension Plan.
"Pledge Agreements" means the Borrower Pledge
Agreement, the MotivePower Investments Pledge Agreement and
the Power Pledge Agreement.
"Pledged Collateral" has the meaning specified in the
Pledge Agreements.
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"Power Pledge Agreement" means the Pledge Agreement of even
date herewith executed by Power Parts Company, a Nevada corporation in
favor of the Agent, on behalf of the Lenders, pledging all the stock of
its Subsidiaries, and any amendments, modifications or restatements
thereof, or any pledge agreements entered into after the Closing Date
by such Person.
"Pro Rata Share" means, as to any Lender at any time, the
percentage equivalent (expressed as a decimal, rounded to the ninth
decimal place) at such time of such Lender's Commitment divided by the
combined Commitments of all Lenders.
"PTRA" means the Port Terminal Railroad Association, a
Texas association.
"Reference Lender" means BofA.
"Reorganization" shall have the meaning specified in
the recitals hereto.
"Replacement Lender" has the meaning specified in
Section 3.08.
"Reportable Event" means any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder, other than any
such event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC.
"Requirement of Law" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of
an arbitrator or of a Governmental Authority, in each case applicable
to or binding upon the Person or any of its property or to which the
Person or any of its property is subject.
"Responsible Officer" means the chief executive officer or the
president of the Borrower, or any other officer having substantially
the same authority and responsibility; or, with respect to compliance
with financial covenants, the chief financial officer or the treasurer
of the Borrower, or any other officer having substantially the same
authority and responsibility.
"Revolving Commitment" means Fifty-Five Million Dollars
($55,000,000).
"Revolving Loan" has the meaning specified in
Section 2.01.
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"Revolving Loan Note" means the promissory note executed by
the Borrower in favor of the Agent, on behalf of the Lenders pursuant
to Section 2.02(b), in substantially the form of Exhibit E as
thereafter amended from time to time with the consent of the Agent.
"SEC" means the Securities and Exchange Commission, or
any Governmental Authority succeeding to any of its
principal functions.
"Security Agreement (Borrower)" means the Amended and Restated
Security Agreement executed by the Borrower in favor of the Agent, on
behalf of the Lenders, in substan tially the form of Exhibit G together
with all amendments, modifications and supplements thereto consented to
by the Agent in writing.
"Security Agreement (Guarantors)" means the Amended and
Restated Security Agreement executed by the Guarantors in favor of the
Agent, on behalf of the Lenders, in substantially the form of Exhibit H
together with all amendments, modifications and supplements thereto
consented to by the Agent in writing.
"Security Agreements" means, collectively, the Security
Agreement (Borrower) and the Security Agreement
(Guarantors).
"Solvent" means, as to any Person at any time, that (a) the
fair value of the property of such Person is greater than the amount of
such Person's liabilities (including disputed, contingent and
unliquidated liabilities) as such value is established and liabilities
evaluated for purposes of Section 101(31) of the Bankruptcy Code and,
in the alternative, for purposes of the Illinois Uniform Fraudulent
Transfer Act; (b) the present fair saleable value of the property 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; (c) such Person is able to realize upon its
property and pay its debts and other liabilities (including disputed,
contingent and unliquidated liabilities) as they mature in the normal
course of business; (d) 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; and (e) such
Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's property
would constitute unreasonably small capital.
"Specified Original Equipment Manufacturer" means
General Motors Corporation and General Electric Company and their
respective Subsidiaries and divisions that engage
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primarily in the business of manufacturing railroad
locomotives or locomotive parts.
"Specified Swap Contract" means any Swap Contract made or
entered into at any time, or in effect at any time (whether heretofore
or hereafter), whether directly or indirectly, and whether as a result
of assignment or transfer or otherwise, between the Borrower and any
Specified Swap Provider which Swap Contract is or was intended by the
Borrower to have been entered into, in part or entirely, for purposes
of mitigating interest rate or currency exchange risk relating to the
Loans (which intent shall conclusively be deemed to exist if the
Borrower so represents to the Specified Swap Provider in writing), and
as to which the final scheduled payment by the Borrower is not later
than the Stated Maturity Date.
"Specified Swap Provider" means any Lender, or any Affiliate
of any Lender, that is at the time of determina tion party to a
Specified Swap Contract with the Borrower.
"Stated Maturity Date" means the fourth (4th)
anniversary of the Closing Date.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests
or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the
Person, or one or more of the Subsidiaries of the Person, or a
combination thereof. Unless the context otherwise clearly requires,
references herein to a "Subsidiary" refer to a Subsidiary or
Subsidiaries of the Borrower including, without limitation, MK Gain and
the Guarantors.
"Surety Instruments" means all letters of credit (including
standby and commercial), banker's acceptances, performance bonds, bank
guaranties, shipside bonds, surety bonds and similar instruments.
"Swap Contract" means any agreement, whether or not in
writing, relating to any transaction that is a rate swap, basis swap,
forward rate transaction, commodity swap, commodity option, equity or
equity index swap or option, bond, note or bill option, interest rate
option, forward foreign exchange transaction, cap, collar or floor
transaction, currency swap, cross-currency rate swap, swap option,
currency option or any other, similar transaction (including any option
to enter into any of the foregoing) or any combination of the
foregoing, and, unless the context otherwise clearly requires, any
master agreement relating to or governing any or all of the foregoing.
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"Tangible Net Worth" means, as to any Person and as of any
date on which the amount thereof is to be determined, (a) the stated
amount of the shareholders' equity for all issued and outstanding
capital stock, minus (b) the aggregate stated amount of any redeemable
preferred stock (plus accrued and unpaid dividends), and minus (c) the
stated amount of all patents, copyrights, trademarks, trade names,
franchises, goodwill, deferred charges, organization expenses,
unamortized discounts and other intangibles.
"Taxes" means any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the Agent,
such taxes (including income taxes or franchise taxes) as are imposed
on or measured by each Lender's net income by the jurisdiction (or any
political subdivision thereof) under the laws of which such Lender or
the Agent, as the case may be, is organized or maintains a lending
office.
"Term Commitment" means Twenty Million Dollars
($20,000,000).
"Term Loan" has the meaning specified in Section 2.01.
"Term Loan Note" means the amended and restated term loan
promissory note executed by the Borrower in favor of the Agent on
behalf of the Lenders pursuant to Section 2.02(b),in substantially the
form of Exhibit F as thereafter amended from time to time with the
consent of the Agent.
"Type" has the meaning specified in the definition of
"Loan."
"UCC" means the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois; provided, however,
in the event that, by reason of mandatory provisions of law, any or all
of the attachment, perfection or priority of the security interest of
Agent (or any party for which Agent is agent) in any collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction
other than the State of Illinois, the term "UCC" shall mean the Uniform
Commercial Code as in effect in such other jurisdiction solely for
purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
"Unfunded Pension Liability" means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the
current value of that Plan's assets, determined in accordance with the
assumptions used for
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funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
"United States" and "U.S." each means the United States
of America.
"Unused Letter of Credit Subfacility" means an amount equal to
$15,000,000 minus the sum of (a) the aggregate undrawn amount of all
outstanding Letters of Credit plus (b) the aggregate unpaid
reimbursement obligations with respect to all Letters of Credit.
"Wholly-Owned Subsidiary" means any corporation in which
(other than directors' qualifying shares required by law) 100% of the
capital stock of each class having ordinary voting power, and 100% of
the capital stock of every other class, in each case, at the time as of
which any determination is being made, is owned, beneficially and of
record, by the Person being considered, or by one or more of the other
Wholly-Owned Subsidiaries, or both.
1.02 Other Interpretive Provisions. (a) The meanings of
defined terms are equally applicable to the singular and plural
forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any particular
provision of this Agreement; and subsection, Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from
and including"; the words "to" and "until" each mean "to but
excluding", and the word "through" means "to and including."
(iv) The term "property" includes any kind of
property or asset, real, personal or mixed, tangible or intangible.
(v) Reference to "$" or "dollars" shall mean US
Dollars or if evaluating another currency, then the US Dollar value or
equivalent at the time of consideration utilizing the spot rate for
open market transactions in such currency.
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(d) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications thereto,
but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document, and (ii) references to any statute
or regulation are to be construed as including all statutory and regulatory
provisions consolidating, amending, replacing, supplementing or interpreting the
statute or regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Agent or the Lenders by way of
consent, approval or waiver shall be deemed modified by the phrase "in its/their
sole discretion."
(g) This Agreement and the other Loan Documents are the result
of negotiations among and have been reviewed by counsel to the Agent, the
Borrower and the other parties, and are the products of all parties.
Accordingly, they shall not be construed against the Lenders or the Agent merely
because of the Agent's or Lenders' involvement in their preparation.
1.03 Accounting Principles. Unless the context otherwise clearly
requires or Mexican GAAP is specifically referenced, all accounting terms not
expressly defined herein shall be construed, and all financial computations
required under this Agreement shall be made, in accordance with GAAP,
consistently applied. References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Borrower.
1.04 Amendment and Restatement. (a) This Agreement, the Guaranty and
the Security Agreements collectively amend and restate in its entirety the
Existing Loan Agreement and, upon effectiveness of this Agreement, the Guaranty
and the Security Agreements, the terms and provisions of the Existing Loan
Agreement shall, subject to Sections 1.04(b) and (c), be superseded hereby and
thereby.
(b) Notwithstanding the amendment and restatement of the
Existing Loan Agreement by this Agreement, the Guaranty, the Security Agreements
and the Notes, the Borrower and the other Existing Borrowers shall continue to
be liable to BABC, the Agent and the Lenders with respect to agreements on the
part of the Existing Borrowers under the Existing Loan Agreement to indemnify
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and hold BABC, the Agent and the Lenders harmless from and against all claims,
demands, liabilities, damages, losses, costs, charges and expenses to which
BABC, the Agent or any Lender may be subject arising in connection with any
action taken, failure to take action or transaction contemplated in or under the
Existing Loan Agreement during the period that such agreement was in effect.
(c) Notwithstanding the amendment and restatement of the
Existing Loan Agreement by this Agreement, the Guaranty and the Security
Agreements, the indebtedness, liabilities and obligations owing to the Agent and
the Lenders by the Borrower and the other Existing Borrowers under the Existing
Loan Agreement remain outstanding as of the date hereof, constitute continuing
Obligations hereunder and thereunder and shall continue to be secured by the
Collateral.
This Agreement is given in partial substitution for the
Existing Loan Agreement, and does not evidence a repayment and reborrowing of
the obligations of the Existing Borrowers under such agreement, and is in no way
intended to constitute a novation of the Existing Loan Agreement, including,
without limitation, the guarantees provided thereunder which shall be continuing
under the Guaranty and the Liens granted thereunder which shall be continuing
under the Security Agreements.
(d) Upon the effectiveness of this Agreement, each reference
to the Existing Loan Agreement in any other document, instrument or agreement
executed and/or delivered in connection therewith (the "Existing Loan
Documents") shall mean and be a reference to this Agreement.
(e) The parties hereto acknowledge and agree that any waivers,
express or implied by course of conduct or otherwise, amendments or other
actions (or failures to act) under the Existing Loan Agreement and the other
Existing Loan Documents shall be of no force or effect, and of no use in
interpreting the rights and duties of the parties under this Agreement and the
other Loan Documents.
ARTICLE II
THE CREDITS
2.01 Amounts and Terms of Commitments.
(a) The Term Credit. Each Lender severally agrees, on the
terms and conditions set forth herein, to continue to make a single loan to the
Borrower (each such Loan, a "Term Loan") on the Closing Date in an amount not to
exceed such Lender's Pro Rata Share of the Term Commitment, and that such Term
Loan shall be made by continuing the Borrower's term loan under the Existing
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Loan Agreement and converting as much of the revolving loan under the Existing
Loan Agreement as shall be necessary thereafter so that the Borrower has
borrowed the aggregate Term Commitment of the Lenders on the Closing Date.
Amounts borrowed as Term Loans which are repaid or prepaid by the Borrower may
not be reborrowed.
(b) The Revolving Credit. Each Lender severally agrees, on the
terms and conditions set forth herein, to make revolving loans to the Borrower
(each such loan, a "Revolving Loan") from time to time on any Business Day
during the period from the Closing Date to the Stated Maturity Date, in amounts
not to exceed such Lender's Pro Rata Share of the lesser of (i) the Availability
and (ii) the Revolving Commitment; provided, however, that, if after giving
effect to any proposed Borrowing of Revolving Loans, the aggregate principal
amount of all outstanding Revolving Loans, the undrawn amount of outstanding
Letters of Credit and any unpaid reimbursement obligations in respect of the
Letters of Credit would exceed either of the Availability or the Revolving
Commitment of the Lenders, then the Lenders shall not be obligated to make such
proposed Revolving Loans until such excess has been eliminated. Within the
limits of each Lender's Commitment, and subject to the other terms and
conditions hereof, the Borrower may borrow under this Section 2.01(b), prepay
under Section 2.06 and reborrow under this Section 2.01(b).
(c) Letters of Credit.
(i) Agreement to Cause Issuance. Subject to the terms and
conditions of this Agreement, and in reliance upon the representations
and warranties of the Borrower herein set forth, the Agent agrees to
take reasonable steps to cause the Issuing Bank to issue for the
account of the Borrower and to provide credit support or other
enhancement in connection with one or more stand-by or documentary
letters of credit (each such letter of credit, a "Letter of Credit" and
such letters of credit, collectively, the "Letters of Credit") in
accordance with this Section 2.01(c) from time to time during the term
of this Agreement.
(ii) Amounts; Outside Expiration Date. The Agent shall not
have any obligation to take steps to cause to be issued any Letter of
Credit at any time: (1) if the maximum undrawn amount of the requested
Letter of Credit is greater than the Unused Letter of Credit
Subfacility at such time; (2) if the maximum undrawn amount of the
requested Letter of Credit and all commissions, fees, and charges due
from the Borrower in connection with the opening thereof exceed the
Availability of Borrower at such time; (3) which has an expiration date
later than the Stated Maturity Date; or (4) if the stated amount of all
Letters of Credit (including the one proposed to be issued) supporting
or issued in respect
34
<PAGE>
of any performance bonds, surety contracts or Surety Instruments of any
kind exceeds $2,500,000; provided, however, that, if after giving
effect to any such new Letter of Credit, the aggregate principal amount
of all outstanding Revolving Loans, the undrawn amount of outstanding
Letters of Credit and any unpaid reimbursement obligations in respect
of the Letters of Credit exceeds the Availability or the Revolving
Commitment of the Lenders, then the Lenders shall refuse to make or
otherwise restrict the issuance of new Letters of Credit as the Lenders
determine until such excess has been eliminated.
(iii)Other Conditions. In addition to being subject to the
satisfaction of the applicable conditions precedent contained in
Article IV, the obligation of the Agent to take reasonable steps to
cause to be issued any Letter of Credit is subject to the following
conditions precedent having been satisfied in a manner satisfactory to
the Agent:
(1) The Borrower shall have delivered to the proposed Issuing
Bank of such Letter of Credit, at such time and in such manner as such proposed
issuer may prescribe, an application in form and substance satisfactory to such
proposed issuer for the issuance of the Letter of Credit and such other
documents as may be required pursuant to the terms thereof, the form and terms
of the proposed Letter of Credit shall be satisfactory to the Agent and such
proposed Issuing Bank; and
(2) as of the date of issuance, no order of any court,
arbitrator or Governmental Authority shall purport by its terms to enjoin or
restrain money center banks generally from issuing letters of credit of the type
and in the amount of the proposed Letter of Credit, and no law, rule or
regulation applicable to money center banks generally and no request or
directive (whether or not having the force of law) from any Governmental
Authority with jurisdiction over money center banks generally shall prohibit, or
request that the proposed issuer of such Letter of Credit refrain from, the
issuance of letters of credit generally or the issuance of such Letters of
Credit.
(iv) Issuance of Letters of Credit.
(1) Request for Issuance. The Borrower shall give the Agent
and the Issuing Bank three (3) Business Days' prior written notice, containing
the original signature of a Responsible Officer of the Borrower of Borrower's
request for the issuance of a Letter of Credit. Such notice shall be irrevocable
and shall specify the original face amount of the Letter of Credit requested,
the effective date (which date shall be a Business Day) of issuance of such
requested Letter of Credit, whether such Letter of Credit may be drawn in a
single or in partial draws, the date on which such requested Letter of Credit is
to expire (which date shall be a Business Day), the purpose for which such
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<PAGE>
Letter of Credit is to be issued (such Letter of Credit shall not be issued for
the purpose of backing the issuance of performance bonds, or to a surety or in
lieu of performance bonds unless such surety or performance bond has been issued
in accordance with Section 7.08(e) hereof), and the beneficiary of the requested
Letter of Credit. The Borrower shall attach to such notice the proposed form of
the Letter of Credit that the Agent is requested to cause to be issued.
(2) Responsibilities of the Agent; Issuance. The Agent
---------------------------------------
shall determine, as of the Business Day immediately preceding the
requested effective date of issuance of the Letter of Credit set
forth in the notice from the Borrower pursuant to Section
-------
2.01(c)(1), (i) the amount of the applicable Unused Letter of
- ----------
Credit Subfacility and (ii) the Availability of the Borrower as
of such date, and that such issuance will comply with Section
-------
2.01(c)(ii). If the undrawn amount of the requested Letter of
- -----------
Credit is not greater than the applicable Unused Letter of Credit
Subfacility and would not exceed the Availability of the
Borrower, and if such issuance will comply with Section
-------
2.01(c)(ii), then the Agent shall take reasonable steps to cause
- -----------
such issuer to issue the requested Letter of Credit on such
requested effective date of issuance.
(3) Notice of Issuance. Promptly after the issuance of any
Letter of Credit, the Agent shall give notice to each Lender of the issuance of
such Letter of Credit.
(4) No Extensions or Amendment. The Agent shall not be
obligated to cause any Letter of Credit to be extended or amended unless the
requirements of this Section 2.01(c)(iv)(4) are met as though a new Letter of
Credit were being requested and issued. With respect to any Letter of Credit
which contains any "evergreen" or automatic renewal provision, each Lender shall
be deemed to have consented to any such extension or renewal unless any such
Lender shall have provided to the Agent, not less than 30 days prior to the last
date on which the applicable issuer can in accordance with the terms of the
applicable Letter of Credit decline to extend or renew such Letter of Credit,
written notice that it declines to consent to any such extension or renewal,
provided, that if all of the requirements of this Section 2.01(c)(iv) are met
and no Event or Event of Default exists, no Lender shall decline to consent to
any such extension or renewal.
(v) Payments Pursuant to Letters of Credit.
(1) Payment of Letter of Credit Obligations. The Borrower
agrees to reimburse the Issuing Bank for any draw under any Letter of Credit
issued for its benefit immediately upon demand, and to pay the issuer of the
Letter of Credit the amount of all other obligations and other amounts payable
to such issuer under or in connection with any Letter of Credit immediately when
due, irrespective of any claim, setoff, defense or other right
36
<PAGE>
which the Borrower may have at any time against such Issuing Bank or any other
Person.
(2) Revolving Loans to Satisfy Reimbursement Obligations. In
the event that the Issuing Bank of any Letter of Credit honors a draw under such
Letter of Credit and the Borrower shall not have repaid such amount to the
Issuing Bank of such Letter of Credit pursuant to Section 2.04(c)(v)(1), the
Agent shall, upon receiving notice of such failure, notify each Lender of such
failure, and each Lender shall unconditionally pay to the Agent, for the account
of such Issuing Bank, as and when provided hereinbelow, an amount equal to such
Lender's Pro Rata Share of the amount of such payment in Dollars and in same day
funds. If the Agent so notifies the Lenders prior to noon (Chicago time) on any
Business Day, each Lender shall make available to the Agent the amount of such
payment, as provided in the immediately preceding sentence, on such Business
Day. Such amounts paid by the Lenders to the Agent, for the benefit of the
Issuing Bank, shall constitute Revolving Loans which shall be deemed to have
been requested by the Borrower pursuant to Section 2.01(b).
(vi) Participations.
(1) Purchase of Participations. With respect to all Letters of
Credit set forth on Schedule 2.01(c) and immediately upon issuance of any other
Letter of Credit in accordance with Section 2.01(c)(iv) each Lender shall be
deemed to have irrevocably and unconditionally purchased and received without
recourse or warranty, an undivided interest and participation in the credit
support or enhancement provided through the Agent to such Issuing Bank in
connection with the issuance of such Letter of Credit, equal to such Lender's
Pro Rata Share of the face amount of such Letter of Credit (including, without
limitation, all obligations of the Borrower with respect thereto, and any
security therefor or guaranty pertaining thereto).
(2) Sharing of Reimbursement Obligation Payments. Whenever the
Agent receives a payment from the Borrower on account of reimbursement
obligations in respect of a Letter of Credit as to which the Agent has
previously received for the account of the Issuing Bank thereof payment from a
Lender pursuant to Section 2.01(c)(v)(2), the Agent shall promptly pay to such
Lender such Lender's Pro Rata Share of such payment from Borrower in Dollars.
Each such payment shall be made by the Agent on the Business Day on which the
Agent receives immediately available funds paid to such Person pursuant to the
immediately preceding sentence, if received prior to noon (Chicago time) on such
Business Day and otherwise on the next succeeding Business Day.
(3) Documentation. Upon the request of any Lender, the
Agent shall furnish to such Lender copies of any Letter of
Credit, reimbursement agreements executed in connection
37
<PAGE>
therewith, application for any Letter of Credit and credit support or
enhancement provided through the Agent in connection with the issuance of any
Letter of Credit, and such other documentation as may reasonably be requested by
such Lender.
(4) Obligations Irrevocable. The obligations of each Lender to
make payments to the Agent, for the benefit of the Issuing Bank, with respect to
any Letter of Credit or with respect to any credit support or enhancement
provided through the Agent with respect to a Letter of Credit, and the
obligations of the Borrower to make payments to the Agent, for the account of
the Lenders, shall be irrevocable, not subject to any qualification or exception
whatsoever, including, without limitation, any of the following circumstances:
(I) any lack of validity or enforceability of this
Agreement or any of the other Loan Documents;
(II) the existence of any claim, setoff, defense or
other right which the Borrower may have at any time against a beneficiary named
in a Letter of Credit or any transferee of any Letter of Credit (or any Person
for whom any such transferee may be acting), any Lender, the Agent, the Issuing
Bank of such Letter of Credit, or any other Person, whether in connection with
this Agreement, any Letter of Credit, the transactions contemplated herein or
any unrelated transactions (including any underlying transactions between the
Borrower or any other Person and the beneficiary named in any Letter of Credit);
(III) any draft, certificate or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect;
(IV) the surrender or impairment of any security
for the performance or observance of any of the terms of any of
the Loan Documents; or
(V) the occurrence of any Default or Event of
Default.
(vii) Recovery or Avoidance of Payments. In the event any
payment by or on behalf of the Borrower received by the Agent with respect to
any Letter of Credit (or any guaranty by the Borrower or reimbursement
obligation of the Borrower relating thereto) and distributed by the Agent to the
Lenders on account of their respective participations therein is thereafter set
aside, avoided or recovered from the Agent in connection with any receivership,
liquidation or bankruptcy proceeding, the Lenders shall, upon demand by the
Agent, pay to the Agent their respective Pro Rata Shares of such amount set
aside, avoided or recovered, together with interest at the rate required to be
paid by the Agent upon the amount required to be repaid by it.
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<PAGE>
(viii) Indemnification; Exoneration.
(1) Indemnification. In addition to amounts payable as
elsewhere provided in this Section 2.01(c), the Borrower hereby agrees to
protect, indemnify, pay and save the Lenders, the Issuing Bank and the Agent
harmless from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable attorneys' fees) which
any Lender or the Agent may incur or be subject to as a consequence, direct or
indirect, of the issuance of any Letter of Credit or the provision of any credit
support or enhancement in connection therewith.
(2) Assumption of Risk by the Borrower. As among the Borrower,
the Lenders, the Issuing Bank and the Agent, the Borrower assumes all risks of
the acts and omissions of, or misuse of any of the Letters of Credit by, the
respective beneficiaries of such Letters of Credit. In furtherance and not in
limitation of the foregoing, subject to the provisions of the applications for
the issuance of Letters of Credit, the Lenders, the Issuing Bank and the Agent
shall not be responsible for: (A) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any Person in
connection with the application for and issuance of and presentation of drafts
with respect to any of the Letters of Credit, even if it should prove to be in
any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B)
the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (C) the failure of the beneficiary of any
Letter of Credit to comply duly with conditions required in order to draw upon
such Letter of Credit; (D) errors, omissions, interruptions, or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (E) errors in interpretation of
technical terms; (F) any loss or delay in the transmission or otherwise of any
document required in order make a drawing under any Letter of Credit or of the
proceeds thereof; (G) the misapplication by the beneficiary of any Letter of
Credit of the proceeds of any drawing under such Letter of Credit; or (H) any
consequences arising from causes beyond the control of the Lenders, the Issuing
Bank or the Agent, including, without limitation, any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto Governmental
Authority. None of the foregoing shall affect, impair or prevent the vesting of
any rights or powers of the Agent, the Issuing Bank or any Lender under this
Section 2.01(c).
(ix) Outstanding Letters of Credit at Closing.
Schedule 2.01(c) sets forth a complete list, as of the Closing
Date, of all outstanding Letters of Credit under the Existing
39
<PAGE>
Loan Agreement which are continuing as Letters of Credit hereunder, including
the number of such Letters of Credit, the beneficiary, the stated amount and the
expiry date thereof.
2.02 Loan Accounts; Notes. (a) The Loans made by each Lender shall be
evidenced by one or more loan accounts or records maintained by such Lender in
the ordinary course of business. The loan accounts or records maintained by the
Agent and each Lender shall be conclusive absent manifest error of the amount of
the Loans made by the Lenders to the Borrower and the interest and payments
thereon. Any failure so to record or any error in doing so shall not, however,
limit or otherwise affect the obligation of the Borrower hereunder to pay any
amount owing with respect to the Loans.
(b) The Loans made by the Lenders will be evidenced by the
Revolving Loan Note and the Term Loan Note in addition to loan accounts. The
Agent, on behalf of the Lenders, is irrevocably authorized by the Borrower to
endorse the Note(s) and the Agent's record shall be conclusive absent manifest
error; provided, however, that the failure of the Agent to make, or an error in
making, a notation thereon with respect to any Loan shall not limit or otherwise
affect the obligations of the Borrower hereunder or under any such Note to the
Agent or any Lender.
2.03 Procedure for Borrowing. (a) Each Borrowing shall be made upon the
Borrower's irrevocable written notice delivered to the Agent in the form of a
Notice of Borrowing (which notice must be received by the Agent prior to 11:00
a.m. (Chicago time)) (i) three (3) Business Days prior to the requested
Borrowing Date, in the case of Offshore Rate Loans, and (ii) one (1) Business
Day prior to the requested Borrowing Date, in the case of Base Rate Loans,
specifying:
(A) the amount of the Borrowing, which shall be in
an aggregate minimum amount of (i) $5,000,000 or any multiple
of $1,000,000 in excess thereof in the case of Offshore Rate
Loans and (ii) $1,000,000 or any multiple of $500,000 in
excess thereof in the case of Base Rate Loans;
(B) the requested Borrowing Date, which shall
be a Business Day;
(C) the Type of Loans comprising the Borrowing;
and
(D) if an Offshore Rate Loan, the duration of the
Interest Period applicable to such Loans included in such
notice. If the Notice of Borrowing fails to specify the
duration of the Interest Period for any
40
<PAGE>
Borrowing comprised of Offshore Rate Loans, such Interest
Period shall be three months.
provided, however, that with respect to the Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Agent not later than
12:00 noon (Chicago time) on the Closing Date and such Borrowing will consist of
Base Rate Loans only; and further provided that if so requested by the Agent,
all Borrowings during the first sixty (60) days following the Closing Date shall
have the same Interest Period and shall be Base Rate Loans or Offshore Rate
Loans for Interest Periods no longer than one month.
(b) The Agent will promptly notify each Lender of its receipt
of any Notice of Borrowing and of the amount of such Lender's Pro Rata Share of
that Borrowing.
(c) Each Lender will make the amount of its Pro Rata Share of
each Borrowing available to the Agent for the account of the Borrower at the
Agent's Payment Office by 11:00 a.m. (Chicago time) on the Borrowing Date
requested by the Borrower in funds immediately available to the Agent. The
proceeds of all such Loans will then be made available to the Borrower by the
Agent by wire transfer in accordance with written instructions provided to the
Agent by the Borrower of like funds as received by the Agent.
(d) After giving effect to any Borrowing, unless the Agent
shall otherwise consent, there may not be more than five (5) different Interest
Periods in effect.
2.04 Conversion and Continuation Elections. (a) The
Borrower may, upon irrevocable written notice to the Agent in
accordance with Section 2.04(b):
(i) elect, as of any Business Day, in the case of
Base Rate Loans, or as of the last day of the applicable Interest
Period, in the case of any other Type of Loans, to convert any such
Loans (or any part thereof in an amount not less than $5,000,000, or
that is in an integral multiple of $1,000,000 in excess thereof) into
Offshore Rate Loans; or
(ii) elect, as of the last day of the applicable
Interest Period, to continue any Loans having Interest Periods expiring
on such day (or any part thereof in an amount not less than $5,000,000,
or that is in an integral multiple of $1,000,000 in excess thereof) as
Offshore Rate Loans with an Interest Period of the same duration;
provided, that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $5,000,000, such Offshore Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the right
of the
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Borrower to continue such Loans as, and convert such Loans into, Offshore Rate
Loans shall terminate.
(b) The Borrower shall deliver a Notice of
Conversion/Continuation to be received by the Agent not later than 11:00 a.m.
(Chicago time) at least (i) three Business Days in advance of the
Conversion/Continuation Date, if the Loans are to be converted into or continued
as Offshore Rate Loans; and (ii) one Business Day in advance of the
Conversion/Continuation Date, if the Loans are to be converted into Base Rate
Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be
converted or continued;
(C) the Type of Loans resulting from the
proposed conversion or continuation; and
(D) other than in the case of conversions into
Base Rate Loans, the duration of the requested Interest
Period.
(c) If upon the expiration of any Interest Period applicable
to Offshore Rate Loans, the Borrower has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans or if any Default or Event
of Default then exists, the Borrower shall be deemed to have elected to convert
such Offshore Rate Loans into Base Rate Loans effective as of the expiration
date of such Interest Period.
(d) The Agent will promptly notify each Lender of its receipt
of a Notice of Conversion/Continuation, or, if no timely notice is provided by
the Borrower, the Agent will promptly notify each Lender of the details of any
automatic conversion. All conversions and continuations shall be made ratably
according to the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Lender.
(e) Unless the Majority Lenders otherwise consent, during the
existence of a Default or Event of Default, the Borrower may not elect to have a
Loan funded as, converted into or continued as an Offshore Rate Loan.
(f) After giving effect to any conversion or continuation of
Loans, unless the Agent shall otherwise consent, there may not be more than five
(5) different Interest Periods in effect.
2.05 Voluntary Termination or Reduction of Commitments. The
Borrower may, upon not less than four (4) Business Days' prior
notice to the Agent, terminate the Term Commitments, or
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permanently reduce the Revolving Commitments by an aggregate minimum amount of
$5,000,000 or any multiple of $1,000,000 in excess thereof; unless, after giving
effect thereto and to any prepayments of Loans made on the effective date
thereof, the then-outstanding principal amount of the Loans would exceed the
amount of the combined Commitments then in effect. Once reduced in accordance
with this Section 2.05, the Commitments may not be increased. Any reduction of
the Commitments shall be applied to each Lender according to its Pro Rata Share.
All accrued Commitment Fees to, but not including the effective date of any
reduction or termination of Commitments, shall be paid on the effective date of
such reduction or termination.
2.06 Optional Prepayments. Subject to Section 3.04, the Borrower may, at
any time or from time to time, upon not less than four (4) Business Days'
irrevocable notice to the Agent (or on one (1) Business Days' irrevocable notice
to the Agent with respect to Base Rate Loans outstanding as Revolving Loans),
ratably prepay Loans in whole or in part, in minimum amounts of $5,000,000 or
any multiple of $1,000,000 in excess thereof. Such notice of prepayment shall
specify the date and amount of such prepayment and the Type(s) of Loans to be
prepaid. The Agent will promptly notify each Lender of its receipt of any such
notice, and of such Lender's Pro Rata Share of such prepayment. If such notice
is given by the Borrower, the Borrower shall make such prepayment and the
payment amount specified in such notice shall be due and payable on the date
specified therein, together with accrued interest to each such date on the
amount prepaid and any amounts required pursuant to Section 3.04. Optional
prepayments of the Term Loan shall be made without prepayment penalties other
than any amounts owing pursuant to Section 3.04 and shall be applied in inverse
order of maturity.
2.07 Mandatory Prepayments of Loans; Mandatory Commitment
Reductions.
(a) Asset Dispositions. If the Borrower or any of its
Subsidiaries (other than MK Gain) shall at any time or from time to time make or
agree to make a Disposition, or shall suffer an Event of Loss, then (i) the
Borrower shall promptly notify the Agent of such proposed Disposition or Event
of Loss (including the amount of the estimated Net Proceeds to be received by
the Borrower or such Subsidiary in respect thereof) and (ii) promptly upon, and
in no event later than 10 days after, receipt by the Borrower or such Subsidiary
of the Net Proceeds of such Disposition or Event of Loss, the Borrower shall
prepay the Term Loan in an aggregate amount equal to such Net Proceeds, in the
inverse order of their stated maturity; provided, however, that no such
prepayment shall be required with respect to (A) equipment sales in the ordinary
course of business of obsolete and non-useable equipment to the extent the Net
Proceeds of such sale are reinvested in equipment used in the business of the
Borrower or any such Subsidiary within 90 days of receipt
43
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thereof, or (B) the sale of the Borrower's facility located in Mountaintop,
Pennsylvania or Touchstone's facility located in Jackson, Tennessee to the
extent the Net Proceeds of such sale (I) received in cash are reinvested in a
new facility for Touchstone and construction for such facility begins within 12
months from the date of such sale and is completed with reasonable diligence
thereafter and (II) received in the form of a promissory note of up to $500,000
in principal amount are reinvested in equipment used in the business of the
Borrower or any Guarantor within 90 days of receipt of the cash payments under
or in respect of such promissory note, or (C) the sale of equipment resulting in
Net Proceeds of up to $2,000,000 in aggregate amount by Motor Coils from its
machine shop in Braddock, Pennsylvania and identified on Schedule 2.07 hereto to
the extent the Net Proceeds of such sales are reinvested in equipment used by
Motor Coils on or before December 31, 1997.
(b) Subordinated Debt Issuance. If the Borrower or any
Subsidiary (other than MK Gain) shall, at any time, issue any Indebtedness after
the Closing Date which is subordinated in right of payment to the Obligations,
is permitted under Section 7.05 and is otherwise on terms and conditions
including, without limitation, subordination and standstill provisions
acceptable to the Agent in its sole discretion, then the Borrower shall promptly
notify the Agent of the estimated Net Issuance Proceeds of such issuance to be
received by the Borrower in respect thereof. Promptly upon, and in no event
later than 1 day after, receipt by the Borrower of Net Issuance Proceeds of such
issuance, the Borrower shall prepay the Term Loan in an aggregate amount equal
to the amount of such Net Issuance Proceeds, in the inverse order of maturity.
(c) Overadvances. In the event that the outstanding balance of
the Revolving Loans shall, at any time, exceed the lesser at such time of (i)
the Revolving Commitment and (ii) Availability less in both the case of clause
(i) and (ii) above the outstanding amount of the Letters of Credit and the
unpaid reimbursement obligations in respect of drawn letters of credit, the
Borrower shall immediately repay the Revolving Loans in the amount of such
excess.
(d) General. Any prepayments pursuant to this Section
2.07 shall be applied first to any Base Rate Loans then
outstanding and then to Offshore Rate Loans with the shortest
Interest Periods remaining; provided, however, that if the amount
of Base Rate Loans then outstanding is not sufficient to satisfy
the entire prepayment requirement, the Borrower may, at its
option, place any amounts which it would otherwise be required to
use to prepay Offshore Rate Loans on a day other than the last
day of the Interest Period therefor in an interest-bearing
account pledged to the Agent for the benefit of the Lenders until
the end of such Interest Period at which time such pledged
amounts will be applied to prepay such Offshore Rate Loans. The
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Borrower shall pay, together with each prepayment under this Section 2.07,
accrued interest on the amount prepaid and any amounts required pursuant to
Section 3.04.
(e) Reduction of Commitment. Upon the making of any mandatory
prepayment under this Section 2.07 (other than under paragraph (c), the
Commitment of each Lender shall automatically be reduced by an amount equal to
such Lender's ratable share of the aggregate of principal repaid, effective as
of the earlier of the date that such prepayment is made or the date by which
such prepayment is due and payable hereunder. All accrued Commitment Fees to,
but not including the effective date of any reduction or termination of
Commitments, shall be paid on the effective date of such reduction or
termination.
2.08 Repayment.
(a) The Term Credit. The Borrower shall repay the Term
Loan on each date as follows (each a "Principal Payment Date"):
Quarterly Term
Loan Repayment
Payment Date Amount
------------ ------
each of June 30, 1997, $625,000 each
September 30, 1997,
December 31, 1997, and
March 31, 1998
each of June 30, 1998, $1,250,000 each
September 30, 1998,
December 31, 1998 and
March 31, 1999
each of June 30, 1999, $1,250,000 each
September 30, 1999,
December 31, 1999 and
March 31, 2000
each of June 30, 2000, $1,875,000 each
September 30, 2000, and
December 31, 2000
Stated Maturity Date $1,875,000 or the
then remaining
principal amount of
the Term Loan
(b) The Revolving Credit. The Borrower shall repay to
the Lenders in full on the Stated Maturity Date the aggregate
principal amount of Revolving Loans outstanding on such date.
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2.09 Interest. (a) Each Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate per annum
equal to the Offshore Rate or the Base Rate, as the case may be (and subject to
the Borrower's right to convert to other Types of Loans under Section 2.04),
plus the Applicable Margin in effect for such Type of Loan from time to time.
(b) Interest on each Loan shall be paid in arrears on each
Interest Payment Date. Interest shall also be paid on the date of any prepayment
of Loans under Section 2.06 or 2.07 for the portion of the Loans so prepaid and
upon payment (including prepayment) in full thereof and, during the existence of
any Event of Default, interest shall be paid on demand of the Agent, which shall
be made at the request or with the consent of the Majority Lenders.
(c) Notwithstanding subsection (a) of this Section 2.09, while
any Event of Default exists and after acceleration of the maturity date of the
Loans, the Borrower shall pay interest (after as well as before entry of
judgment thereon to the extent permitted by law) on the principal amount of all
outstanding Loans, at a rate per annum which is determined by adding 2% per
annum to the otherwise applicable interest rate in effect for such Loans;
provided, however, that, on and after the expiration of any Interest Period
applicable to any Offshore Rate Loan outstanding on the date of occurrence of
such Event of Default or acceleration, the principal amount of such Loan shall,
during the continuation of such Event of Default or after acceleration, bear
interest as a Base Rate Loan at a rate per annum equal to the Base Rate plus (i)
the Applicable Margin in effect for such Loan plus (ii) an additional two
percent (2%).
(d) Anything herein to the contrary notwithstanding, the
obligations of the Borrower to any Lender hereunder shall be subject to the
limitation that payments of interest shall not be required, for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by such Lender would be contrary
to the provisions of any law applicable to such Lender limiting the highest rate
of interest that may be lawfully contracted for, charged or received by such
Lender, and in such event the Borrower shall pay such Lender interest at the
highest rate permitted by applicable law.
2.10 Fees. (a) Arrangement, Agency Fees. The Borrower shall pay an
arrangement fee to the Arranger for the Arranger's own account, and shall pay an
agency fee to the Agent for the Agent's own account, as required by the letter
agreement ("Fee Letter") between the Borrower, the Arranger BofA and Bank of
America Illinois dated December 30, 1996, as amended from time to time.
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(b) Commitment Fees. The Borrower shall pay to the Agent for the
account of each Lender a commitment fee (the "Commitment Fee") on the average
daily unused portion of such Lender's Revolving Commitment, computed on a
quarterly basis in arrears on the last Business Day of each calendar quarter as
an amount equal to the average daily non-utilization for that quarter as
calculated by the Agent on the Revolving Commitment multiplied by a per annum
rate equal to the Applicable Margin then in effect for the Commitment Fee. Such
Commitment Fee shall accrue from the Closing Date to the Stated Maturity Date
and shall be due and payable quarterly in arrears on the last Business Day of
each quarter commencing on March 31, 1997 through the Stated Maturity Date, with
the final payment to be made on the Stated Maturity Date; provided that, in
connection with any reduction or termination of Commitments under Section 2.05
or Section 2.07, the accrued Commitment Fee calculated for the period ending on
such date shall also be paid on the date of such reduction or termination, with
the following quarterly payment being calculated on the basis of the period from
such reduction or termination date to such quarterly payment date. The
Commitment Fees provided in this subsection shall accrue at all times after the
above-mentioned commencement date, including at any time during which one or
more conditions in Article IV are not met.
(c) Compensation for Letters of Credit.
(1) Letter of Credit Fees. Borrower agrees to pay to the Agent,
for the ratable account of the Lenders, (i) for each stand-by Letter of Credit,
a fee calculated at a per annum rate equal to the Applicable Margin on the
undrawn amount of each such stand-by Letter of Credit issued for the Borrower's
account and (ii) for each commercial or documentary Letter of Credit, a fee
calculated at a one-time flat rate equal to the Applicable Margin multiplied by
the stated amount of each such commercial or documentary Letter of Credit issued
for the Borrower's account. The Letter of Credit fees for stand-by Letters of
Credit shall be payable in arrears on the last Business Day of each calendar
quarter during which each such Letter of Credit remains outstanding, and the
Letter of Credit fees for all commercial or documentary Letters of Credit issued
during each calendar quarter will be payable in arrears on the last Business Day
of each calendar quarter and at maturity. The Letter of Credit Fee for stand-by
Letters of Credit shall be computed on the basis of a 360-day year for the
actual number of days elapsed.
(2) Issuer Fees and Charges. The Borrower shall pay to the
Issuing Bank of any Letter of Credit issued for the benefit of or on behalf of
the Borrower or its Borrowing Subsidiaries solely for such Issuing Bank's
account (i) a one-time fronting fee of 1/8 of 1% of the face amount of such
Letter of Credit payable upon issuance; provided, however, that BofA will if it
is the Issuing Bank with respect to any Letter of Credit set forth
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on Schedule 2.01(c) attempt in good faith to obtain any necessary internal
approvals or satisfy any regulatory concerns to permit any such Letters of
Credit which have been issued by BofA under the Existing Loan Agreement to
continue as outstanding Letters of Credit under this Agreement without requiring
a reissuance of such Letters of Credit which would necessitate paying or
otherwise require the payment of an additional fronting fee, and (ii) such other
standard charges as are assessed by such Issuing Bank for letters of credit
issued by it, including, without limitation, its standard fees for documenting,
administering, amending, renewing, negotiating, paying and canceling letters of
credit and all other fees associated with issuing or servicing letters of
credit, as and when assessed.
2.11 Computation of Fees and Interest. (a) All computations of interest
for Base Rate Loans when the Base Rate is determined by BofA's "reference rate"
shall be made on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed. All other computations of fees and interest shall be made
on the basis of a 360-day year and actual days elapsed (which results in more
interest being paid than if computed on the basis of a 365-day year). Interest
and fees shall accrue during each period during which interest or such fees are
computed from and including the first day thereof to and excluding the last day
thereof.
(b) Each determination of an interest rate by the Agent
shall be conclusive and binding on the Borrower and the Lenders
in the absence of manifest error.
2.12 Payments by the Borrower. (a) All payments to be made by the
Borrower shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Borrower shall be made
to the Agent for the account of the Lenders at the Agent's Payment Office, and
shall be made in Dollars and in immediately available funds, no later than 12:00
noon. (Chicago time) on the date specified herein. The Agent will promptly
distribute to each Lender its Pro Rata Share (or other applicable share as
expressly provided herein) of such payment in like funds as received. Any
payment received by the Agent later than 12:00 noon (Chicago time) shall be
deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from the Borrower
prior to the date on which any payment is due to the Lenders that
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the Borrower will not make such payment in full as and when required, the Agent
may assume that the Borrower has made such payment in full to the Agent on such
date in immediately available funds and the Agent may (but shall not be so
required), in reliance upon such assumption, distribute to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower has not made such payment in full to the Agent, each Lender
shall repay to the Agent on demand such amount distributed to such Lender,
together with interest thereon at the Federal Funds Rate for each day from the
date such amount is distributed to such Lender until the date repaid.
2.13 Payments by the Lenders to the Agent.
(a) Unless the Agent receives notice from a Lender on or prior
to the Closing Date or, with respect to any Borrowing after the Closing Date, at
least one (1) Business Day prior to the date of such Borrowing, that such Lender
will not make available as and when required hereunder to the Agent for the
account of the Borrower the amount of that Lender's Pro Rata Share of the
Borrowing, the Agent may assume that each Lender has made such amount available
to the Agent in immediately available funds on the Borrowing Date and the Agent
may (but shall not be so required), in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount. If and to the
extent any Lender shall not have made its full amount available to the Agent in
immediately available funds and the Agent in such circumstances has made
available to the Borrower such amount, that Lender shall on the Business Day
following such Borrowing Date make such amount available to the Agent, together
with interest at the Federal Funds Rate for each day during such period. A
notice of the Agent submitted to any Lender with respect to amounts owing under
this subsection (a) shall be conclusive, absent manifest error. If such amount
is so made available, such payment to the Agent shall constitute such Lender's
Loan on the date of Borrowing for all purposes of this Agreement. If such amount
is not made available to the Agent on the Business Day following the Borrowing
Date, the Agent will notify the Borrower of such failure to fund and, upon
demand by the Agent, the Borrower shall pay such amount to the Agent for the
Agent's account, together with interest thereon for each day elapsed since the
date of such Borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Loans comprising such Borrowing.
(b) The failure of any Lender to make any Loan on any Borrowing
Date shall not relieve any other Lender of any obligation hereunder to make a
Loan on such Borrowing Date, but no Lender shall be responsible for the failure
of any other Lender to make the Loan to be made by such other Lender on any
Borrowing Date.
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2.14 Sharing of Payments, Etc. If, other than as expressly provided
elsewhere herein, any Lender shall obtain on account of the Obligations in its
favor any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) in excess of its ratable share (or other share
contemplated hereunder), such Lender shall immediately (a) notify the Agent of
such fact, and (b) purchase from the other Lenders such participations in the
Loans made by them as shall be necessary to cause such purchasing Lender to
share the excess payment pro rata with each of them; provided, however, that if
all or any portion of such excess payment is thereafter recovered from the
purchasing Lender, such purchase shall to that extent be rescinded and each
other Lender shall repay to the purchasing Lender the purchase price paid
therefor, together with an amount equal to such paying Lender's ratable share
(according to the proportion of (i) the amount of such paying Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off, but subject to Section 10.10) with respect to such participation as
fully as if such Lender were the direct creditor of the Borrower in the amount
of such participation. The Agent will keep records (which shall be conclusive
and binding in the absence of manifest error) of participations purchased under
this Section and will in each case notify the Lenders following any such
purchases or repayments.
2.15 Security and Guaranty. All Obligations of the Borrower, the
Guarantors and the Borrowing Subsidiaries under this Agreement, the Notes and
all other Loan Documents shall be secured in accordance with the Collateral
Documents.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes. (a) Any and all payments by the Borrower to each Lender or
the Agent under this Agreement and any other Loan Document shall be made free
and clear of, and without deduction or withholding for any Taxes. In addition,
the Borrower shall pay all Other Taxes.
(b) The Borrower agrees to indemnify and hold harmless each
Lender and the Agent for the full amount of Taxes or Other Taxes (including any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section) paid by the Lender or the Agent and any liability (including penalties,
interest, additions to tax and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes
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were correctly or legally asserted. Payment under this indemnification shall be
made within 30 days after the date the Lender or the Agent makes written demand
therefor.
(c) If the Borrower shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to any Lender or the Agent, then:
(i) the sum payable shall be increased as
necessary so that after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums
payable under this Section) 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 or withholdings been made;
(ii) the Borrower shall make such deductions and
withholdings;
(iii) the Borrower shall pay the full amount
deducted or withheld to the relevant taxing authority or
other authority in accordance with applicable law; and
(iv) the Borrower shall also pay to each Lender
or the Agent for the account of such Lender, at the time interest is
paid, all additional amounts which the respective Lender specifies as
necessary to preserve the after-tax yield the Lender would have received
if such Taxes or Other Taxes had not been imposed.
(d) Within 30 days after the date of any payment by the Borrower
of Taxes or Other Taxes, the Borrower shall furnish the Agent the original or a
certified copy of a receipt evidencing payment thereof, or other evidence of
payment satisfactory to the Agent.
(e) If the Borrower is required to pay additional amounts to any
Lender or the Agent pursuant to subsection (c) of this Section, then such Lender
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Borrower which may thereafter accrue, if such change
in the judgment of such Lender is not otherwise disadvantageous to such Lender.
(f) Nothing in this Section 3.01 shall override the terms of any
Specified Swap Contract relating to the subject matter hereof.
3.02 Illegality. (a) If any Lender determines that the
introduction of any Requirement of Law, or any change in any
Requirement of Law, or in the interpretation or administration of
any Requirement of Law, has made it unlawful, or that any central
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bank or other Governmental Authority has asserted that it is unlawful, for any
Lender or its applicable Lending Office to make Offshore Rate Loans, then, on
notice thereof by the Lender to the Borrower through the Agent, any obligation
of that Lender to make Offshore Rate Loans shall be suspended until the Lender
notifies the Agent and the Borrower that the circumstances giving rise to such
determination no longer exist.
(b) If a Lender determines that it is unlawful to maintain any
Offshore Rate Loan, the Borrower shall, upon its receipt of notice of such fact
and demand from such Lender (with a copy to the Agent), prepay in full such
Offshore Rate Loans of that Lender then outstanding, together with interest
accrued thereon and amounts required under Section 3.04, either on the last day
of the Interest Period thereof, if the Lender may lawfully continue to maintain
such Offshore Rate Loans to such day, or immediately, if the Lender may not
lawfully continue to maintain such Offshore Rate Loan. If the Borrower is
required to so prepay any Offshore Rate Loan, then concurrently with such
prepayment, the Borrower shall borrow from the affected Lender, in the amount of
such repayment, a Base Rate Loan.
(c) If the obligation of any Lender to make or maintain Offshore
Rate Loans has been so terminated or suspended, the Borrower may elect, by
giving notice to the Lender through the Agent that all Loans which would
otherwise be made by the Lender as Offshore Rate Loans shall be instead Base
Rate Loans.
(d) Before giving any notice to the Agent under this Section,
the affected Lender shall designate a different Lending Office with respect to
its Offshore Rate Loans if such designation will avoid the need for giving such
notice or making such demand and will not, in the judgment of the Lender, be
illegal or otherwise disadvantageous to the Lender.
3.03 Increased Costs and Reduction of Return. (a) If any Lender
determines that, due to either (i) the introduction of or any change (other than
any change by way of imposition of or increase in reserve requirements included
in the calculation of the Offshore Rate or in respect of the assessment rate
payable by any Lender to the FDIC for insuring U.S. deposits) in or in the
interpretation of any law or regulation or (ii) the compliance by that Lender
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any increase
in the cost to such Lender of agreeing to make or making, funding or maintaining
any Offshore Rate Loans, then the Borrower shall be liable for, and shall from
time to time, upon demand (with a copy of such demand to be sent to the Agent),
pay to the Agent for the account of such Lender, additional amounts as are
sufficient to compensate such Lender for such increased costs.
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(b) If any Lender shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by the Lender (or its Lending Office) or any corporation controlling
the Lender with any Capital Adequacy Regulation, affects or would affect the
amount of capital required or expected to be maintained by the Lender or any
corporation controlling the Lender and (taking into consideration such Lender's
or such corporation's policies with respect to capital adequacy and such
Lender's desired return on capital) determines that the amount of such capital
is increased as a consequence of its Commitments, loans, credits or obligations
under this Agreement, then, upon demand of such Lender to the Borrower through
the Agent, the Borrower shall pay to the Lender, from time to time as specified
by the Lender, additional amounts sufficient to compensate the Lender for such
increase.
3.04 Funding Losses. The Borrower shall reimburse each Lender and hold
each Lender harmless from any loss or expense which the Lender may sustain or
incur as a consequence of:
(a) the failure of the Borrower to make on a timely
basis any payment of principal of any Offshore Rate Loan;
(b) the failure of the Borrower to borrow, continue or convert a
Loan after the Borrower has given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/ Continuation;
(c) the failure of the Borrower to make any prepayment
in accordance with any notice delivered under Section 2.06;
(d) the prepayment (including pursuant to Section 2.07) or other
payment (including after acceleration thereof) of an Offshore Rate Loan on a day
that is not the last day of the relevant Interest Period; or
(e) the automatic conversion under Section 2.04 of any
Offshore Rate Loan to a Base Rate Loan on a day that is not the
last day of the relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained. For purposes of
calculating amounts payable by the Borrower to the Lenders under this Section
3.04 and under Section 3.03(a), each Offshore Rate Loan made by a Lender (and
each related reserve, special deposit or similar requirement) shall be
conclusively deemed to have been funded at the LIBOR used in determining the
Offshore Rate for such Offshore
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Rate Loan by a matching deposit or other borrowing in the interbank eurodollar
market for a comparable amount and for a comparable period, whether or not such
Offshore Rate Loan is in fact so funded.
3.05 Inability to Determine Rates. If the Agent determines that for any
reason adequate and reasonable means do not exist for determining the Offshore
Rate for any requested Interest Period with respect to a proposed Offshore Rate
Loan or that the Offshore Rate applicable pursuant to Section 2.09(a) for any
requested Interest Period with respect to a proposed Offshore Rate Loan does not
adequately and fairly reflect the cost to such Lenders of funding such Loan, the
Agent will promptly so notify the Borrower and each Lender. Thereafter, the
obligation of the Lenders to make or maintain Offshore Rate Loans hereunder
shall be suspended until the Agent revokes such notice in writing. Upon receipt
of such notice, the Borrower may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Borrower does not revoke
such Notice, the Lenders shall make, convert or continue the Loans, as proposed
by the Borrower, in the amount specified in the applicable notice submitted by
the Borrower, but such Loans shall be made, converted or continued as Base Rate
Loans instead of Offshore Rate Loans.
3.06 Reserves on Offshore Rate Loans. The Borrower shall pay to each
Lender, as long as such Lender shall be required under regulations of the FRB to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency funds or deposits (currently known as "Eurocurrency
liabilities"), additional costs on the unpaid principal amount of each Offshore
Rate Loan equal to the actual costs of such reserves allocated to such Loan by
the Lender (as determined by the Lender in good faith, which determination shall
be conclusive), payable on each date on which interest is payable on such Loan,
provided the Borrower shall have received at least 15 days' prior written notice
(with a copy to the Agent) of such additional interest from the Lender. If a
Lender fails to give notice 15 days prior to the relevant Interest Payment Date,
such additional interest shall be payable 15 days from receipt of such notice.
3.07 Certificates of Lenders. Any Lender claiming reimbursement or
compensation under this Article III shall deliver to the Borrower (with a copy
to the Agent) a certificate setting forth in reasonable detail the amount
payable to the Lender hereunder and such certificate shall be conclusive and
binding on the Borrower in the absence of manifest error.
3.08 Substitution of Lenders. Upon the receipt by the
Borrower from any Lender (an "Affected Lender") of a claim for
compensation under Section 3.03, the Borrower may: (i) request
the Affected Lender to use commercially reasonable efforts to
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obtain a replacement bank or financial institution satisfactory to the Borrower
and to the Agent (a "Replacement Lender") to acquire and assume all or a ratable
part of all of such Affected Lender's Loans and Commitment;(ii) request one or
more of the other Lenders to acquire and assume all or part of such Affected
Lender's Loans and Commitment; or (iii) designate a Replacement Lender. Any such
designation of a Replacement Lender under clause (i) or (iii) shall be subject
to the prior written consent of the Agent (which consent shall not be
unreasonably withheld).
3.09 Survival. The agreements and obligations of the Borrower in this
Article III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 Conditions of Initial Closing. The obligation of each Lender to
agree to enter into this Agreement and to purchase the existing loans and other
obligations of the Existing Borrowers from BABC is subject to the condition that
the Agent has received on or before the Closing Date all of the following, in
form and substance satisfactory to the Agent and with sufficient copies for each
Lender:
(a) Credit Agreement and Notes. This Agreement
(together with the Exhibits and Schedules substantially in the
form of the Exhibits and Schedules attached hereto, together with
such supplements thereto as the Agent shall approve) and the
Notes executed by the Borrower;
(b) Resolutions; Incumbency. The following documents:
(i) Copies of the resolutions of the board of directors
of the Borrower, MotivePower Investments and each Guarantor authorizing
the transactions contemplated hereby, certified as of the Closing Date
by the Secretary or an Assistant Secretary of such Person; and
(ii) A certificate of the Secretary or Assistant
Secretary of the Borrower, MotivePower Investments and each Guarantor
certifying the names and true signatures of the officers of the
Borrower, MotivePower Investments or such Guarantor authorized to
execute, deliver and perform, as applicable, this Agreement, and all
other Loan Documents to be delivered by it hereunder;
(c) Organization Documents; Financials and Solvency;
Good Standing. Each of the following documents:
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(i) the articles or certificate of incorporation
and the bylaws of the Borrower, MotivePower Investments and each
Guarantor as in effect on the Closing Date, certified by the Secretary
or Assistant Secretary of the Borrower, MotivePower Investments or such
Guarantor as of the Closing Date;
(ii) a good standing certificate for the
Borrower, MotivePower Investments and each Guarantor from the Secretary
of State (or similar, applicable Governmental Authority) of its state of
incorporation and each state where the Borrower, MotivePower Investments
or such Guarantor is qualified to do business as a foreign corporation
as of a recent date, together with a bring-down certificate by
facsimile, dated the Closing Date;
(iii) evidence satisfactory to the Agent and the
Lenders that the Borrower had consolidated EBITDA (excluding MK Gain) of
not less than $25 million for the immediately preceding four quarters
ending December 31, 1996; provided, however, that this calculation of
EBITDA may exclude from consideration certain cost items to be
identified by the Borrower and acceptable to the Agent in its sole
discretion; and
(iv) a certificate from the Borrower, MotivePower
Investments and each Guarantor certifying that each such Person is
Solvent on a stand-alone basis as of the Closing Date, together with
such evidence or financial statements as the Agent may request to
document such certification.
(d) Legal Opinions. An opinion of Doepken Keevican &
Weiss, counsel to the Borrower and the Guarantors and addressed
to the Agent and the Lenders, substantially in the form of
Exhibit I together with such local counsel opinions as may be
requested by the Agent;
(e) Payment of Fees. Evidence of payment by the Borrower of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of BofA to the extent invoiced
prior to or on the Closing Date, plus such additional amounts of Attorney Costs
as shall constitute BofA's reasonable estimate of Attorney Costs incurred or to
be incurred by it through the closing proceedings (provided that such estimate
shall not thereafter preclude final settling of accounts between the Borrower
and BofA); including any such costs, fees and expenses arising under or
referenced in Sections 2.10 and 10.04;
(f) Collateral Documents. The Guaranty, the Security
Agreement (Borrower), the Security Agreement (Guarantors) and the
other Collateral Documents, executed by the Borrower and/or the
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Guarantors, as appropriate, in appropriate form for recording,
where necessary, together with
(i) acknowledgment copies of all UCC-l financing
statements filed, registered or recorded to perfect the security
interests of the Agent for the benefit of the Lenders, or other evidence
satisfactory to the Agent that there has been filed, registered or
recorded all financing statements and other filings, registrations and
recordings necessary and advisable to perfect the Liens of the Agent for
the benefit of the Lenders in accordance with applicable law;
(ii) written advice relating to such Lien and
judgment searches as the Agent shall have requested, and such
termination statements or other documents as may be necessary to confirm
that the Collateral is subject to no other Liens in favor of any Persons
(other than Permitted Liens);
(iii) all certificates and instruments
representing the Pledged Collateral, stock transfer powers
executed in blank in such form as the Agent may specify;
(iv) evidence that all other actions necessary
or, in the opinion of the Agent, desirable to perfect and protect the
first priority security interest created by the Collateral Documents
have been taken;
(v) funds sufficient to pay any filing or
recording tax or fee in connection with any and all UCC-1
financing statements and the Mortgages;
(vi) with respect to the Mortgaged Property, an
A.L.T.A. Form B (or other form acceptable to the Agent mortgagee policy
of title insurance or a binder issued by a title insurance company
satisfactory to the Agent and the Lenders) insuring (or undertaking to
insure, in the case of a binder) that such Mortgage creates and
constitutes a valid first Lien against the Mortgaged Property in favor
of the Agent, on behalf of the Lenders, subject only to exceptions
acceptable to the Agent, with such endorsements and affirmative
insurance as the Agent or any Lender may reasonably request;
(vii) evidence that the Agent, on behalf of the
Lenders, has been named as loss payee under all policies of casualty
insurance, and as additional insured under all policies of liability
insurance, required by the Mortgage;
(viii) flood insurance and earthquake insurance on
terms satisfactory to the Agent;
(ix) current ALTA surveys and surveyor's
certification as to all real property and all land covered by
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a lease in respect of which there is delivered a Mortgage, or as may be
reasonably required by the Agent, each in form and substance
satisfactory to the Agent and the Lenders;
(x) proof of payment of all title insurance
premiums, documentary stamp or intangible taxes, recording fees and
mortgage taxes payable in connection with the recording of any Mortgage
or the issuance of the title insurance policies (whether due on the
Closing Date or in the future) including sums due in connection with any
future advances;
(xi) such consents, estoppels, subordination
agreements and other documents and instruments executed by landlords,
tenants and other Persons party to material contracts relating to any
Collateral as to which the Agent shall be granted a Lien for the benefit
of the Lenders, as requested by the Agent; and
(xii) evidence that all other actions necessary
or, in the opinion of the Agent, desirable to perfect and protect the
first priority Lien created by the Collateral Documents, and to enhance
the Agent's ability to preserve and protect its interests in and access
to the Collateral, have been taken;
(g) Insurance Policies. Standard lenders' payable
endorsements with respect to the insurance policies or other
instruments or documents evidencing insurance coverage on the
properties of the Borrower in accordance with Section 6.06;
(h) Environmental Review. An environmental site assessment with
respect to any real property as to which the Agent is granted a Lien for the
benefit of the Lenders, dated as of a recent date prior to the Closing Date,
prepared by a qualified firm acceptable to the Agent, stating, among other
things, that such real property is free from Hazardous Materials and that
operations conducted thereon are in compliance with all Environmental Laws and
showing any Estimated Remediation Costs;
(i) Certificate. A certificate signed by a Responsible
Officer, dated as of the Closing Date, stating that:
(i) the representations and warranties contained
in Article V are true and correct on and as of such date, as
though made on and as of such date;
(ii) no Default or Event of Default exists or
would result from the initial Borrowing; and
(iii) there has occurred since December 31, 1995,
no event or circumstance that has resulted or could
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reasonably be expected to result in a Material Adverse
Effect; and
(j) Borrower Reorganization. The Reorganization of the Borrower
and its Subsidiaries shall have been consummated in accordance with Schedule
1.1A hereto, and otherwise on terms and conditions and pursuant to documents
acceptable to the Agent (and certified copies of all such documents shall have
been provided to the Agent and the Lenders), including, without limitation,
evidence that all outstanding loans and letter of credit obligations under the
Existing Loan Agreement shall have been repaid by the Existing Borrowers (other
than the Borrower) or assumed by the Borrower, except to the extent any such
obligations remain under the other Loan Documents;
(k) Repayment of Eurodollar Loans to BABC. Any loans under the
Existing Loan Agreement with BABC bearing interest at or with reference to any
type of Offshore, LIBOR, Eurodollar or other similar rate shall have been
converted into base rate or reference rate loans in a manner satisfactory to the
Agent;
(l) Assignment of BABC Loans. BABC, the Lenders and the Agent
shall have entered into Assignment and Assumption Agreements in form and
substance acceptable to all such Persons pursuant to which the loans,
commitments and rights of BABC as agent and lender under the Existing Loan
Agreement and the Existing Loan Documents shall have been assigned and assumed
by the Agent and the Lenders hereunder;
(m) Documentation of Borrowing Subsidiary Loans. The
-------------------------------------------
Borrower shall have provided the Agent with original copies of
the documents and promissory notes (together with pledge
agreements and assignments collaterally assigning such
instruments to the Agent, on behalf of the Lenders) evidencing
the intercompany loans to be made from time to time by the
Borrower directly to the Borrowing Subsidiaries, which
intercompany loans will be unsecured, payable on a demand basis,
subordinated to the obligations and otherwise in form and
substance acceptable to the Agent;
(n) Termination of PTRA and HBTC Liens. Evidence that
the Liens in favor of the PTRA and the HBTC have been terminated
pursuant to documents and termination statements in form and
substance acceptable to the Agent; and
(o) Other Documents. Such other approvals, opinions,
documents or materials as the Agent may reasonably request.
4.02 Conditions to All Borrowings. The obligation of each
Lender and/or the Agent to make any Loan to be made by it
(including its initial Loan), to cause any Letter of Credit to be
issued or to continue or convert any Loan under Section 2.04 is
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subject to the satisfaction of the following conditions precedent on the
relevant Borrowing Date or Conversion/Continuation Date:
(a) Notice of Borrowing or Conversion/Continuation. The Agent
shall have received (with, in the case of the initial Loan only, a copy for each
Lender) a fully completed and signed a Notice of Borrowing, a request for a
Letter of Credit (together with an appropriate letter of credit application) or
a Notice of Conversion/Continuation, as applicable;
(b) Continuation of Representations and Warranties. The
representations and warranties in Article V shall be true and correct on and as
of such Borrowing Date or Conversion/ Continuation Date with the same effect as
if made on and as of such Borrowing Date or Conversion/Continuation Date (except
to the extent such representations and warranties expressly refer to an earlier
date, in which case they shall be true and correct as of such earlier date);
(c) No Existing Default. No Default or Event of
Default shall exist or shall result from such Borrowing, Letter
of Credit issuance or continuation or conversion;
(d) Availability. The amount of Availability at such time
(taking into account such proposed Loan or Letter of Credit) shall be sufficient
to permit the making of such Revolving Loan, provided, however, that the
foregoing conditions precedent are not conditions to each Lender participating
in or precedent are not conditions to each Lender participating in or
reimbursing the Agent for such Lenders' Pro Rata Share of any Letter of Credit
which is drawn at any time; and
Each Notice of Borrowing, request for a Letter of Credit and Notice of
Conversion/Continuation submitted by the Borrower hereunder shall constitute a
representation and warranty by the Borrower hereunder, as of the date of each
such notice and as of each Borrowing Date or Conversion/Continuation Date, as
applicable, that the conditions in Section 4.02 are satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and each Lender that:
5.01 Corporate Existence and Power. The Borrower and each
of its Subsidiaries:
(a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation;
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(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and to execute, deliver, and perform its obligations under the Loan Documents to
which it is a party;
(c) is duly qualified as a foreign corporation and is licensed
and in good standing under the laws of each jurisdiction where in any material
respect its ownership, lease or operation of property or the conduct of its
business requires such qualification or license.
5.02 Corporate Authorization; No Contravention. The execution, delivery
and performance by the Borrower and its Subsidiaries of this Agreement and each
other Loan Document to which the Borrower and its Subsidiaries is party, and the
consummation of the Reorganization, have been duly authorized by all necessary
corporate action, and do not and will not:
(a) contravene the terms of any of that Person's
Organization Documents;
(b) conflict with or result in any breach or contravention of,
or the creation of any Lien under, any document evidencing any Contractual
Obligation to which such Person is a party or any order, injunction, writ or
decree of any Governmental Authority to which such Person or its property is
subject; or
(c) violate any Requirement of Law.
5.03 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority (except for recordings or filings in connection with the
Liens granted to the Agent under the Collateral Documents) is necessary or
required in connection with the execution, delivery or performance by, or
enforcement against, the Borrower or any of the Guarantors of the Agreement or
any other Loan Document or the consummation of the Reorganization.
5.04 Binding Effect. This Agreement and each other Loan Document to
which the Borrower or any of its Subsidiaries is a party and the other
agreements in connection with the Reorganization constitute the legal, valid and
binding obligations of the Borrower and any of its Subsidiaries to the extent it
is a party thereto, enforceable against such Person in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.
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5.05 Litigation. Except as specifically disclosed in Schedule 5.05,
there are no actions, suits, proceedings, claims or disputes pending, or to the
best knowledge of the Borrower, threatened or contemplated, at law, in equity,
in arbitration or before any Governmental Authority, against the Borrower, or
its Subsidiaries or any of their respective properties which:
(a) purport to affect or pertain to this Agreement or
any other Loan Document, or any of the transactions contemplated
hereby or thereby; or
(b) if determined adversely to the Borrower or its Subsidiaries,
would reasonably be expected to have a Material Adverse Effect. No injunction,
writ, temporary restraining order or any order of any nature has been issued by
any court or other Governmental Authority purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or any other Loan Document,
or directing that the transactions provided for herein or therein not be
consummated as herein or therein provided.
5.06 No Default. No Default or Event of Default exists or would result
from the incurring of any Obligations by the Borrower or from the grant or
perfection of the Liens of the Agent and the Lenders on the Collateral. As of
the Closing Date, neither the Borrower nor any Subsidiary is in default under or
with respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, could reasonably be expected to have a Material
Adverse Effect, or that would, if such default had occurred after the Closing
Date, create an Event of Default under Section 8.01(e).
5.07 ERISA Compliance. Except as specifically disclosed in
Schedule 5.07:
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law. Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the IRS and to the best knowledge of the
Borrower, nothing has occurred which would cause the loss of such qualification.
The Borrower and each ERISA Affiliate has made all required contributions to any
Plan subject to Section 412 of the Code, and no application for a funding waiver
or an extension of any amortization period pursuant to Section 412 of the Code
has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to
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any Plan which has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v)
neither the Borrower nor any ERISA Affiliate has engaged in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.
5.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are
to be used solely for the purposes set forth in and permitted by Section 6.12
and Section 7.07. Neither the Borrower nor any Subsidiary is generally engaged
in the business of purchasing or selling Margin Stock or extending credit for
the purpose of purchasing or carrying Margin Stock.
5.09 Title to Properties. The Borrower and its Subsidiaries have good
record and marketable title in fee simple to, or valid leasehold interests in,
all real property necessary or used in the ordinary conduct of their respective
businesses, except for such defects in title as could not, individually or in
the aggregate, have a Material Adverse Effect. As of the Closing Date, the
property of the Borrower and its Subsidiaries is subject to no Liens, other than
Permitted Liens.
5.10 Taxes. The Borrower and its Subsidiaries have filed all Federal and
other material tax returns and reports required to be filed, and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP, or if such taxes are due by MK Gain to a Mexican taxing
authority then in accordance with Mexican GAAP. There is no proposed tax
assessment against the Borrower or any Subsidiary that would, if made, have a
Material Adverse Effect.
5.11 Financial Condition. (a) The audited consolidated financial
statements of the Borrower and its Subsidiaries dated December 31, 1995 and the
unaudited consolidated and consolidating financial statements of the Borrower
and its Subsidiaries dated December 31, 1996 (which are attached hereto as
Schedule 5.11(A)), and the related consolidated and consolidating statements of
income or operations, shareholders'
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equity and cash flows for the fiscal years then ended on such
dates:
(i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein, subject to ordinary, good faith
year-end audit adjustments;
(ii) fairly present the financial condition of
the Borrower and its Subsidiaries as of the date thereof and
results of operations for the period covered thereby; and
(iii) except as specifically disclosed in Schedule
5.11(B), show all material indebtedness and other liabilities, direct or
contingent, of the Borrower and its consolidated Subsidiaries as of the
date thereof, including liabilities for taxes, material commitments and
Contingent Obligations.
(b) Since December 31, 1995, there has been no Material
Adverse Effect.
(c) The pro forma delivered on the date hereof and attached
hereto as Schedule 5.11(C) is the unaudited consolidated and consolidating
balance sheet of the Borrower and its Subsidiaries, and was prepared by the
Borrower assuming the consummation of the transactions contemplated by this
Agreement as of the Closing Date (including, without limitation the
Reorganization) and based on the unaudited consolidating balance sheet of the
Borrower dated December 31, 1996 and was prepared in accordance with GAAP
(subject to the exceptions set forth on Schedule 5.11(C) hereof), with only such
adjustments thereto as would be required in accordance with GAAP.
(d) The projections delivered on the Closing Date and attached
hereto as Schedule 5.11(D) represent the Borrower's best estimate of the future
financial performance of the Borrower and its consolidated Subsidiaries (other
than MK Gain) for the periods set forth therein. These projections have been
prepared on the basis of the assumptions set forth therein, which the Borrower
believes are fair and reasonable in light of current and reasonably foreseeable
business conditions.
5.12 Environmental Matters. (a) Except as specifically disclosed in
Schedule 5.12, the ongoing operations of the Borrower and its Subsidiaries
comply in all respects with all Environmental Laws, except such noncompliance
which would not (if enforced in accordance with applicable law) result in
liability in excess of $500,000 in the aggregate (or with respect to MK Gain,
which could have a Material Adverse Effect).
(b) Except as specifically disclosed in Schedule 5.12,
the Borrower and its Subsidiaries have obtained all licenses,
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permits, authorizations and registrations required under any Environmental Law
("Environmental Permits") and necessary for their respective ordinary course
operations, all such Environmental Permits are in good standing, and the
Borrower and each of its Subsidiaries are in compliance with all material terms
and conditions of such Environmental Permits.
(c) Except as specifically disclosed in Schedule 5.12, none of
the Borrower, its Subsidiaries or any of their respective present property or
operations, is subject to any outstanding written order from or agreement with
or investigation by any Governmental Authority, nor subject to any judicial or
docketed administrative proceeding, respecting any Environmental Law,
Environmental Claim or Hazardous Material, nor subject to any claim, proceeding
or notice from any Person regarding Environmental Laws, Environmental Claims or
Hazardous Materials.
(d) Except as specifically disclosed in Schedule 5.12, there are
no Hazardous Materials or other conditions or circumstances existing with
respect to any property of the Borrower or any Subsidiary, or arising from
operations prior to the Closing Date, of the Borrower or any of its Subsidiaries
that would reasonably be expected to give rise to Environmental Claims with a
potential liability of the Borrower and its Subsidiaries in excess of $500,000
in the aggregate for any such condition, circumstance or property (or with
respect to MK Gain, which could have a Material Adverse Effect). In addition,
(i) neither the Borrower nor any Subsidiary has any underground storage tanks
(x) that are not properly registered or permitted under applicable Environmental
Laws, or (y) that are leaking or disposing of Hazardous Materials off-site, and
(ii) the Borrower and its Subsidiaries have notified all of their employees of
the existence, if any, of any health hazard arising from the conditions of their
employment and have met all notification requirements under Title III of CERCLA
and all other Environmental Laws.
5.13 Collateral Documents. (a) The provisions of each of the Collateral
Documents are effective to create in favor of the Agent for the benefit of the
Lenders, a legal, valid and enforceable first priority security interest in all
right, title and interest of the Borrower and the Guarantors in the collateral
described therein; and financing statements have been filed in the offices in
all of the jurisdictions listed on Schedule 5.13, which is also a schedule to
the Security Agreement and each patent and trademark assignment included as part
of the Collateral Documents has been filed in the U.S. Patent and Trademark
Office and the U.S. Copyright Office.
(b) Each Mortgage when delivered will be effective to grant to
the Agent for the benefit of the Lenders a legal, valid and enforceable mortgage
lien on all the right, title and interest of the mortgagor under such Mortgage
in the Mortgaged
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Property described therein. When each such Mortgage is duly recorded in the
offices listed on the schedule to such Mortgage and the mortgage recording fees
and taxes in respect thereof are paid and compliance is otherwise had with the
formal requirements of state law applicable to the recording of real estate
mortgages generally, each such mortgaged property, subject to the encumbrances
and exceptions to title set forth therein and except as noted in the title
policies delivered to the Agent pursuant to Section 4.01, is subject to a legal,
valid, enforceable and perfected first priority deed of trust; and when
financing statements have been filed in the offices specified in such Mortgage,
such Mortgage also creates a legal, valid, enforceable and perfected first Lien
on, and security interest in, all right, title and interest of the Borrower or
any Guarantor under such Mortgage in all personal property and fixtures which is
covered by such Mortgage, subject to no other Liens, except the encumbrances and
exceptions to title set forth therein and except as noted in the title policies
delivered to the Agent pursuant to Section 4.01, and Permitted Liens.
(c) All representations and warranties of the Borrower
and the Guarantors party thereto contained in the Collateral
Documents are true and correct.
5.14 Regulated Entities. None of the Borrower, any Person controlling
the Borrower, or any Subsidiary, is an "Investment Company" within the meaning
of the Investment Company Act of 1940. The Borrower is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Indebtedness.
5.15 No Burdensome Restrictions. Neither the Borrower nor any Guarantor
is a party to or bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.
5.16 Copyrights, Patents, Trademarks and Licenses, etc. The Borrower and
the Guarantors own or are licensed or otherwise have the right to use all of the
patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person. To the best knowledge of the Borrower, no slogan or other
advertising device, product, process, method, substance, part or other material
now employed, or now contemplated to be employed, by the Borrower or any
Subsidiary (other than MK Gain) infringes upon any rights held by any other
Person. Except as specifically disclosed in Schedule 5.05, no claim or
litigation regarding any of the foregoing is pending or threatened, and no
patent, invention, device, application,
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principle or any statute, law, rule, regulation, standard or code is pending or,
to the knowledge of the Borrower, proposed, which, in either case, could
reasonably be expected to have a Material Adverse Effect.
5.17 Capitalization and Subsidiaries. As of the Closing Date, the
Borrower has no Subsidiaries other than those specifically disclosed in part (a)
of Schedule 5.17 hereto and has no equity investments in any other corporation
or entity other than those specifically disclosed in part (b) of Schedule 5.17.
The amount of the Borrower's and each of its Subsidiaries' authorized and issued
capital stock and the ownership of every block representing 5% or more thereof
is as set forth on Schedule 5.17 including, without limitation, after
implementation of the Reorganization.
5.18 Insurance. Except as specifically disclosed in Schedule 5.18, the
properties of the Borrower and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of the Borrower, in such
amounts, with such deductibles and covering such risks as are customarily
carried by companies engaged in similar businesses and owning similar properties
in localities where the Borrower or such Subsidiary operates, and all such
insurance policies in effect on the Closing Date are described on Schedule 5.18.
5.19 Solvency. The Borrower and each of its Subsidiaries
are Solvent.
5.20 Swap Obligations. On the Closing Date, neither the
Borrower nor any of its Subsidiaries has incurred any outstanding
obligations under any Swap Contracts.
5.21 Full Disclosure. None of the representations or warranties made by
the Borrower or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Borrower or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of the Borrower to the Lenders prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.
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ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, unless the Majority
Lenders waive compliance in writing:
6.01 Financial Statements and Borrowing Base Certificate. The Borrower
shall deliver to the Agent, in form and detail satisfactory to the Agent and the
Majority Lenders, with sufficient copies for each Lender:
(a) as soon as available, but not later than 90 days after the
end of each Fiscal Year (commencing with the Fiscal Year ended December 31,
1996, a copy of the (i) audited consolidated balance sheet of the Borrower and
its Subsidiaries, (ii) unaudited consolidated balance sheet of the Borrower and
its Subsidiaries (excluding MK Gain and its Subsidiaries), and (iii) unaudited
consolidated and consolidating balance sheet of the Borrower and its
Subsidiaries, all as at the end of such year, and the related audited
consolidated and unaudited consolidated (excluding MK Gain and its Subsidiaries)
and consolidating statements of income or operations, shareholders' equity and
cash flows for such year for the Borrower and its Subsidiaries, setting forth in
each case in comparative form the figures for the previous Fiscal Year, and
accompanied by the opinion of Deloitte & Touche, L.L.P. or another
nationally-recognized independent public accounting firm ("Independent Auditor")
which report shall state that such consolidated financial statements present
fairly the financial position for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years. Such opinion shall not be
qualified or limited because of a restricted or limited examination by the
Independent Auditor of any material portion of the Borrower's or any
Subsidiary's records and shall be delivered to the Agent pursuant to a reliance
agreement between the Agent and Lenders and such Independent Auditor in form and
substance satisfactory to the Agent;
(b) as soon as available, but not later than 45 days after the
end of each Fiscal Quarter of each Fiscal Year (commencing with the Fiscal
Quarter ending in March 1997), a copy of the unaudited consolidated and
consolidating balance sheet of the Borrower and its Subsidiaries (including an
additional consolidated balance sheet of the Borrower and its Subsidiaries
excluding MK Gain and its Subsidiaries) as of the end of such Fiscal Quarter and
the related consolidated, consolidated (excluding MK Gain and its Subsidiaries)
and consolidating statements of income, shareholders' equity and cash flows for
the Borrower and its Subsidiaries for the period commencing on the first day and
ending on the last day of such Fiscal Quarter, and certified by a Responsible
Officer as fairly presenting, in
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accordance with GAAP (subject to ordinary, good faith year-end audit
adjustments), the financial position and the results of operations of the
Borrower and its Subsidiaries;
(c) as soon as available, but not later than 30 days after the
end of each Fiscal Month (commencing for the Fiscal Month ending in February
1997), a copy of the unaudited consolidated and consolidating balance sheet of
the Borrower and its Subsidiaries (including an additional consolidated balance
sheet of the Borrower and its Subsidiaries excluding MK Gain and its
Subsidiaries) as at the end of such Fiscal Month and the related consolidated,
consolidated (excluding MK Gain and its Subsidiaries) and consolidating
statement of income, shareholders' equity and cash flows for such Fiscal Month,
and certified by a Responsible Officer as fairly presenting, in accordance with
GAAP (subject to ordinary, good faith year-end audit adjustments), the financial
position and the results of operations of the Borrower and its Subsidiaries;
(d) as soon as available, but not later than fifteen (15) days
after the end of each Fiscal Month (commencing with the Fiscal Month ending
February 21, 1997): (a) a Borrowing Base Certificate for the Borrower, the
Borrowing Subsidiaries and Clark (on a consolidated basis) in the form of
Exhibit J attached hereto; and (b) a statement of the balance of each of the
intercompany loans between the Borrower and each Borrowing Subsidiary in
accordance with Section 7.04. If the Borrower's records or reports of the
Collateral are prepared by an accounting service or other agent, the Borrower
hereby authorizes such service or agent to deliver such records, reports, and
related documents to the Agent, for distribution to the Lenders.
6.02 Certificates; Other Information. The Borrower shall
furnish to the Agent, with sufficient copies for each Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.01(a), a certificate of the Independent Auditor stating
that in making the examination necessary therefor no knowledge was obtained of
any Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial
statements referred to in Sections 6.01(a) and (b), a Compliance
Certificate executed by a Responsible Officer;
(c) as soon as available, but not later than five (5) days of
filing with the SEC, copies of all financial statements and reports that the
Borrower sends to its shareholders, and copies of all financial statements and
regular, periodical or special reports (including Forms 10K, 10Q and 8K) that
the Borrower or any Subsidiary may make to, or file with, the SEC;
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(d) on or before December 1 of each year, a budget and
projections for the next Fiscal Year on a month by month and consolidated and
consolidating basis and otherwise in form and substance reasonably acceptable to
the Agent; and
(e) promptly, such additional information regarding the
business, financial or corporate affairs of (I) the Borrower or any of its
Subsidiaries (other than MK Gain) as the Agent, at the request of any Lender,
may from time to time request, and (II) MK Gain or its Subsidiaries as the
Agent, at the request of any Lender, may from time to time request after the
occurrence of a Default or Event of Default or if MK Gain or any of its
Subsidiaries shall breach, default or violate any terms or conditions of any
Contractual Obligations of such person evidencing Indebtedness with a principal
amount in excess of $1,000,000 which breach, default or violation would with
notice or the passage of time cause or permit the acceleration of the maturity
of such Indebtedness or a failure to pay any amounts due and owing thereon.
6.03 Notices. The Borrower shall promptly notify the Agent,
and if requested by the Agent, all the Lenders:
(a) of the occurrence of any Default or Event of
Default, and of the occurrence or existence of any event or
circumstance that foreseeably will become a Default or Event of
Default;
(b) of (i) any breach or nonperformance of, or any default
under, any Contractual Obligation of the Borrower or any of its Subsidiaries
which could result in a Material Adverse Effect; and (ii) any dispute,
litigation, investigation, proceeding or suspension which may exist at any time
between the Borrower or any of its Subsidiaries and any Governmental Authority
involving amounts in excess of $250,000 or which could result in a Material
Adverse Effect;
(c) of the commencement of, or any material development in, any
litigation or proceeding affecting the Borrower or any Subsidiary (i) in which
the amount of damages claimed is $2,500,000 (or its equivalent in another
currency or currencies) or more, (ii) in which injunctive or similar relief is
sought and which, if adversely determined, would reasonably be expected to have
a Material Adverse Effect, or (iii) in which the relief sought is an injunction
or other stay of the performance of this Agreement or any Loan Document;
(d) upon, but in no event later than 10 days after, becoming
aware of (i) any and all enforcement, investigation, cleanup, removal or other
governmental or regulatory actions instituted, completed or threatened against
the Borrower or any Subsidiary or any of their respective properties pursuant to
any applicable Environmental Laws, (ii) all other Environmental
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Claims, and (iii) any environmental or similar condition on any real property
adjoining or in the vicinity of the property of the Borrower or any Subsidiary
that could reasonably be anticipated to cause such property or any part thereof
to be subject to any restrictions on the ownership, occupancy, transferability
or use of such property under any Environmental Laws;
(e) of any other litigation or proceeding affecting the Borrower
or any of its Subsidiaries which the Borrower would be required to report to the
SEC pursuant to the Exchange Act, within four (4) days after reporting the same
to the SEC;
(f) of any of the following events affecting the Borrower,
together with a copy of any notice with respect to such event that may be
required to be filed with a Governmental Authority and any notice delivered by a
Governmental Authority to the Borrower with respect to such event:
(i) an ERISA Event;
(ii) if any of the representations and warranties
in Section 5.07 ceases to be true and correct;
(iii) the adoption of any new Pension Plan or
other Plan subject to Section 412 of the Code;
(iv) the adoption of any amendment to a Pension
Plan or other Plan subject to Section 412 of the Code, if such amendment
results in a material increase in contributions or Unfunded Pension
Liability; or
(v) the commencement of contributions to any
Pension Plan or other Plan subject to Section 412 of the
Code;
(g) of any material change in accounting policies or
financial reporting practices by the Borrower or any of its
consolidated Subsidiaries;
(h) of the entry by the Borrower or any of its
Subsidiaries (other than MK Gain) into any Swap Contract,
together with the details thereof;
(i) of the occurrence of any default, event of default,
termination event or other event under any Swap Contract that after the giving
of notice, passage of time or both, would permit either counterparty to such
Swap Contract to terminate early any or all trades relating to such contract;
and
(j) upon the request from time to time of the Agent, termination
or unwind amounts, together with a description of the method by which such
amounts were determined, relating to any
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then-outstanding Swap Contracts to which the Borrower or any of its Subsidiaries
(other than MK Gain) is party.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Borrower or any affected
Subsidiary proposes to take with respect thereto and at what time. Each notice
under Section 6.03(a) shall describe with particularity any and all clauses or
provisions of this Agreement or other Loan Document that have been (or
foreseeably will be) breached or violated.
6.04 Preservation of Corporate Existence, Etc. The Borrower
shall, and shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its state
or jurisdiction of incorporation;
(b) preserve and maintain in full force and effect all
governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its business except
in connection with transactions permitted by Section 7.03 and sales of assets
permitted by Section 7.02;
(c) use reasonable efforts, in the ordinary course of
business, to preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
6.05 Maintenance of Property; Locomotives. (a) The Borrower shall
maintain, and shall cause each Subsidiary to maintain, and preserve all its
property which is used or useful in its business in good working order and
condition, ordinary wear and tear and make all necessary repairs thereto and
renewals and replacements thereof except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect, except as permitted by
Section 7.02.
(b) All railroad locomotives which are owned by the Borrower or Boise
Locomotive as of the Closing Date are listed on Schedule 6.05, and all such
locomotives and any other owned locomotives acquired after the Closing Date are
currently and during the term of this Agreement shall only be located and used
within the 48 contiguous states of the United States.
6.06 Insurance. In addition to insurance requirements set
forth in the Collateral Documents, the Borrower shall maintain,
and shall cause each of its Subsidiaries to maintain, with
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financially sound and reputable independent insurers, insurance with respect to
its properties and business against loss or damage of the kinds customarily
insured against by Persons engaged in the same or similar business, of such
types and in such amounts as are customarily carried under similar circumstances
by such other Persons; including workers' compensation insurance, public
liability and property and casualty insurance, which amount shall not be reduced
by the Borrower in the absence of 30 days' prior notice to the Agent. All such
insurance (other than for MK Gain) shall name the Agent as loss payee/mortgagee
and as additional insured, for the benefit of the Lenders, as their interests
may appear. All casualty and key man insurance maintained by the Borrower and
the Guarantors shall name the Agent as loss payee and all liability insurance
shall name the Agent as additional insured for the benefit of the Lenders, as
their interests may appear. Upon request of the Agent or any Lender, the
Borrower shall furnish the Agent, with sufficient copies for each Lender, at
reasonable intervals (but not more than once per calendar year) a certificate of
a Responsible Officer of the Borrower (and, if requested by the Agent, any
insurance broker of the Borrower) setting forth the nature and extent of all
insurance maintained by the Borrower and its Subsidiaries in accordance with
this Section or any Collateral Documents (and which, in the case of a
certificate of a broker, were placed through such broker).
6.07 Payment of Obligations. The Borrower shall, and shall cause each
Subsidiary (excluding MK Gain for purposes of paragraphs (b) and (c) below) to,
pay and discharge as the same shall become due and payable, all their respective
obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being contested
in good faith by appropriate proceedings and adequate reserves in accordance
with GAAP are being maintained by the Borrower or such Subsidiary or if such
taxes are due by MK Gain to a Mexican taxing authority then in accordance with
Mexican GAAP;
(b) all lawful claims which, if unpaid, would by law
become a Lien upon its property; and
(c) all indebtedness, as and when due and payable, but
subject to any subordination provisions contained in any
instrument or agreement evidencing such Indebtedness.
6.08 Compliance with Laws. The Borrower shall comply, and shall cause
each Subsidiary to comply, in all material respects with all Requirements of Law
of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
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6.09 Compliance with ERISA. The Borrower shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
6.10 Inspection of Property and Books and Records. The Borrower shall
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP (or in
the case of MK Gain, Mexican GAAP) consistently applied shall be made of all
financial transactions and matters involving the assets and business of the
Borrower and such Subsidiary. The Borrower shall permit, and shall cause each
Subsidiary (including MK Gain only to the extent an event specified in Section
6.02(e)(II) has occurred and is continuing) to permit, representatives and
independent contractors of the Agent or any Lender to visit and inspect
(including taking and removing samples) any of their respective properties, to
examine their respective corporate, financial and operating records, and make
copies thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective directors, officers, and independent
public accountants, all at the expense of the Borrower and at such reasonable
times during normal business hours and as often as may be reasonably desired,
upon reasonable advance notice to the Borrower; provided, however, when a
Default or an Event of Default exists the Agent or any Lender may do any of the
foregoing at the expense of the Borrower at any time during normal business
hours and without advance notice.
6.11 Environmental Laws. (a) The Borrower shall, and shall
cause each Subsidiary to, conduct its operations and keep and
maintain its property in compliance in all material respects with
all Environmental Laws.
(b) Upon the written request of the Agent or any Lender, the
Borrower shall submit and cause each of its Subsidiaries to submit, to the Agent
with sufficient copies for each Lender, at the Borrower's sole cost and expense,
at reasonable intervals, a report providing an update of the status of any
environmental, health or safety compliance, hazard or liability issue identified
in any notice or report required pursuant to Section 6.03(d), that could,
individually or in the aggregate, result in liability in excess of $500,000.
6.12 Use of Proceeds. The Borrower shall use the proceeds of the Loans
solely (i) to refinance all Obligations under the Existing Loan Agreement, (ii)
to fund Permitted Acquisitions, (iii) for other working capital needs of the
Borrower not in contravention of any Requirement of Law or of any Loan Document
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or (iv) to loan such proceeds directly to the Borrowing Subsidiaries (on an
unsecured and demand repayment basis pursuant to documents and promissory notes
acceptable to the Agent and the Lenders, which documents and promissory notes
are subordinated to the Obligations and pledged to the Agent on behalf of the
Lenders) provided that such Borrowing Subsidiaries shall likewise only be
permitted to use the proceeds of such intercompany loans in accordance with
paragraphs (i) through (iii) above.
6.13 Location and Perfection of Collateral. The Borrower represents and
warrants to the Agent and the Lenders that: (a) Schedule 6.3 is a correct and
complete list of the Borrower's and each Guarantor's chief executive office, the
location of its books and records, the locations of the Collateral with respect
to that Person, and the locations of all of its other places of business; and
(b) Schedule 6.3 correctly identifies any of such facilities and locations that
are not owned by the Borrower or a Guarantor and sets forth the names of the
owners and lessors or sublessors of and, to the best of the Borrower's
knowledge, the holders of any mortgages on, such facilities and locations. The
Borrower covenants and agrees that it will not and will cause the Guarantors not
to (i) maintain any Collateral at any location other than those locations listed
for the Borrower or any Guarantor on Schedule 6.3, (ii) otherwise change or add
to any of such locations, or (iii) change the location of their chief executive
office from the location identified in Schedule 6.3, unless it gives the Agent
at least thirty (30) days' prior written notice thereof and executes any and all
financing statements and other documents that the Agent requests in connection
therewith. Without limiting the foregoing, Borrower represents that all
Inventory is, and covenants that all of its Inventory will be, located either
(a) on premises owned by the Borrower or a Guarantor, (b) on premises leased by
the Borrower, provided that the Agent has received an executed landlord waiver
from the landlord of such premises in form and substance satisfactory to the
Agent, (c) in a public warehouse, provided that the Agent has received an
executed bailee letter from the applicable public warehouseman in form and
substance satisfactory to the Agent or (d) up to $5,000,000 in the aggregate may
be held by a consignee of the Borrower or any of its Subsidiaries for sale on
consignment with no landlord waiver. The Borrower agrees and agrees to cause
each Guarantor to, take all steps necessary to maintain the perfection and
priority of the Agent's Lien and security interest (on behalf of the Lenders) in
the Collateral.
6.14 Further Assurances. (a) The Borrower shall ensure that all written
information, exhibits and reports furnished to the Agent or the Lenders do not
and will not contain any untrue statement of a material fact and do not and will
not omit to state any material fact or any fact necessary to make the statements
contained therein not misleading in light of the circumstances in which made,
and will promptly disclose to the Agent and the Lenders and correct any defect
or error that may be
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discovered therein or in any Loan Document or in the execution,
acknowledgment or recordation thereof.
(b) Promptly upon request by the Agent or the Majority Lenders,
the Borrower shall (and shall cause each Guarantor to) execute, acknowledge,
deliver, record, re-record, file, re-file, register and re-register, any and all
such further acts, deeds, conveyances, security agreements, mortgages,
assignments, estoppel certificates, financing statements and continuations
thereof, termination statements, notices of assignment, transfers, certificates,
assurances and other instruments the Agent or such Lenders, as the case may be,
may reasonably require from time to time in order (i) to carry out more
effectively the purposes of this Agreement or any other Loan Document, (ii) to
subject to the Liens created by any of the Collateral Documents any of the
properties, rights or interests covered by any of the Collateral Documents,
(iii) to perfect and maintain the validity, effectiveness and priority of any of
the Collateral Documents and the Liens intended to be created thereby, and (iv)
to better assure, convey, grant, assign, transfer, preserve, protect and confirm
to the Agent and Lenders the rights granted or now or hereafter intended to be
granted to the Lenders under any Loan Document or under any other document
executed in connection therewith.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, unless the Majority
Lenders waive compliance in writing:
7.01 Limitation on Liens. The Borrower shall not, and shall not suffer
or permit any Subsidiary (other than MK Gain) to, directly or indirectly, make,
create, incur, assume or suffer to exist any Lien upon or with respect to any
part of its property, whether now owned or hereafter acquired, other than the
following ("Permitted Liens"):
(a) any Lien (other than a Lien on the Collateral) existing on
property of the Borrower or any Guarantor on the Closing Date and set forth in
Schedule 7.01 securing Indebtedness outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty, or to the
extent that nonpayment thereof is permitted by Section 6.07, provided that no
notice of lien has been filed or recorded under the Code;
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(d) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or remain payable without penalty or which
are being contested in good faith and by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the property
subject thereto;
(e) Liens (other than any Lien imposed by ERISA and other than
on the Collateral) consisting of pledges or deposits required in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other social security legislation;
(f) Liens (other than Liens on the Collateral) on the property
of the Borrower or the Guarantors securing (i) the nondelinquent performance of
bids, trade contracts (other than for borrowed money), leases, statutory
obligations, (ii) contingent obligations on surety and appeal bonds, and (iii)
other nondelinquent obligations of a like nature; in each case, incurred in the
ordinary course of business, provided all such Liens in the aggregate would not
(even if enforced) cause a Material Adverse Effect;
(g) Liens (other than Liens on the Collateral) consisting of
judgment or judicial attachment liens, provided that the enforcement of such
Liens is effectively stayed and all such liens in the aggregate at any time
outstanding for the Borrower and the Guarantors do not exceed $250,000;
(h) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Borrower and its
Subsidiaries;
(i) Liens on assets of corporations which become Subsidiaries
after the date of this Agreement; provided, however, that such Liens existed at
the time the respective corporations became Subsidiaries and were not created in
anticipation thereof;
(j) purchase money security interests on any property acquired
or held by the Borrower or its Borrowing Subsidiaries in the ordinary course of
business, securing Indebtedness incurred or assumed for the purpose of financing
all or any part of the cost of acquiring such property; provided that (i) any
such Lien attaches to such property concurrently with or within 20 days after
the acquisition thereof, (ii) such Lien attaches solely to the property so
acquired in such transaction, (iii) the principal amount of the debt secured
thereby does not exceed 100% of the cost of such property, and (iv) the
principal amount of the Indebtedness secured by any and all such purchase money
security
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interests shall not at any time exceed, together with
Indebtedness permitted under Section 7.05(d), $5,000,000;
(k) Liens securing obligations in respect of capital leases on
assets subject to such leases; provided that such capital leases are otherwise
permitted hereunder;
(l) Liens arising solely by virtue of any statutory or common
law provision relating to banker's liens, rights of set-off or similar rights
and remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Borrower in excess of those set forth by regulations promulgated
by the FRB, and (ii) such deposit account is not intended by the Borrower or any
Subsidiary to provide collateral to the depository institution; and
(m) Liens on certain limited assets of Boise Locomotive in favor
of the issuer of a performance bond on behalf of Boise Locomotive in connection
with the issuance of performance bonds as expressly permitted by Section
7.08(e).
7.02 Disposition of Assets. The Borrower shall not, and shall not suffer
or permit any Subsidiary to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise permit a Disposition of (whether in one or a
series of transactions) any property (including accounts and notes receivable,
with or without recourse) or enter into any agreement to do any of the
foregoing, except the following transactions to the extent they are arms-length
transactions with Persons who are not Affiliates of the Borrower or its
Subsidiaries for pricing reflecting the fair market value of any assets or
property being sold:
(a) Dispositions of inventory, or used, worn-out or
surplus equipment, all in the ordinary course of business;
(b) the sale of equipment in the ordinary course and in
accordance with past practices to the extent that such equipment is exchanged
for credit against the purchase price of similar replacement equipment, or the
proceeds of such sale are reasonably promptly (and in any event within ninety
(90) days of such sale) applied to the purchase price of such replacement
equipment;
(c) Dispositions (other than by MK Gain and its Subsidiaries)
not otherwise permitted hereunder which are made for fair market value;
provided, that (i) at the time of any Disposition, no Default or Event of
Default shall exist or shall result after giving effect to such Disposition,
(ii) the aggregate sales price from such Disposition shall be paid in cash, and
(iii) the aggregate value of all assets so sold by the
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Borrower and its Subsidiaries, together, shall not exceed the lesser of (i)
$3,000,000 in any Fiscal Year (plus the amount of the proceeds from the sale of
the Borrower's Mountaintop, PA facility during the Fiscal Year it is sold, if
ever) and (ii) $10,000,000 in the aggregate during the term of the Agreement;
and
(d) Dispositions by MK Gain and its Subsidiaries of assets with
a value not in excess of twenty percent (20%) of the aggregate value of the
assets of MK Gain and its Subsidiaries (on a consolidated basis) as shown on MK
Gain's consolidated financial statements in any Fiscal Year, and in any event
not in excess of $20,000,000 in the aggregate.
7.03 Restriction on Fundamental Changes; Acquisitions. Neither Borrower
nor any of its Subsidiaries will: (a) enter into any transaction of merger or
consolidation; (b) liquidate, windup or dissolve itself (or suffer any
liquidation or dissolution); (c) convey, sell, lease, sublease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its business or assets, or the capital stock of or other
equity interests in any of its Subsidiaries, whether now owned or hereafter
acquired; or (d) acquire by purchase or otherwise all or any substantial part of
the business or assets of, or stock or other evidence of beneficial ownership
of, any Person; provided, however, (i) the Borrower may make Capital
Expenditures used for the purchase of assets permitted under Section 7.15 and
Investments permitted under Section 7.04; (ii) any Subsidiary (other than MK
Gain) of Borrower may be merged with or into Borrower (provided that Borrower is
the surviving entity) or any other Subsidiary of Borrower (other than MK Gain);
(iii) notwithstanding any prohibition on MK Gain or its wholly-owned
Subsidiaries making any such purchases or acquisitions referenced above, and so
long as no Default or Event of Default has occurred and is continuing hereunder
after giving effect thereto, MK Gain and its wholly-owned Subsidiaries may enter
into future acquisitions that are not hostile in nature to acquire all or
substantially all of the assets or capital stock of any corporation, entity or
division (collectively, "MK Gain Acquisitions") if: (A) the aggregate
consideration to be paid by MK Gain and its wholly-owned Subsidiaries, whether
in the form of cash payments, promissory notes or other deferred purchase price,
or assumed debt and liabilities and Indebtedness, in connection with all such MK
Gain Acquisitions and howsoever evidenced, shall not exceed $25,000,000 in the
aggregate (less the amount of any Investments by MK Gain in Joint Ventures
pursuant to Section 7.04(g)); (B) such MK Gain Acquisitions shall only be of
businesses and assets related or similar to the Borrower's current lines of
business and satisfying the restrictions in Section 7.13, and which businesses
would not subject the Agent or any Lender to regulatory or third party approval
in connection with the exercise of their rights and remedies under this
Agreement or any other Loan Documents; and (C) other than as
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permitted by Section 7.05(f), no new Indebtedness for borrowed money to finance
such acquisition will be incurred in connection with such MK Gain Acquisitions;
(iv) notwithstanding any prohibition on the Borrower making any such purchases
or acquisitions referenced above, and so long as no Default or Event of Default
has occurred and is continuing hereunder after giving effect thereto, the
Borrower may enter into future acquisitions that are not hostile in nature to
acquire all or substantially all of the assets or capital stock of any
corporation, entity or division (collectively, "Permitted Acquisitions") if:
(A) the aggregate consideration to be paid by the Borrower,
whether in the form of cash payments, promissory notes or other deferred
purchase price, or assumed debt and liabilities and Indebtedness, in connection
with all such Permitted Acquisitions and howsoever evidenced, shall not exceed
$15,000,000 in the aggregate during the first twelve (12) months after the
Closing Date or $45,000,000 in the aggregate at any time;
(B) such Permitted Acquisitions shall only be of businesses and
assets related or similar to the Borrower's current lines of business and
satisfying the restrictions in Section 7.13, and which businesses would not
subject the Agent or any Lender to regulatory or third party approval in
connection with the exercise of their rights and remedies under this Agreement
or any other Loan Documents;
(C) the assets so acquired shall be transferred free and clear
of any liens and encumbrances (other than Permitted Liens), and any assumed debt
and liabilities and Indebtedness (excluding purchase money debt and Capital
Leases otherwise permitted under Section 7.05) shall be repaid prior to or
simultaneously with any such Permitted Acquisition;
(D) other than under the Agreement, no new Indebtedness for
borrowed money to finance such acquisition will be incurred in connection with
such Permitted Acquisitions;
(E) environmental audits, pro forma financial statements and a
pro forma borrowing base certificate (in the form of Exhibit J and showing the
pro forma borrowing base of the Borrower after consummation of the Permitted
Acquisition), appraisals and any other testing or due diligence investigation
reasonably required by Agent shall have been completed in a satisfactory manner
and shows that the Borrower shall continue to be in compliance with this
Agreement after the consummation of such Permitted Acquisition including,
without limitation, its pro forma compliance with Sections 7.16, 7.17 and 7.18;
(F) Agent, on behalf of Lenders, will be granted a first and
prior perfected security interest (subject to Permitted Liens) in any assets
being so acquired including, without
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limitation, a pledge of any capital stock together with a guarantee from any new
Subsidiary (if such Permitted Acquisition is an acquisition of stock) and a
pledge of the underlying assets to secure such Subsidiary guarantee; and
(G) Agent and the Lenders shall have received at least 15 days
advance written notice of any proposed acquisition together with each of the
following documents in form and substance reasonably satisfactory to the Agent:
(I) pro forma balance sheets of the Borrower (the "Acquisition
Pro Forma") on a consolidated and consolidating basis, based on financial data
as of a recent date, which shall be complete and shall accurately and fairly
represent Borrower's assets, liabilities, financial condition and results of
operations in accordance with GAAP consistently applied, but taking into account
such Permitted Acquisition and the transactions contemplated by any purchase
agreement documenting such Permitted Acquisition, and such Acquisition Pro Forma
shall establish that the maximum Revolving Loans shall exceed the outstanding
principal balance on the Revolving Loan by at least $5,000,000 and the
Acquisition Projections (as hereinafter defined) shall establish that such
minimum availability shall continue for at least 30 days after the consummation
of such Future Acquisition;
(II) Projections prepared in accordance with Section
7.03(iv)(G)(I) (the "Acquisition Projections") hereof and based upon historical
financial data of a recent date satisfactory to Agent, taking into account such
Future Acquisition on a pro forma basis for the prior four (4) quarters and for
the next three (3) years; and
(III) a certificate of the chief financial officer of Borrower
to the effect that: (x) Borrower will be Solvent upon the consummation of the
transactions contemplated by the Acquisition; (y) the Acquisition Pro Forma
fairly presents the financial condition of the Borrower (on a consolidated
basis) as of the date thereof after giving effect to the transactions
contemplated by such Permitted Acquisition; (z) the Acquisition Projections are
reasonable estimates of the future financial performance of Borrower subsequent
to the date thereof based upon the historical performance of Borrower after
taking into account the consummation of the Permitted Acquisition and in
addition show that on that basis the Borrower would have been in compliance with
the financial covenants set forth in Sections 7.16, 7.17 and 7.18 for the four
(4) quarter period immediately prior to such Permitted Acquisition; and
(H) Agent, on behalf of Lenders, shall have received Lien
searches (reasonably satisfactory to Agent) with respect to any assets being
acquired.
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7.04 Loans and Investments. The Borrower shall not purchase or acquire,
or suffer or permit any of its Subsidiaries to purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations or
other securities of, or any interest in, any Person, or make or commit to make
any Acquisitions, or make or commit to make any advance, loan, extension of
credit or capital contribution to or any other investment in, any Person
including any Affiliate of the Borrower (together, "Investments"), except for:
(a) Investments held by the Borrower or its
Subsidiaries in the form of cash equivalents or short-term
marketable securities;
(b) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of
goods or services in the ordinary course of business;
(c) extensions of credit by the Borrower in cash directly to any
of its Borrowing Subsidiaries in the form of intercompany loans; provided that
such intercompany loans shall be subject to the following terms and conditions:
(i) such loans shall be unsecured and payable on demand, and the
Borrower and the Borrowing Subsidiaries hereby agree that all
such Indebtedness shall be subordinated in right of payment to
the final payment in full in cash of the Obligations;
(ii) no Default or Event of Default shall then exist and be
continuing or would result after giving effect thereto, and
after giving effect to each such intercompany loan, both the
Borrower making such loan and the recipient thereof shall be
Solvent;
(iii) each recipient of such a loan shall use the proceeds
thereof solely for its own working capital requirements and
other general corporate purposes arising in the ordinary course
of its business or as permitted by Section 6.12; and
(iv) such loans shall be evidenced by subordinated promissory
notes in form and substance acceptable to the Agent and pledged
to and delivered to the Agent pursuant to documentation in form
and substance acceptable to the Agent granting the Agent (on
behalf of the Lenders) a first perfected security interest
therein;
(d) Investments by the Borrower in its Borrowing Subsidiaries
satisfying the terms and conditions of paragraph (c) above and incurred in order
to consummate Permitted Acquisitions otherwise permitted under Section 7.03;
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(e) Investments by the Borrower in Joint Ventures not
exceeding $2,500,000 in any Fiscal Year as to all such
investments in the aggregate;
(f) Investments by the Borrower in its wholly-owned
Subsidiaries (other than MK Gain and its Subsidiaries and/or the
Borrowing Subsidiaries) not in excess of $2,500,000 in the
aggregate;
(g) Investments by MK Gain in (i) its wholly-owned Subsidiaries
from time to time or (ii) in Joint Ventures in amounts not in excess of
$10,000,000 in the aggregate (less the aggregate amount of MK Gain Acquisitions
in excess of $15,000,000), provided that in either case the funds, monies,
properties or consideration constituting such Investment or Joint Venture was
not received from or provided by (directly or indirectly) the Borrower or its
other Subsidiaries at any time on or after the Closing Date provided that at
such time no Default or Event of Default shall then have occurred and be
continuing or would result after giving effect thereto;
(h) Investments by the Borrower in Boise Locomotive in the form
of asset drop downs and assignments of title to owned railroad locomotives or
rights with respect to leased railroad locomotives, provided that the Borrower
shall have (i) obtained all consents with respect to Contractual Obligations and
otherwise required to consummate such transactions without violating any
Contractual Obligations of the Borrower or any of its Subsidiaries, (ii)
provided the Agent with ten (10) Business Days prior written notice of such
transactions (including a certification that all consents as required by
paragraph (i) above have been obtained), (iii) with respect to owned railroad
locomotives, provided the Agent (on behalf of the Lenders) with such documents
as may be reasonably requested by the Agent and in form and substance reasonably
acceptable to the Agent including, without limitation, properly recorded
assignments of all locomotives mortgages and assignments of leases with respect
to such locomotives and a legal opinion from legal counsel in form and substance
reasonably satisfactory to the Agent opining as to the continuing prior
perfected security interest of the Agent (on behalf of the Lenders) in such
owned railroad locomotives and the corporate power and authority, and
enforceability of the transfer documents and mortgages with respect thereto; and
(iv) no Default or Event of Default shall then have occurred and be continuing
or would result after giving effect thereto;
(i) Investments by the Borrower in any purchaser of its
Mountaintop, Pennsylvania facility in the form of a promissory note with a
principal amount not in excess of $500,000 in the aggregate which promissory
note represents the deferred portion of the purchase price from the sale of such
Mountaintop, Pennsylvania facility; and
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(j) Investments by the Borrower in MK Gain in the form of that
certain promissory note in the original principal amount of $16,551,001.67 and
dated June 30, 1995, provided that the Borrower may not extend any further funds
or loans under such promissory note, but the Borrower may (so long as no Default
or Event of Default has then occurred or would result after giving effect
thereto) elect to make a further capital contribution to MK Gain by converting
such promissory note to equity, and after written notice thereof the Agent may
present the original of such promissory note which has been pledged to Agent (on
behalf of the Lenders) for cancellation.
7.05 Limitation on Indebtedness. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations
permitted pursuant to Section 7.08;
(c) Indebtedness existing on the Closing Date and set
forth in Schedule 7.05;
(d) Indebtedness incurred in connection with leases
permitted pursuant to Section 7.10(c);
(e) Indebtedness consisting of purchase money loans
permitted pursuant to Section 7.01(j); and
(f) Indebtedness of MK Gain (including and not in addition to
any Indebtedness permitted under paragraphs (a) through (e) above) not in excess
of $65,000,000 in aggregate principal amount at any time outstanding; provided,
however, that in no event may the Borrower or any Guarantor be liable in any way
or have any Contingent Obligation with respect to any such Indebtedness of MK
Gain.
7.06 Transactions with Affiliates. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of the Borrower, except upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate of the Borrower or such
Subsidiary (which shall include, without limitation, not permitting their
outstanding trade credit being extended to, or accounts or accounts receivable
due from MK Gain and its Subsidiaries to exceed, the payment terms provided to
other creditors generally, and in any event to not be outstanding for more than
90 days) except that (a) the Borrower and its Subsidiaries may make travel
advances or other loans to their employees in connection with relocations
provided that all such
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loans and advances are less than $75,000 in the aggregate, (b) the Borrower's
Subsidiaries may make payments to the Borrower, (i) to satisfy the Federal,
state and local income tax obligations to the extent such obligations are the
result of the net consolidated income of the Borrower's Subsidiaries being
attributed to the Borrower for tax purposes, (ii) as permitted under Section
9.10 hereof or (iii) to pay such other amounts as are described on Schedule
7.06.
7.07 Use of Proceeds. (a) The Borrower shall not, and shall not suffer
or permit any Borrowing Subsidiary to, use any portion of the Loan proceeds,
directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or
otherwise refinance indebtedness of the Borrower or others incurred to purchase
or carry Margin Stock, (iii) to extend credit for the purpose of purchasing or
carrying any Margin Stock, or (iv) to acquire any security in any transaction
that is subject to Section 13 or 14 of the Exchange Act.
(b) The Borrower shall not, directly or indirectly, use any
portion of the Loan proceeds (i) knowingly to purchase Ineligible Securities
from the Arranger during any period in which the Arranger makes a market in such
Ineligible Securities, (ii) knowingly to purchase during the underwriting or
placement period Ineligible Securities being underwritten or privately placed by
the Arranger, or (iii) to make payments of principal or interest on Ineligible
Securities underwritten or privately placed by the Arranger and issued by or for
the benefit of the Borrower or any Affiliate of the Borrower. The Arranger is a
registered broker-dealer and permitted to underwrite and deal in certain
Ineligible Securities; and "Ineligible Securities" means securities which may
not be underwritten or dealt in by member banks of the Federal Reserve System
under Section 16 of the Banking Act of 1933 (12 U.S.C. ss. 24, Seventh), as
amended.
7.08 Contingent Obligations. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations or to have any surety or performance bond obligation used
on its behalf except:
(a) endorsements for collection or deposit in the
ordinary course of business;
(b) Contingent Obligations of the Borrower and its
Subsidiaries existing as of the Closing Date and listed in
Schedule 7.08;
(c) Contingent Obligations under the Loan Documents;
(d) Contingent Obligations of MK Gain and its wholly-
owned Subsidiaries in the form of guaranties with respect to any
Indebtedness permitted under Section 7.05(f);
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(e) Contingent Obligations of the Borrower with respect to
performance bonds or surety contracts of any kind provided that such performance
bonds or surety contracts are issued in connection with Contractual Obligations
to reconstruct railroad locomotives which provide aggregate total consideration
and payments to the Borrower and its Subsidiaries not in excess of $10,000,000
in the aggregate (whether or not progress payments have been made thereunder or
such amounts are then due and owing) and are issued pursuant to contracts and
agreements in form and substance and from an issuer or surety reasonably
satisfactory to the Agent, and in any event such issuer or surety shall not be
permitted to take a Lien on any property or assets of the Borrower or its
Subsidiaries other than the Inventory and Accounts (excluding cash payments not
made directly to such issuer or surety) directly identifiable to the contract
being supported by such surety or performance bond; and
(f) Contingent Obligations of the Borrower in the form of
unsecured guaranties of (i) the Indebtedness of any Borrowing Subsidiary with
respect to Indebtedness permitted under Section 7.05(a) through (e), (ii) the
obligations of Boise Locomotive being assumed by Boise Locomotive from the
Borrower pursuant to the transactions permitted under Section 7.04(h), and (iii)
up to $1,000,000 of other obligations or liabilities of any Borrowing
Subsidiaries which are permitted by the terms of this Agreement, but in any
event excluding any guaranty or other Contingent Obligation of any kind of the
Indebtedness, obligations and/or liabilities of MK Gain and its Subsidiaries or
Joint Ventures.
7.09 Joint Ventures; Subsidiaries. The Borrower shall not, and shall not
suffer or permit any Subsidiary to (a) form a new Subsidiary after the Closing
Date, except that MK Gain may form additional Wholly-Owned Subsidiaries, and the
Borrower may form a new Wholly-Owned Subsidiary to serve as a Mexican holding
company called MPI de Mexico, S.A. de C.V. provided that such corporation shall
not hold any assets except that all of the assets or stock of MK Gain (as it
exists on the Closing Date) may be contributed to such company provided that (i)
no Default or Event of Default then exists and is continuing or would result
after giving effect thereto, (ii) such transaction can be completed on a
tax-free basis to the Borrower and the Guarantors, (iii) MPI de Mexico, S.A. de
C.V. will be only a holding company and not conduct any business or operations
of any kind and (iv) the Borrower provides the Agent with at least ten (10)
Business Days prior written notice of such transaction providing reasonable
details on the terms and structure thereof and reaffirming the treatment of and
pledge to the Agent (on behalf of the Lenders) of any Indebtedness owing by MK
Gain to the Borrower or any Guarantor or (b) enter into any Joint Venture, other
than in the ordinary course of business and in accordance with past practices,
except that MK Gain may enter into Joint Ventures with Persons (other than the
Borrower and/or any Guarantors) as permitted by Section 7.04(g)(ii).
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7.10 Lease Obligations. The Borrower shall not, and shall not suffer or
permit any Subsidiary to, (i) create or suffer to exist any obligations for the
payment of rent for any property under lease or agreement to lease or (ii)
directly or indirectly, enter into any arrangement with any Person providing for
the Borrower or such Subsidiary to lease or rent property that the Borrower or
such Subsidiary has sold or will sell or otherwise transfer to such Person,
except for:
(a) leases of the Borrower and its Subsidiaries in
existence on the Closing Date and any renewal, extension or
refinancing thereof;
(b) operating leases entered into by the Borrower and its
Subsidiaries in the ordinary course of business (including any in existence on
the Closing Date) for which the aggregate amount of Rentals (as hereinafter
defined) payable by (i) the Borrower and its Subsidiaries (other than MK Gain)
on a consolidated basis in any Fiscal Year in respect of such lease and all
other such leases would exceed Fifteen Million Dollars ($15,000,000) or (ii) MK
Gain and its Subsidiaries (on a consolidated basis) in any Fiscal Year in
respect of such lease and all other such leases would exceed Four Million
Dollars ($4,000,000); where the term "Rentals" means all payments due from the
lessee or sublessee under a lease, including, without limitation, basic rent,
percentage rent, property taxes, utility or maintenance costs, and insurance
premiums;
(c) capital leases other than those permitted under clause (a)
of this Section, entered into by the Borrower or any Subsidiary after the
Closing Date to finance the acquisition of equipment; provided that the
aggregate rental payments for all such capital leases shall not exceed
$5,000,000 less the amount of any outstanding purchase money Indebtedness
permitted under Section 7.05(e); and
(d) sale-leasebacks of locomotives by the Borrower or Boise
Locomotive in the ordinary course of its business, which sale-leaseback
transactions are otherwise done in compliance with Section 7.02(c) above.
7.11 Restricted Payments; No Permitted Restrictions for Subsidiaries.
(a) The Borrower shall not, and shall not suffer or permit any Subsidiary to,
declare or make any dividend payment or other distribution of assets,
properties, cash, rights, obligations or securities on account of any shares of
any class of its capital stock, or purchase, redeem or otherwise acquire for
value any shares of its capital stock or any warrants, rights or options to
acquire such shares, now or hereafter outstanding; except that:
(i) the Borrower may declare and make dividend payments
or other distributions payable solely in its common stock;
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(ii) the Borrower may purchase, redeem or otherwise acquire
shares of its common stock or warrants or options to acquire any such shares
with the proceeds received from the substantially concurrent issue of new shares
of its common stock;
(iii) any Subsidiary may declare and pay cash dividends
to the Borrower;
(iv) so long as no Default or Event of Default shall have
occurred or would result after giving effect thereto, the Borrower may make cash
dividend payments on its common stock not in excess of $3,000,000 in any Fiscal
Year; and
(v) Motor Coils or Touchstone may declare and pay dividends to
MotivePower Investments in the form of promissory notes which otherwise satisfy
the terms and conditions for loans under Section 7.04(c) (as if such dividend
constituted a loan from MotivePower Investments instead of the Borrower).
(b) The Borrower shall not permit any of its Subsidiaries (other
than MK Gain) to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
such Subsidiary to (I) pay dividends or make any other distributions to the
Borrower or any of its other Subsidiaries (1) on its capital stock or (2) with
respect to any other interest or participation in, or measured by, its profits,
(II) pay any indebtedness owed to the Borrower or any of its other Subsidiaries,
(III) make loans or advances to the Borrower or any of its other Subsidiaries,
or (IV) transfer any of its properties or assets to the Borrower or any of its
other Subsidiaries (collectively, "Encumbrances"), except for such Encumbrances
existing under or by reason of (1) this Agreement, (2) applicable law, (3)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, or (4) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in paragraph (b)(IV) above on the property
so acquired.
7.12 ERISA. The Borrower shall not, and shall not suffer or permit any
of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation
of the fiduciary responsibility rules with respect to any Plan which has
resulted or could reasonably be expected to result in liability of the Borrower
in an aggregate amount in excess of $500,000; or (b) engage in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA.
7.13 Change in Business; Holding Companies; FSC Operations.
The Borrower shall not, and shall not suffer or permit any
Subsidiary to, engage in any material line of business
substantially different from those lines of business carried on
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by the Borrower and its Subsidiaries on the date hereof. Both the Borrower and
MotivePower Investments shall only act as holding companies to own the capital
stock of their Subsidiaries and shall not own other assets or conduct business
operations except in accordance with past practices as in effect immediately
after the Reorganization. The FSC will only be permitted to engage in business
as a foreign sales corporation on a commission basis, being commissioned for
foreign sales on an acceptable basis within the IRS guidelines, and will not
have any assets or property of any kind other than Accounts then due and owing
in the ordinary course of business from foreign Persons in aggregate amounts not
in excess of $5,000,000 (and provided that an equivalent account receivable is
created in favor of one of the Guarantors or the Borrower) and a minimal amount
in a bank account which may be maintained in Barbados.
7.14 Accounting Changes. The Borrower shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as required by GAAP, or change the fiscal year of
the Borrower or of any Subsidiary.
7.15 Capital Expenditures. The Borrower shall not, and shall not permit
any Subsidiary to make or incur any Capital Expenditure if, after giving effect
thereto, the aggregate amount of all Capital Expenditures by the Borrower and
its Subsidiaries on a consolidated basis would exceed during any Fiscal Year the
amount of $15,000,000 plus an amount equal to the proceeds of equipment sales
which are made and reinvested in replacement equipment in accordance with
Section 7.02(b) during any Fiscal Year.
7.16 Maximum Ratio of Funded Debt to Cash Flow. The Borrower (on a
consolidated basis with its subsidiaries other than MK Gain) shall not permit
the ratio as of the last day of each Fiscal Quarter after the Closing Date of
its (A) Funded Debt as of such date to (B) Cash Flow for the immediately
preceding four Fiscal Quarters ending on such date, to be greater than (i)
3.50:1.00 for Fiscal Quarters ending during Fiscal Year 1997, (ii) 3.25:1.00 for
Fiscal Quarters ending during Fiscal Year 1998, and (iii) 3.00:1.00 thereafter.
7.17 Minimum Tangible Net Worth. The Borrower (on a consolidated basis
with its Subsidiaries other than MK Gain) shall not permit its Tangible Net
Worth at any time to be less than the sum of (i) 90% of actual Tangible Net
Worth as of December 31, 1996 (which excludes MK Gain), plus (ii) 75% of the
Borrower's cumulative net income (which excludes MK Gain, and shall not in any
event be reduced by losses) commencing January 1, 1997.
7.18 Minimum Fixed Charges Coverage Ratio. The Borrower
(on a consolidated basis with its Subsidiaries other than MK
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Gain) shall not permit the ratio of its (A)(i) EBITDA, plus (ii) rent expense
pursuant to all operating leases to (B) Fixed Charges, as of the last day of
each Fiscal Quarter after the Closing Date for the immediately preceding four
Fiscal Quarters ending as of the last day of each such Fiscal Quarter, to be
less than 1.25:1.00.
ARTICLE VIII
EVENTS OF DEFAULT
8.01 Event of Default. Any of the following shall
constitute an "Event of Default":
(a) Non-Payment. The Borrower fails to make, (i) when and as
required to be made herein, payments of any amount of principal of any Loan, or
(ii) within 3 days after the same becomes due, payment of any interest, fee or
any other amount payable hereunder or under any other Loan Document including,
without limitation, any Specified Swap Contract; or
(b) Representation or Warranty. Any representation or warranty
by the Borrower or any of its Subsidiaries made or deemed made herein, in any
other Loan Document, or which is contained in any certificate, document or
financial or other statement by the Borrower, any Borrowing Subsidiary, or any
Responsible Officer, furnished at any time under this Agreement, or in or under
any other Loan Document is incorrect in any material respect on or as of the
date made or deemed made; or
(c) Specific Defaults. The Borrower fails to perform
or observe any term, covenant or agreement contained in (i) any
of Section 6.01, 6.02, 6.03 for a period of five (5) days or
(ii) in any of Section 6.06 or 6.13 or in Article VII; or
(d) Other Defaults. The Borrower or any of its Subsidiaries
fails to perform or observe any other term or covenant contained in this
Agreement or any other Loan Document to which it is a party, and such default
shall continue unremedied for a period of 20 days after the earlier of (i) the
date upon which a Responsible Officer knew or reasonably should have known of
such failure or (ii) the date upon which written notice thereof is given to the
Borrower by the Agent or any Lender; or
(e) Cross-Default. The Borrower or any of its Subsidiaries
(other than MK Gain) (A) fails to make any payment in respect of any
Indebtedness, preferred stock or Contingent Obligation, having an aggregate
principal amount or redemption price (including undrawn committed or available
amounts and including amounts owing to all creditors under any combined or
syndicated credit arrangement) of more than $1,000,000 when due
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(whether by scheduled maturity, required prepayment, acceleration, demand, or
otherwise) and such failure continues after the applicable grace or notice
period, if any, specified in the relevant document on the date of such failure;
or (B) fails to perform or observe any other condition or covenant, or any other
event shall occur or condition exist, under any agreement or instrument relating
to any such Indebtedness, preferred stock or Contingent Obligation, and such
failure continues after the applicable grace or notice period, if any, specified
in the relevant document on the date of such failure if the effect of such
failure, event or condition is to cause, or to permit the holder or holders of
such Indebtedness or preferred stock or beneficiary or beneficiaries of such
Indebtedness or preferred stock (or a trustee or agent on behalf of such holder
or holders or beneficiary or beneficiaries) to cause such Indebtedness or
preferred stock to be declared to be due and payable prior to its stated
maturity, or such Contingent Obligation to become payable or cash collateral in
respect thereof to be demanded; or
(f) Insolvency; Voluntary Proceedings. The Borrower or any of
its Subsidiaries (i) ceases or fails to be solvent, or generally fails to pay,
or admits in writing its inability to pay, its debts as they become due, subject
to applicable grace periods, if any, whether at stated maturity or otherwise;
(ii) voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Borrower or any of its
Subsidiaries, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of the Borrower's or any
of its Subsidiary's properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded within 60 days after
commencement, filing or levy; (ii) the Borrower or any of its Subsidiaries
admits the material allegations of a petition against it in any Insolvency
Proceeding, or an order for relief (or similar order under non-U.S. law) is
ordered in any Insolvency Proceeding; or (iii) the Borrower or any of its
Subsidiaries acquiesces in the appointment of a receiver, trustee, custodian,
conservator, liquidator, mortgagee in possession (or agent therefor), or other
similar Person for itself or a substantial portion of its property or business;
or
(h) ERISA. (i) An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Borrower under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess
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of $1,000,000; or (ii) the aggregate amount of Unfunded Pension Liability among
all Pension Plans at any time exceeds $1,000,000; or (iii) the Borrower or any
ERISA Affiliate shall fail to pay when due, after the expiration of any
applicable grace period, any installment payment with respect to its withdrawal
liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate
amount in excess of $1,000,000; or
(i) Monetary Judgments. One or more non-interlocutory judgments,
non-interlocutory orders, decrees or arbitration awards is entered against the
Borrower or any Guarantor involving in the aggregate a liability (to the extent
not covered by independent third-party insurance as to which the insurer does
not dispute coverage) as to any single or related series of transactions,
incidents or conditions, of $500,000 or more, and the same shall remain
unsatisfied, unvacated and unstayed pending appeal for a period of 10 days after
the entry thereof; or
(j) Non-Monetary Judgments. Any non-monetary judgment, order or
decree is entered against the Borrower or any of its Subsidiaries which does or
would reasonably be expected to have a Material Adverse Effect, and there shall
be any period of 10 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) Change of Control. There occurs any Change of
Control; or
(l) Loss of Licenses. Any other Governmental Authority revokes
or fails to renew any license, permit or franchise of the Borrower or any
Subsidiary, or the Borrower or any Subsidiary for any reason loses any material
license, permit or franchise, or the Borrower or any Subsidiary suffers the
imposition of any restraining order, escrow, suspension or impound of funds in
connection with any proceeding (judicial or administrative) with respect to any
license, permit or franchise and the result is a Material Adverse Effect; or
(m) Adverse Change. There occurs a Material Adverse
Effect; or
(n) Guarantor Defaults. Any Guarantor fails in any material
respect to perform or observe any term, covenant or agreement in the Guaranty;
or the Guaranty is for any reason partially (including with respect to future
advances) or wholly revoked or invalidated, or otherwise ceases to be in full
force and effect, or the Guarantor or any other Person contests in any manner
the validity or enforceability thereof or denies that it has any further
liability or obligation thereunder; or any event described at subsections (f) or
(g) of this Section occurs with respect to any Guarantor; or
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(o) Collateral.
(i) any provision of any Collateral Document
shall for any reason cease to be valid and binding on or enforceable
against the Borrower or any of its Subsidiaries party thereto or the
Borrower or any of its Subsidiaries shall so state in writing or bring
an action to limit its obligations or liabilities thereunder; or
(ii) any Collateral Document shall for any reason
(other than pursuant to the terms thereof) cease to create a valid
security interest in the Collateral purported to be covered thereby or
such security interest shall for any reason cease to be a perfected and
first priority security interest subject only to Permitted Liens; or
(p) Cross-Acceleration to MK Gain Debt. A default occurs under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness of MK Gain or any of
its Subsidiaries (or any Guaranty Obligation of MK Gain or any of its
Subsidiaries), whether such Indebtedness or Guaranty Obligation now exists or
shall be created after the date hereof, which default (a) is caused by a failure
to pay principal of or premium, if any, or interest on such Indebtedness or
Guaranty Obligation prior to the expiration of the grace period provided in such
Indebtedness (a "Payment Default") or (b) results in the acceleration of such
Indebtedness or Guaranty Obligation prior to its express maturity and, in each
case, the principal amount of such Indebtedness or Guaranty Obligation, together
with the principal amount of any other Indebtedness or Guaranty Obligation as to
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $1,000,000 or more; or
(q) Locomotive Leases. Any default, violation or breach shall
occur in any covenants or agreements contained in any lease documents pursuant
to which the Borrower or Boise Locomotive leases railroad locomotives from any
other Person, and such locomotive lease shall be terminated, or such default,
violation or breach shall continue, for more than the applicable grace period
(and shall not have been waived in writing), and shall give the lessor
thereunder the right to terminate such locomotive lease or otherwise bring suit
of any kind against the Borrower or Boise Locomotive for injunctive relief,
damages or other penalties or costs of any kind; or
8.02 Remedies. If any Event of Default occurs, the Agent
shall, at the request of, or may, with the consent of, the
Majority Lenders,
(a) declare the commitment of each Lender to make Loans
to be terminated, whereupon such commitments shall be terminated;
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(b) declare the unpaid principal amount of all outstanding
Loans, all interest accrued and unpaid thereon, and all other amounts owing or
payable hereunder or under any other Loan Document to be immediately due and
payable, without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived by the Borrower; and
(c) exercise on behalf of itself and the Lenders all
rights and remedies available to it and the Lenders under the
Loan Documents or applicable law;
provided, however, that upon the occurrence of any event specified in subsection
(f) or (g) of Section 8.01 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each
Lender to make Loans shall automatically terminate and the unpaid principal
amount of all outstanding Loans and all interest and other amounts as aforesaid
shall automatically become due and payable without further act of the Agent or
any Lender.
8.03 Specified Swap Contract Remedies. Notwithstanding any other
provision of this Article VIII, each Specified Swap Provider shall have the
right, with prior notice to the Agent, but without the approval or consent of
the Agent or the other Lenders, with respect to any Specified Swap Contract of
such Specified Swap Provider, (a) to declare an event of default, termination
event or other similar event thereunder, (b) to determine net termination
amounts in accordance with the terms of such Specified Swap Contract, and (c) to
prosecute any legal action against the Borrower to enforce net amounts owing to
such Specified Swap Provider.
8.04 Rights Not Exclusive. (a) The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
(b) If an Event of Default exists: (i) the Agent shall have for
the benefit of the Lenders, in addition to all other rights of the Agent and the
Lenders, the rights and remedies of a secured party under the UCC; (ii) the
Agent may, at any time, take possession of the Collateral and keep it on the
applicable Borrower's or any Guarantor's premises, at no cost to the Agent or
any Lender, or remove any part of it to such other place or places as the Agent
may desire, or the Borrower shall, upon the Agent's demand, at the Borrower's
cost, assemble the Collateral and make it available to the Agent at a place
reasonably convenient to the Agent; and (iii) the Agent may sell and deliver any
Collateral at public or private sales, for cash, upon credit or otherwise, at
such prices and upon such terms as the Agent deems advisable, in its sole
discretion, and may, if the Agent
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deems it reasonable, postpone or adjourn any sale of the Collateral by an
announcement at the time and place of sale or of such postponed or adjourned
sale without giving a new notice of sale. Without in any way requiring notice to
be given in the following manner, the Borrower agrees that any notice by the
Agent of sale, disposition or other intended action hereunder or in connection
herewith, whether required by the UCC or otherwise, shall constitute reasonable
notice to the Borrower if such notice is mailed by registered or certified mail,
return receipt requested, postage prepaid, or is delivered personally against
receipt, at least five (5) Business Days prior to such action to the Borrower's
address specified in or pursuant to Section 10.12. If any Collateral is sold on
terms other than payment in full at the time of sale, no credit shall be given
against the Obligations until the Agent or the Lenders receive payment, and if
the buyer defaults in payment, the Agent may resell the Collateral without
further notice to the Borrower or any other Person. In the event the Agent seeks
to take possession of all or any portion of the Collateral by judicial process,
the Borrower and the Guarantors irrevocably waive: (a) the posting of any bond,
surety or security with respect thereto which might otherwise be required; (b)
any demand for possession prior to the commencement of any suit or action to
recover the Collateral; and (c) any requirement that the Agent retain possession
and not dispose of any Collateral until after trial or final judgment. The
Borrower and the Guarantors agree that the Agent has no obligation to preserve
rights to the Collateral or marshal any Collateral for the benefit of any
Person. The Agent is hereby granted a license or other right to use, without
charge, the Borrower's and the Guarantors' labels, patents, copyrights, name,
trade secrets, trade names, trademarks, and advertising matter, or any similar
property, in completing production of, advertising or selling any Collateral,
and the Borrower's and the Guarantors' rights under all licenses and all
franchise agreements shall inure to the Agent's benefit. The proceeds of sale
shall be applied in accordance with this Agreement and the Borrower shall remain
liable for any deficiency.
(c) Supporting Letter of Credit; Cash Collateral. If
--------------------------------------------
any Letter of Credit is outstanding upon the termination of this
Agreement, then upon such termination the Borrower shall deposit
with the Agent, for the ratable benefit of the Lenders, with
respect to each Letter of Credit then outstanding, as the
Majority Lenders, in their sole discretion shall specify, either
(A) a standby letter of credit (a "Supporting Letter of Credit")
---------------------------
in form and substance satisfactory to the Agent, issued by an
issuer satisfactory to the Agent and in an amount equal to the
greatest amount for which such Letter of Credit may be drawn,
under which Supporting Letter of Credit the Agent is entitled to
draw amounts necessary to reimburse the Agent and the Lenders for
payments made by the Agent and the Lenders under such Letter of
Credit or under any credit support or enhancement provided
through the Agent with respect thereto, or (B) cash in amounts
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necessary to reimburse the Agent and the Lenders for payments made or to be made
(including, without limitation, the amount that the Agent estimates will be
necessary to cover its expenses and legal fees in connection therewith) by the
Agent or the Lenders under such Letter of Credit or under any credit support or
enhancement provided through the Agent with respect thereto. Such Supporting
Letter of Credit or deposit of cash shall be held by the Agent, for the ratable
benefit of the Lenders, as security for, and to provide for the payment of, the
aggregate undrawn amount of such Letters of Credit remaining outstanding.
8.05 Certain Financial Covenant Defaults. In the event that, after
taking into account any extraordinary charge to earnings taken or to be taken as
of the end of any fiscal period of the Borrower (a "Charge"), and if solely by
virtue of such Charge, there would exist an Event of Default due to the breach
of any of Sections 7.16, 7.17, or 7.18 as of such fiscal period end date, such
Event of Default shall be deemed to arise upon the earlier of (a) the date after
such fiscal period end date on which the Borrower announces publicly it will
take, is taking or has taken such Charge (including an announcement in the form
of a statement in a report filed with the SEC) or, if such announcement is made
prior to such fiscal period end date, the date that is such fiscal period end
date; and (b) the date the Borrower delivers to the Agent its audited annual or
unaudited quarterly financial statements in respect of such fiscal period
reflecting such Charge as taken.
ARTICLE IX
THE AGENT
9.01 Appointment and Authorization; "Agent". Each Lender hereby
irrevocably (subject to Section 9.09) appoints, designates and authorizes the
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement with reference
to the Agent is not 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
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market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.
9.02 Delegation of Duties. The Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
9.03 Liability of Agent. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Lenders for any recital,
statement, representation or warranty made by the Borrower or any Subsidiary or
Affiliate of the Borrower, or any officer thereof, contained in this Agreement
or in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or for the value of
or title to any Collateral, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of the Borrower or any other party to any Loan Document to
perform its obligations hereunder or thereunder. No Agent-Related Person shall
be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of the Borrower or any of the Borrower's Subsidiaries or
Affiliates.
9.04 Reliance by Agent. (a) The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement 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 statements of legal counsel (including counsel
to the Borrower), independent accountants and other experts selected by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Lenders as it deems
appropriate and, if it so requests, 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
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refraining from acting, under this Agreement or any other Loan Document in
accordance with a request or consent of the Majority Lenders and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all of the Lenders.
(b) For purposes of determining compliance with the conditions
specified in Section 4.01, each Lender that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either (i) if it is in substantially the form sent by
the Agent to such Lender for consent, approval, acceptance or satisfaction, or
(ii) required to be consented to or approved by or acceptable or satisfactory to
such Lender on the Closing Date, to the extent not so delivered to such Lender
but available at Closing.
9.05 Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default, except with
respect to defaults in the payment of principal, interest and fees required to
be paid to the Agent for the account of the Lenders, unless the Agent shall have
received written notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". The Agent will notify the Lenders of its
receipt of any such notice. The Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Majority Lenders in
accordance with Article VIII; provided, however, that unless and until the Agent
has received any such request, 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 deem advisable or in the best interest
of the Lenders.
9.06 Credit Decision. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter taken, including any review of the affairs of the
Borrower and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Borrower and its Subsidiaries, the value of and title to any Collateral, and all
applicable bank regulatory laws relating to the transactions contemplated
hereby, and has made its own decision to enter into this Agreement and to extend
credit to the Borrower and its Borrowing Subsidiaries hereunder. Each Lender
also represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to
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make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly herein required to be furnished to the Lenders by the Agent,
the Agent shall not have any duty or responsibility to provide any Lender with
any credit or other information concerning the business, prospects, operations,
property, financial and other condition or creditworthiness of the Borrower
which may come into the possession of any of the Agent-Related Persons.
9.07 Indemnification of Agent. Whether or not the transactions
contemplated hereby are consummated, the Lenders shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Borrower and without limiting the obligation of the Borrower to do so), pro
rata, from and against any and all Indemnified Liabilities; provided, however,
that no Lender shall be liable for the payment to the Agent-Related Persons of
any portion of such Indemnified Liabilities resulting solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Lender shall reimburse the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including, without limitation, Attorney Costs)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that the Agent
is not reimbursed for such expenses by or on behalf of the Borrower. The
undertaking in this Section shall survive the payment of all Obligations
hereunder and the resignation or replacement of the Agent.
9.08 Agent in Individual Capacity. BofA and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in, engage in Swap Contracts and generally engage in
any kind of banking, trust, financial advisory, underwriting or other business
with the Borrower and its Subsidiaries and Affiliates as though BofA were not
the Agent hereunder and without notice to or consent of the Lenders. The Lenders
acknowledge that, pursuant to such activities, BofA or its Affiliates may
receive information regarding the Borrower or its Affiliates (including
information that may be subject to confidentiality obligations in favor of the
Borrower or such Subsidiary) and acknowledge that the Agent shall be under no
obligation to provide such information to them. With respect to its Loans, BofA
shall have the same rights and powers under this Agreement as any other Lender
and may exercise
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the same as though it were not the Agent, and the terms "Lender" and "Lenders"
include BofA in its individual capacity.
9.09 Successor Agent. The Agent may, and at the request of the Majority
Lenders shall, resign as Agent upon 30 days' notice to the Lenders. If the Agent
resigns under this Agreement, the Majority Lenders shall appoint from among the
Lenders a successor agent for the Lenders which successor agent shall be
approved by the Borrower. If no successor agent is appointed prior to the
effective date of the resignation of the Agent, the Agent may appoint, after
consulting with the Lenders and the Borrower, a successor agent from among the
Lenders. Upon the acceptance of its appointment as successor agent hereunder,
such successor agent shall succeed to all the rights, powers and duties of the
retiring Agent, and the term "Agent" shall mean such successor agent and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article IX and Sections 10.04 and 10.05 shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the date
which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Lenders shall perform all of the duties of the Agent hereunder until such
time, if any, as the Majority Lenders appoint a successor agent as provided for
above.
9.10 Withholding Tax. (a) If any Lender is a "foreign
corporation, partnership or trust" within the meaning of the Code
and such Lender claims exemption from, or a reduction of, U.S.
withholding tax under Sections 1441 or 1442 of the Code, such
Lender agrees with and in favor of the Agent, to deliver to the
Agent:
(i) if such Lender claims an exemption from, or
a reduction of, withholding tax under a United States tax treaty,
properly completed IRS Forms 1001 and W-8 before the payment of any
interest in the first calendar year and before the payment of any
interest in each third succeeding calendar year during which interest
may be paid under this Agreement;
(ii) if such Lender claims that interest paid
under this Agreement is exempt from United States withholding tax
because it is effectively connected with a United States trade or
business of such Lender, two properly completed and executed copies of
IRS Form 4224 before the payment of any interest is due in the first
taxable year of such Lender and in each succeeding taxable year of such
Lender during which interest may be paid under this Agreement, and two
copies of IRS Form W-9; and
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(iii) such other form or forms as may be required under
the Code or other laws of the United States as a condition to exemption
from, or reduction of, United States withholding tax.
Such Lender agrees to promptly notify the Agent of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of the Borrower to such Lender, such Lender
agrees to notify the Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of the Borrower to such Lender. To the extent of
such percentage amount, the Agent will treat such Lender's IRS Form 1001 as no
longer valid.
(c) If any Lender claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of the
Borrower to such Lender, such Lender agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection (a)
of this Section are not delivered to the Agent, then the Agent may withhold from
any interest payment to such Lender not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered, was not properly executed, or because such
Lender failed to notify the Agent of a change in circumstances which rendered
the exemption from, or reduction of, withholding tax ineffective, or for any
other reason) such Lender shall indemnify the Agent fully for all amounts paid,
directly or indirectly, by the Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Lenders under this subsection
shall survive the payment of all Obligations and the resignation or replacement
of the Agent.
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9.11 Collateral Matters. (a) The Agent is authorized on behalf of all
the Lenders, without the necessity of any notice to or further consent from the
Lenders, from time to time to take any action with respect to any Collateral or
the Collateral Documents which may be necessary to perfect and maintain
perfected the security interest in and Liens upon the Collateral granted
pursuant to the Collateral Documents.
(b) The Lenders irrevocably authorize the Agent, at its option
and in its discretion, to release any Lien granted to or held by the Agent (on
behalf of the Lenders or otherwise) upon any Collateral (i) upon termination of
the Commitments and payment in full of all Loans and all other Obligations known
to the Agent and payable under this Agreement or any other Loan Document; (ii)
constituting property sold or to be sold or disposed of as part of or in
connection with any disposition permitted hereunder; (iii) constituting property
in which the Borrower or any Subsidiary owned no interest at the time the Lien
was granted or at any time thereafter; (iv) constituting property leased to the
Borrower or any Subsidiary under a lease which has expired or been terminated in
a transaction permitted under this Agreement or is about to expire and which has
not been, and is not intended by the Borrower or such Subsidiary to be, renewed
or extended; (v) consisting of an instrument evidencing Indebtedness or other
debt instrument, if the indebtedness evidenced thereby has been paid in full; or
(vi) if approved, authorized or ratified in writing by the Majority Lenders or
all the Lenders, as the case may be, as provided in Section 10.01(f). Upon
request by the Agent at any time, the Lenders will confirm in writing the
Agent's authority to release particular types or items of Collateral pursuant to
this Section 9.11(b), provided that the absence of any such confirmation for
whatever reason shall not affect the Agent's rights under this Section 9.11.
(c) Each Lender agrees with and in favor of each other (which
agreement shall not be for the benefit of the Borrower or any Subsidiary) that
the Borrower's obligation to such Lender under this Agreement and the other Loan
Documents is not and shall not be secured by any real property collateral now or
hereafter acquired by such Lender other than the real property described in the
Mortgages.
ARTICLE X
MISCELLANEOUS
10.01 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Borrower or any Subsidiary therefrom, shall be effective unless
the same shall be in writing and signed by the Majority Lenders (or by the Agent
at the written request of the Majority Lenders) and the Borrower and
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acknowledged by the Agent, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no such waiver, amendment, or consent shall,
unless in writing and signed by all the Lenders and the Borrower and
acknowledged by the Agent, do any of the following:
(a) increase or extend the Commitment of any Lender (or
reinstate any Commitment terminated pursuant to Section 8.02);
(b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment or mandatory prepayment of principal,
interest, fees or other amounts due to the Lenders (or any of them) hereunder or
under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified
herein on any Loan, or (subject to clause (ii) below) any fees or other amounts
payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required
for the Lenders or any of them to take any action hereunder; or
(e) amend this Section, or Section 2.14, or any
provision herein providing for consent or other action by all
Lenders; or
(f) discharge any Guarantor, or release any portion of the
Collateral except as otherwise may be provided in the Collateral Document or
this Agreement or except where the consent of the Majority Lenders only is
specifically provided for;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Majority Lenders or all the
Lenders, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document, and (ii) the Fee Letter may be amended, or
rights or privileges thereunder waived, in a writing executed by the respective
parties thereto.
10.02 Notices. (a) All notices, requests, consents, approvals, waivers
and other communications shall be in writing and mailed, faxed or delivered, to
the address or facsimile number specified for notices on Schedule 10.02
(including, unless the context expressly otherwise provides, by facsimile
transmission, provided that any matter transmitted by the Borrower by facsimile
(i) shall be immediately confirmed by a telephone call to the recipient at the
number specified on Schedule 10.02, and (ii) shall be followed promptly by
delivery of a hard copy original thereof) or, if directed to the Borrower (at
the address set forth below), or, in the case of any Person
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to such other address as shall be designated by such Person in a written notice
to the other parties, and as directed to any other party, at such other address
as shall be designated by such party in a written notice in compliance with this
Section 10.02.
Notices to the Borrower should be addressed as follows:
MotivePower Industries, Inc.
200 Reedsdale Street
Pittsburgh, PA 15233
Attention: General Counsel and Treasurer
Telecopy No.: (412) 237-2269
with a copy to:
Doepken Keevican & Weiss
Professional Corporation
37th Floor, USX Tower
600 Grant Street
Pittsburgh, PA 15219
Attention: James F. Bauerle
Telecopy No.: (412) 355-2609
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II or IX shall not be effective until actually
received by the Agent.
(c) Any agreement of the Agent and the Lenders herein to receive
certain notices by telephone or facsimile is solely for the convenience and at
the request of the Borrower. The Agent and the Lenders shall be entitled to rely
on the authority of any Person purporting to be a Person authorized by the
Borrower to give such notice and the Agent and the Lenders shall not have any
liability to the Borrower or other Person on account of any action taken or not
taken by the Agent or the Lenders in reliance upon such telephonic or facsimile
notice. The obligation of the Borrower to repay the Loans and other obligations
hereunder shall not be affected in any way or to any extent by any failure by
the Agent and the Lenders to receive written confirmation of any telephonic or
facsimile notice or the receipt by the Agent and the Lenders of a confirmation
which is at variance with the terms understood by the Agent and the Lenders to
be contained in the telephonic or facsimile notice.
10.03 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Agent or
any Lender, any right, remedy, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or
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partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
10.04 Costs and Expenses. The Borrower shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (including in its capacity as Agent) within
five Business Days after demand (subject to Section 4.01(e)) for all costs and
expenses incurred by BofA (including in its capacity as Agent) in connection
with the development, preparation, delivery, syndication, administration and
execution of, and any amendment, supplement, waiver or modification to (in each
case, whether or not consummated), this Agreement, any Loan Document and any
other documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby, including
reasonable Attorney Costs incurred by BofA (including in its capacity as Agent)
with respect thereto; and
(b) pay or reimburse the Agent, the Arranger and each Lender
within five Business Days after demand (subject to Section 4.01(e)) for all
costs and expenses (including, without limitation, Attorney Costs) incurred by
them in connection with the enforcement, attempted enforcement, or preservation
of any rights or remedies under this Agreement or any other Loan Document during
the existence of an Event of Default or after acceleration of the Loans
(including in connection with any "workout" or restructuring regarding the
Loans, and including in any Insolvency Proceeding or appellate proceeding); and
(c) pay or reimburse BofA (including in its capacity as Agent)
within five Business Days after demand (subject to Section 4.01(e)) for all
appraisal (including the allocated cost of internal appraisal services), audit,
environmental inspection and review (including the allocated cost of such
internal services), search and filing costs, fees and expenses, incurred or
sustained by BofA (including in its capacity as Agent) in connection with the
matters referred to under subsections (a) and (b) of this Section.
10.05 Borrower Indemnification. (a) Whether or not the transactions
contemplated hereby are consummated, the Borrower shall indemnify, defend and
hold the Agent-Related Persons, and each Lender and each of its respective
officers, directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including, without limitation, Attorney
Costs) of any kind or nature whatsoever which may at any time (including at any
time following repayment of the Loans and termination of all Specified Swap
Contracts and the termination, resignation or replacement of
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the Agent or replacement of any Lender) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this Agreement
or any document contemplated by or referred to herein, or the transactions
contemplated hereby, or any action taken or omitted by any such Person under or
in connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding) related to or arising out of this Agreement or any
Specified Swap Contracts or the Loans or the use of the proceeds thereof,
whether or not any Indemnified Person is a party thereto (all the foregoing,
collectively, the "Indemnified Liabilities"); provided, that the Borrower shall
have no obligation hereunder to any Indemnified Person with respect to
Indemnified Liabilities resulting solely from the gross negligence or willful
misconduct of such Indemnified Person. The agreements in this Section shall
survive payment of all other Obligations.
(b) (i) The Borrower shall indemnify, defend and hold harmless
each Indemnified Person, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, charges, expenses or disbursements (including, without
limitation, Attorney Costs and the allocated cost of internal
environmental audit or review services), which may be incurred by or
asserted against such Indemnified Person in connection with or arising
out of any pending or threatened investigation, litigation or
proceeding, or any action taken by any Person, with respect to any
Environmental Claim arising out of or related to any property, whether
or not subject to a Mortgage in favor of the Agent or any Lender, or
arising out of or related to any operations of the Borrower. No action
taken by legal counsel chosen by the Agent or any Lender in defending
against any such investigation, litigation or proceeding or requested
remedial, removal or response action shall vitiate or in any way impair
the Borrower's obligation and duty hereunder to indemnify and hold
harmless the Agent and each Lender.
(ii) In no event shall any site visit, observation, or
testing by the Agent or any Lender (or any contractee of the Agent or
any Lender) be deemed a representation or warranty that Hazardous
Materials are or are not present in, on, or under, the site, or that
there has been or shall be compliance with any Environmental Law.
Neither the Borrower nor any other Person is entitled to rely on any
site visit, observation, or testing by the Agent or any Lender. Neither
the Agent nor any Lender owes any duty of care to protect the Borrower
or any other Person against, or to inform the Borrower or any other
party of, any Hazardous Materials or any other adverse condition
affecting any site or property. The Agent or any Lender may in its
discretion disclose to the Borrower or any other Person any report or
findings made as a result of, or in connection with, any site visit,
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observation, or testing by the Agent or any Lender. The Borrower
understands and agrees that the Agent and the Lenders make no warranty
or representation to the Borrower or any other Person regarding the
truth, accuracy or completeness of any such report or findings that may
be disclosed. The Borrower also understands that, depending on the
results of any site visit, observation or testing by the Agent or any
Lender and disclosed to the Borrower, the Borrower may have a legal
obligation to notify one or more environmental agencies of the results,
that such reporting requirements are site-specific, and are to be
evaluated by the Borrower without advice or assistance from the Agent or
any Lender.
(c) The obligations in this Section shall survive payment of all
other Obligations. At the election of any Indemnified Person, the Borrower shall
defend such Indemnified Person using legal counsel satisfactory to such
Indemnified Person in such Person's sole discretion, at the sole cost and
expense of the Borrower. All amounts owing under this Section shall be paid
within 30 days after demand.
10.06 Marshalling; Payments Set Aside. Neither the Agent nor the Lenders
shall be under any obligation to marshall any assets in favor of the Borrower or
any other Person or against or in payment of any or all of the Obligations. To
the extent that the Borrower makes a payment to the Agent or the Lenders, or the
Agent or the Lenders exercise their right of set-off, and such payment or the
proceeds of such set-off or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by the Agent or such Lender in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any Insolvency Proceeding or otherwise, then (a) to the extent
of such recovery the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such set-off had not occurred, and (b) each Lender
severally agrees to pay to the Agent upon demand its pro rata share of any
amount so recovered from or repaid by the Agent.
10.07 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Lender.
10.08 Assignments, Participations, etc. (a) Any Lender may, with the
written consent of the Borrower at all times other than during the existence of
a Default or an Event of Default, and the written consent of the Agent, which
consents of the Borrower and the Agent shall not be unreasonably withheld, at
any time assign
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and delegate to one or more Eligible Assignees (provided that no written consent
of the Borrower or the Agent shall be required in connection with any assignment
and delegation by a Lender to an Eligible Assignee that is an Affiliate of such
Lender) (each an "Assignee") all, or any ratable part of all, of the Loans, the
Commitments and the other rights and obligations of such Lender hereunder, in a
minimum amount of $5,000,000; provided, however, that (i) the Borrower and the
Agent may continue to deal solely and directly with such Lender in connection
with the interest so assigned to an Assignee until (A) written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to the Borrower
and the Agent by such Lender and the Assignee; (B) such Lender and its Assignee
shall have delivered to the Borrower and the Agent an Assignment and Acceptance
in the form of Exhibit K ("Assignment and Acceptance") and (C) the assignor
Lender or Assignee has paid to the Agent a processing fee in the amount of
$3,500, (ii) if the assignor Lender or any of its Affiliates is a Specified Swap
Provider with respect to any Specified Swap Contract, such Lender shall not
assign all of its interest in the Loans and the Commitments to an Assignee
unless such Assignee, or an Affiliate of such Assignee, shall also assume all
obligations of such assignor Lender or Affiliate with respect to all such
Specified Swap Contracts, and (iii) for purposes of clarification, if the
Borrower is entitled to consent to any assignment, it shall be deemed to be
reasonable for the Borrower to withhold such consent if the proposed assignee is
a Person primarily engaged in, a parent corporation or Subsidiary of, or under
common control with a Person primarily engaged in the manufacture of railroad
locomotives.
(b) From and after the date that the Agent notifies the assignor
Lender that it has received (and provided its consent with respect to) an
executed Assignment and Acceptance and payment of the above-referenced
processing fee (i) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, shall have the rights and obligations of a
Lender under the Loan Documents, and (ii) the assignor Lender shall, to the
extent that rights and obligations hereunder and under the other Loan Documents
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and be released from its obligations under the Loan Documents.
(c) Immediately upon each Assignee's making its processing fee
payment under the Assignment and Acceptance, this Agreement shall be deemed to
be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.
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(d) Any Lender may at any time sell to one or more commercial
banks or other Persons not Affiliates of the Borrower (a "Participant")
participating interests in any Loans, the Commitment of that Lender and the
other interests of that Lender (the "originating Lender") hereunder and under
the other Loan Documents; provided, however, that (i) the originating Lender's
obligations under this Agreement shall remain unchanged, (ii) the originating
Lender shall remain solely responsible for the performance of such obligations,
(iii) the Borrower and the Agent shall continue to deal solely and directly with
the originating Lender in connection with the originating Lender's rights and
obligations under this Agreement and the other Loan Documents, and (iv) no
Lender shall transfer or grant any participating interest under which the
Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of the Lenders
as described in the first proviso to Section 10.01. In the case of any such
participation, the Participant shall be entitled to the benefit of Sections
3.01, 3.03 and 10.05 as though it were also a Lender hereunder, and if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement.
(e) Notwithstanding any other provision in this Agreement, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement in favor of any
Federal Reserve Lender in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 C.F.R. ss.203.14, and such Federal Reserve Lender may
enforce such pledge or security interest in any manner permitted under
applicable law.
10.09 Confidentiality. Each Lender agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified as "confidential" or
"secret" by the Borrower and provided to it by the Borrower or any Subsidiary,
or by the Agent on such Borrower's or Subsidiary's behalf, under this Agreement
or any other Loan Document, and neither it nor any of its Affiliates shall use
any such information other than in connection with or in enforcement of this
Agreement and the other Loan Documents or in connection with any other business
now or hereafter existing or contemplated with the Borrower or any Subsidiary;
except to the extent such information (i) was or becomes generally available to
the public other than as a result of disclosure by the Lender, or (ii) was or
becomes available on a non-confidential basis from a source other than the
Borrower,
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provided that such source is not bound by a confidentiality agreement with the
Borrower known to the Lender; provided, however, that any Lender may disclose
such information (A) at the request or pursuant to any requirement of any
Governmental Authority to which the Lender is subject or in connection with an
examination of such Lender by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Lender or their respective Affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to such Lender's independent auditors and other
professional advisors; (G) to any Participant or Assignee, actual or potential,
provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Lenders hereunder; (H) as to any
Lender or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Borrower or any
Subsidiary is party or is deemed party with such Lender or such Affiliate; and
(I) to its Affiliates.
10.10 Set-off. In addition to any rights and remedies of the Lenders
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Lender is authorized at any time and from time to time,
without prior notice to the Borrower, any such notice being waived by the
Borrower to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held by, and other indebtedness at any time owing by, such Lender to or for
the credit or the account of the Borrower against any and all Obligations owing
to such Lender, now or hereafter existing, irrespective of whether or not the
Agent or such Lender shall have made demand under this Agreement or any Loan
Document and although such Obligations may be contingent or unmatured. Each
Lender agrees promptly to notify the Borrower and the Agent after any such
set-off and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application.
10.11 Intentionally Omitted.
10.12 Notification of Addresses, Lending Offices, Etc. Each Lender shall
notify the Agent in writing of any changes in the address to which notices to
the Lender should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
10.13 Counterparts. This Agreement may be executed in any
number of separate counterparts, each of which, when so executed,
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shall be deemed an original, and all of said counterparts taken together shall
be deemed to constitute but one and the same instrument.
10.14 Severability. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
10.15 No Third Parties Benefited. This Agreement is made and entered
into for the sole protection and legal benefit of the Borrower, the Lenders, the
Agent and the Agent-Related Persons, and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal beneficiary of, or have
any direct or indirect cause of action or claim in connection with, this
Agreement or any of the other Loan Documents.
10.16 Governing Law and Jurisdiction. (a) THIS AGREEMENT
AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAW OF THE STATE OF ILLINOIS; PROVIDED THAT THE AGENT AND THE LENDERS
SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND
THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NONEXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER, THE AGENT AND
THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE
BORROWER, THE AGENT AND THE LENDERS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
ILLINOIS LAW.
(c) Nothing contained in this Section shall override
any contrary provision contained in any Swap Contract.
10.17 Waiver of Jury Trial. THE BORROWER, THE LENDERS AND THE AGENT EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER, THE
LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
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TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
10.18 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Borrower,
the Lenders and the Agent, and supersedes all prior or contemporaneous
agreements and understandings (including, without limitation, that certain
Commitment Letter dated December 30, 1996 among the Borrower, the Arranger, BofA
and Bank of America Illinois) of such Persons, verbal or written, relating to
the subject matter hereof and thereof except as otherwise set forth in Section
1.04 and the Fee Letter.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Chicago by their proper and duly authorized
officers as of the day and year first above written.
MOTIVEPOWER INDUSTRIES, INC., as
Borrower
By:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
and a Lender
By:
Title:
ABN AMRO BANK, N.V., as a Lender
By:
Title:
THE BANK OF NEW YORK, as a Lender
By:
Title:
CORESTATES BANK, N.A., as a Lender
By:
Title:
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CREDIT LYONNAIS NEW YORK BRANCH, as
a Lender
By:
Title:
DG BANK DEUTSCHE GENOSSENSCHAFTS
BANK, as a Lender
By:
Title:
MELLON BANK, N.A., as a Lender
By:
Title:
NATIONAL BANK OF CANADA, as a Lender
By:
Title:
NATIONAL CITY BANK, as a Lender
By:
Title:
PNC BANK, N.A., as a Lender
By:
Title:
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<PAGE>
IN WITNESS WHEREOF, the undersigned have accepted and agreed
to this Agreement as of the date first above written.
Motor Coils Manufacturing Company
By:
Title:
Engine Systems Company, Inc.
By:
Title:
Clark Industries Company
By:
Title:
Power Parts Company
By:
Title:
Touchstone Company
By:
Title:
MotivePower Investments Limited
By:
Title:
Boise Locomotive Company
By:
Title:
MotivePower Foreign Sales Corporation
By:
Title:
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<PAGE>
SCHEDULE 2.01
<TABLE>
<CAPTION>
COMMITMENTS
AND PRO RATA SHARES
Pro
Term Revolving Rata
Lender Commitment Commitment Commitment Share
<S> <C> <C> <C> <C>
Bank of America NT $12,000,000 $ 3,199,999.97 $ 8,800,000.03 16.0003%
& SA
ABN AMRO Bank, $ 7,000,000 $ 1,866,666.67 $ 5,133,333.33 9.3333%
N.A.
The Bank of $ 7,000,000 $ 1,866,666.67 $ 5,133,333.33 9.3333%
New York
Corestates Bank, $ 7,000,000 $ 1,866,666.67 $ 5,133,333.33 9.3333%
N.A.
Credit Lyonnais $ 7,000,000 $ 1,866,666.67 $ 5,133,333.33 9.3333%
New York Branch
DG Bank Deutsche $ 7,000,000 $ 1,866,666.67 $ 5,133,333.33 9.3333%
Gennossenschafts
Bank
Mellon Bank, N.A. $ 7,000,000 $ 1,866,666.67 $ 5,133,333.33 9.3333%
National Bank of $ 7,000,000 $ 1,866,666.67 $ 5,133,333.33 9.3333%
Canada
National City Bank $ 7,000,000 $ 1,866,666.67 $ 5,133,333.33 9.3333%
of Pennsylvania
PNC Bank, N.A. $ 7,000,000 $ 1,866,666.67 $ 5,133.333.33 9.3333%
----------- -------------- -------------- -----
TOTAL $75,000,000 $20,000,000.00 $55,000,000.00 100%
</TABLE>
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Exhibit 10.60
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of July 1, 1996, between
MK RAIL CORPORATION, a Delaware corporation ("Company"), and MICHAEL A. WOLF
("Employee").
In consideration of the covenants and agreements herein contained, the parties
agree as follows:
1. EMPLOYMENT TERM
The Company shall employ Employee as President and Chief Executive
Officer of the Company and Employee hereby accepts such employment with
the Company, from the date hereof for a period of twenty-four (24)
months. After the first calendar month of employment under this
Agreement and each succeeding calendar month through June 30, 1999,
this Agreement will be extended by one month, so that there remains a
twenty-four (24) month term at all times through June 30, 1999.
Thereafter, this Agreement shall be for a term expiring on July 1,
2001, unless sooner terminated in accordance with the terms hereof.
2. DUTIES
During the term of this Agreement, Employee shall devote his full
business time and energies to the business and affairs of the Company
and shall not accept other employment or permit his personal business
interests to interfere with the performance of his duties hereunder.
Employee agrees to use his reasonable best efforts, skills and
abilities to promote the interests of the Company, to serve as
President and Chief Executive Officer of the Company and to perform
such duties consistent with this appointment as may be assigned to him,
and shall be supervised by the Chairman of the Company's Board of
Directors ("Chairman") and the Company's Board of Directors (the
"Board"). Employee will be nominated to fill the vacant seat on the
Board formerly held by Michael J. Farrell, formerly the Company's Chief
Executive Officer, for the remaining term thereof (until the 1997
annual meeting of stockholders). During the term of this Agreement, the
Company will use all reasonable best efforts to support and recommend
the Employee for the Board, including placing his name on management's
list of nominees for the Board in the Company's proxy statements, and
if requested by the Chairman or the Board, the Employee shall serve as
a member of the board of directors and as an officer of any of the
Company's subsidiaries.
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<PAGE>
3. COMPENSATION
3.1 Salary
In consideration for Employee's services hereunder, the
Company will pay to Employee, beginning July 1, 1996, a base
salary at the annual gross rate of $375,000, which will be
paid in accordance with the Company's normal payroll practice
in arrears, less normal payroll deductions, and less any
deferrals under the terms of the Deferred Compensation Plan
for Michael A. Wolf (as described in Section 3.5 hereof). The
Company's Compensation Committee shall review Employee's
salary periodically in accordance with its customary salary
review practices not less often than it conducts salary
reviews of other executives of the Company. From time to time,
the Company may, but shall not be obligated to, award Employee
cost of living or merit increases, or other additional amounts
as the Compensation Committee determines, in its discretion.
3.2 Lump Sum Signing Bonus
The Company will also pay Employee a single lump sum payment
of $100,000 upon execution of this Agreement. However, if
Employee voluntarily terminates his employment before July 1,
1997, Employee agrees to repay to the Company the amount of
$100,000 within thirty (30) days of the date of termination.
3.3 Incentive Bonus Plan
The Company intends to prepare (with the assistance of the
Employee) a bonus plan for the Company's senior management,
under which a bonus may be earned by Employee with respect to
1997 and subsequent calendar years. The performance
objectives, criteria and formulae that will be used to
determine the amount of bonus payable for each year will be
determined by the Compensation Committee of the Board as soon
as administratively practicable after the approval of the
bonus plan.
3.4 Restricted Stock and Stock Options
As an additional material inducement for the Employee's
entering into this Agreement and his undertaking to perform
the services referred to herein, the Employee will receive
upon his commencement of employment hereunder:
(a) 100,000 shares of common stock restricted as to their
ability to be sold (the "Restricted Stock"), the
restrictions to lapse at the close of business on June
30, 2001, so long as the Employee is still in the employ
of the Company on that date, unless otherwise expressly
provided in this Agreement. On the date on which the
restrictions lapse or as soon as thereafter as
reasonably
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<PAGE>
practicable, all legends will be removed and fully
registered and freely transferrable stock certificates
for the shares for which the restrictions have lapsed
shall be issued to the Employee. The grant of the
Restricted Stock shall be made under the Company's Stock
Incentive Plan ("Stock Incentive Plan"), a copy of which
has been provided to the Employee.
(b) Stock appreciation rights ("SARs") entitling the
Employee to the appreciation in the value of 400,000
shares of common stock of the Company from the May 13,
1996 to the date of exercise. Due to the current
insufficiency of stock available under the Stock
Incentive Plan, SARs in respect of all 400,000 shares
shall be issued pursuant to a Stock Appreciation Right
Agreement (the "SAR Agreement"), a copy of which is
attached hereto as Exhibit A. The terms of the SARs
shall be governed solely by the SAR Agreement attached
hereto as Exhibit A. The SAR Agreement is not part of
the Stock Incentive Plan, but provides, in effect, that
an option granted under the Stock Incentive Plan (the
"Plan Option") may be partially substituted for the
SARs, all as set forth in the SAR Agreement. The
exercise price of the Plan Option, if issued, shall be
as set forth in paragraph 2(d) of the SAR Agreement, and
the terms thereof shall otherwise be as set forth in the
form of Stock Option Agreement under Stock Incentive
Plan attached as Exhibit 1 to the SAR Agreement (the
"Option Agreement").
(c) The Company will accurately, correctly and timely
prepare and file or caused to be prepared and filed all
reports required to be filed by the Employee pursuant to
Section 16 of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any state
statutory or common law, including without limitation
Forms 3, 4 and 5 required to be filed with the
Securities and Exchange Commission. The Employee will
cooperate with the Company in assisting it in preparing
and filing the reports.
3.5 Deferred Compensation Plan
Employee is entitled to participate in the Deferred
Compensation Plan for Michael A. Wolf and the Trust Agreement
related thereto, copies of which are attached as Exhibit B
hereto.
3.6 Fringe Benefits
(a) Employee shall, during the term of this Agreement, be
entitled to participate in all perquisites and health
and welfare benefits consistent with the Company's
policies for other executive personnel.
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<PAGE>
(b) In addition to any policies of life insurance obtained
on the life of Employee in accordance with the Company's
customary policies and practices, to the extent
commercially available at standard rates, the Company
shall purchase a policy of one-year renewable term life
insurance on the life of Employee, naming as beneficiary
or beneficiaries such person or persons as may be
designated by Employee, with a death benefit of $1
million; provided, however, that if the cost of such
insurance now or at any time during the term of this
Agreement exceeds the cost of insuring a person of the
same age as Employee who is in generally good health
(the cost of insuring such a person is referred to as
the "Standard Policy Cost"), the Company shall so advise
Employee, who shall have the option of (i) paying the
premiums in excess of the Standard Policy Cost, in which
case the Company shall purchase a one- year renewable
term life insurance policy on the life of Employee with
a $1 million death benefit, or (ii) declining to pay the
premiums in excess of the Standard Policy Cost, in which
case the Company shall purchase a one-year renewable
term life insurance policy on the life of Employee with
a death benefit of such amount as can be purchased for
the Standard Policy Cost. Any policy purchased by the
Company shall provide that Employee will be able to
continue the coverage, at Employee's sole option and
expense, on termination of his employment under this
Agreement with no additional physical examination after
issuance of such policy for a period of at least 12
years.
3.7 Expenses
Employee shall, during the term of this Agreement, be entitled
to receive prompt reimbursement for all reasonable expenses
incurred by the Employee in the performance of his duties
hereunder in accordance with the policies and procedures of
the Company in effect as of the date thereof.
In addition, Employee's cost of relocating to the Pittsburgh,
Pennsylvania area will be reimbursed to him in accordance with
the Company's relocation benefit policy, any exceptions to be
agreed upon in advance with the Chairman. The Company will
reimburse the Employee for reasonable temporary living
expenses incurred in the greater Pittsburgh, Pennsylvania area
for 30 days following the commencement of his employment
hereunder.
4. DISCHARGE FOR CAUSE
4.1 The Company shall have the right to terminate this Agreement
and to discharge Employee for cause at any time without prior
notice (except as provided below). Any termination notice sent
to Employee shall be accompanied by a written statement of the
reasons.
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<PAGE>
4.2 As used in this Agreement, the term "cause" shall mean and be limited to
the following events:
(a) Employee's conviction with respect to any crime or
offense involving money or other property of the
Company, or of any other crime (whether or not involving
the Company) that constitutes a felony in the
jurisdiction involved; or
(b) A determination by a licensed physician that Employee is
a chronic alcoholic or a narcotics addict; or
(c) Employee's (1) material and repeated failure to perform
his duties in accordance with Section 2 of this
Agreement, (2) material and repeated breach of any other
provision of this Agreement, or (3) material violation
of specific written directions of the Chairman or the
Board, which directions are reasonably consistent with
the provision of this Agreement; provided, however, that
no discharge shall be deemed for cause under this
Section 4.2(c) unless Employee shall have first received
written notice from the Chairman or the Board advising
Employee of the specific acts or omissions alleged to
constitute a failure to perform his duties, and Employee
has thereafter failed to correct the acts or omissions
so complained of within a reasonable time, not to exceed
30 days, thereafter.
4.3 If terminated for cause as defined at Sections 4.2(a)-(c),
Employee will not be entitled to receive any compensation or
benefits with respect to any period after the effective date
of such termination.
5. OTHER TERMINATION
5.1 In addition to a termination for cause as set forth in Section
4 of this Agreement, this Agreement and Employee's employment
may be terminated as follows:
(a) This Agreement and the Company's obligation to pay
salary and benefits hereunder shall terminate
immediately upon Employee's death. In such event, net
salary owed to Employee for work performed through the
date of his death shall be paid by the Company to
Employee's surviving wife; if Employee dies without a
wife surviving, said payment will be made by the Company
to Employee's legal heirs in accordance with relevant
law. If Employee dies with a wife surviving, any health
and dental insurance which was being provided to her per
Section 3.6 at the time of Employee's death shall be
continued at the Company's cost for a period of one year
following the Employee's death.
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<PAGE>
(b) If, during the period of employment under this
Agreement, Employee, in the opinion of a certified
physician acceptable to the Company and Employee,
becomes mentally or physically disabled so that Employee
is unable to perform the regular duties of his
employment on a full-time basis, Employee's salary will
thereupon cease, and he shall be entitled to participate
in the Company's salary continuation and long-term
disability plans, in accordance with their terms and
subject to their eligibility requirements.
(c) By the Company, without cause, upon prior written notice
to Employee.
(d) By Employee, without cause, upon written notice to the
Company.
5.2 (a) If terminated by the Company other than for cause
pursuant to Section 5.1(c) hereof, Employee as his sole
remedy (in lieu of all other rights and remedies) shall
receive, at the option of the Company, either (i)
continuation of his salary for the period, if any, that,
absent such termination, would otherwise be remaining
under the term of this Agreement, at the rate in effect
immediately prior to such termination, or (ii) an amount
equal to the present value of such salary continuation
payments, payable within thirty (30) days following such
termination, in each case subject to all normal payroll
deductions. The present value shall be determined based
on the prime or base rate of BankAmerica Business
Credit, Inc. most recently announced as of the date the
computation is made, or if BankAmerica Business Credit,
Inc. ceases to announce such rate, as most recently
reported in The Wall Street Journal as of the date the
computation is made. If Employee dies before all such
payments are made, they will be made instead to his
surviving wife, or if his wife does not survive him, to
his legal heirs in accordance with relevant law.
(b) If Employee dies, is terminated by disability pursuant
to Section 5.1(b) hereof or is terminated by the Company
other than for cause pursuant to Section 5.1(c) hereof,
Employee will retain any rights with respect to the SARs
and, if provided, Plan Options, which have been awarded
to him pursuant to this Agreement, and all shares not
previously exercised will be exercisable as of the date
of termination to the extent provided in the SAR
Agreement and, if provided, in the Option Agreement.
(c) If Employee dies, is terminated by disability pursuant
to Section 5.1(b) hereof or is terminated by the Company
other than for cause pursuant to Section 5.1(c) hereof,
Employee will be immediately vested in the grant of
100,000 shares of the Company's common stock provided
for in this Agreement.
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<PAGE>
(d) If Employee is terminated by the Company other than for
cause pursuant to Section 5.1(c) hereof, all employee
benefits plans provided to Employee under Section 3.6(b)
and (c) will continue for twelve months or until
Employee finds new employment (whichever is sooner).
. (e) If Employee dies, is terminated by disability
pursuant to Section 5.1(b) hereof or is terminated by
the Company other than for cause pursuant to Section
5.1(c) hereof or if this Agreement expires by its own
terms on July 1, 2001, Employee and his spouse (or, in
the event of Employee's death, either while employed or
after termination, his surviving spouse alone) may
continue to receive benefits under any group health care
insurance plan, at Employee's (or his surviving
spouse's) expense, to the extent permitted by the
Consolidated Omnibus Budget Reconciliation Act of 1985
and, thereafter, for so long as Employee (or his
surviving spouse) may desire and as may be permitted by
the Company's health insurance provider. The Company
will take reasonable measures to cause such coverage to
be continued for so long as Employee (or his surviving
spouse) may desire, provided that the Company shall not
be obligated to incur any costs whatsoever to continue
such coverage.
(f) If Employee is terminated by the Company other than for
cause pursuant to Section 5.1(c) hereof, the Company
will pay expenses up to an amount equal to fifteen
percent (15%) of Employee's annual salary at the time of
such termination, reasonably incurred by Employee for
legitimate commercial out placement service mutually
acceptable to the parties. Promptly upon being advised
of the name and address of any such service as has been
selected by Employee, the Company will send that service
written confirmation of the foregoing maximum
commitment.
(g) If Employee is terminated by the Company other than for
cause pursuant to Section 5.1(c) hereof, he shall
receive a lump sum payment as compensation for his costs
of relocating from Pittsburgh in an amount equal to
$50,000 less $10,000 for each full year of employment
with the Company.
5.3 Change of Control
(a) For purposes of this Agreement, the term "Change of Control" shall
mean the occurrence of any of the following events:
(1) The Company is merged, consolidated or reorganized into
or with another corporation or other entity, and as a
result of the merger, consolidation or reorganization
less than a majority of the combined voting power of the
then-outstanding securities of the corporation
-7-
<PAGE>
or entity immediately after the transaction is held in
the aggregate by the holders of Voting Stock immediately
prior to the transaction;
(2) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation
or other entity and, as a result of the sale or
transfer, less than a majority of the combined voting
power of the then-outstanding securities of the other
corporation or entity immediately after the sale or
transfer is held in the aggregate by the holders of
Voting Stock immediately prior to the sale or transfer;
(3) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report or item
therein), each as promulgated pursuant to the Exchange
Act, disclosing that any Person, other than an Existing
Stockholder or an MK Creditor Stockholder, has become
the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of
securities representing 25% or more of the combined
voting power of the Voting Stock;
(4) If, during any period of two consecutive years
commencing on the date of this Agreement, individuals
who at the beginning of that period constitute the Board
of Directors of the Company cease for any reason to
constitute at least two-thirds (2/3rds) thereof;
provided, however, that for purposes of this clause (4)
each Director of the Company who is first elected, or
first nominated for election by the Company's
stockholders, by a vote of at least a majority of the
Directors of the Company (or a committee of the Board)
then still in office who were Directors of the Company
at the beginning of that period shall be deemed to have
been a Director of the Company at the beginning of that
period; or
(5) If Morrison Knudsen Corporation becomes the direct or
indirect beneficial owner of Voting Stock which
constitutes at least 75% of the voting power of all of
the Voting Stock outstanding by reason of a tender offer
made pursuant to Rule 13e-3 or 14d-1 of the rules under
the Exchange Act as to which the Board of Directors of
the Company has recommended that the Company's
stockholders accept.
-8-
<PAGE>
(b) For purposes of Section 5.3(a) the following terms shall
have the following meanings:
(1) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(2) "Existing Stockholder" shall mean any Person who
is the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the
Exchange Act) of securities representing 25% or
more of the combined voting power of the Voting
Stock as of the date hereof.
(3) "MK Creditor Stockholder" shall mean any Person
who has acquired Voting Stock directly or
indirectly from Morrison Knudsen Corporation in
full or partial satisfaction of any indebtedness
or obligation of Morrison Knudsen Corporation owed
to such Person.
(4) "Person" means any "person" as used in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act.
(5) "Voting Stock" means stock of the Company of any
class or series entitled to vote generally in the
election of Directors.
(c) If such Change of Control occurs and Employee fully
cooperates and assists with such Change of Control as
reasonably requested by the Company, and:
(1) If after such Change of Control the
purchaser/conveyee does not hire Employee and
assume all obligations of this Agreement; or
(2) Employee is terminated other than for cause as
defined at Sections 4.2(a)-(c), of this Agreement,
either after such Change in Control occurs or in
contemplation of or within ninety (90) calendar
days prior to the occurrence of such Change in
Control,
then the Company shall provide to Employee salary, stock
options, stock grant, deferred compensation, benefit
continuations, and benefits provided in Section 5.2.
6. CONFIDENTIAL INFORMATION
6.1 Beginning on the date hereof and at all times hereafter, Employee
shall treat as confidential any proprietary, confidential or secret
information. relating to the
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<PAGE>
business or interests of the Company, including information
relating to its organizational structure, operations, business
plans, research data or results, inventions, customer lists or
other work product, whether developed by or for the Company
and whether developed on the premises of the Company or
elsewhere ("Confidential Information"). Beginning on the date
hereof and at any time hereafter, Employee shall not, without
the prior written consent of the Company, disclose or make use
of in any manner or in any form Confidential Information,
except to the extent necessary to perform the services
required of him under this Agreement.
Within, a reasonable time after the termination of this
Agreement, all Company records, information documents and
other property of the Company in the possession of Employee,
shall be returned by Employee to the Company.
6.2 The provisions of this section shall not apply to any
proprietary, confidential or secret information which is, at
the commencement of this Agreement or at some later date,
known to the general public under circumstances involving no
breach of this Agreement, or is lawfully and in good faith
made available to Employee without restriction as to
disclosure by a third party entitled to such information.
6.3 In consideration of the Company's payments to Employee under
Section 5.1 or 5.2, and his employment hereunder, Employee
agrees that, for a period of two (2) years from termination of
employment, Employee will not:
(a) Contact, with a view towards selling any product or
service competitive with any product or service sold by
the Company at the time of the termination of Employee's
employment with the Company (or within the preceding
three years), or sell any such product or service to,
any person, firm, association or corporation
(1) to which the Company sold any product or service
during the 24 months immediately preceding the
termination of Employee's employment with the
Company; or
(2) which Employee solicited, contacted or otherwise
dealt with on behalf of the Company during the 24
months immediately preceding the termination of
Employee's employment with the Company;
(b) Make any such contact or sale either for the benefit of
himself or for the benefit of any person, firm,
association or corporation;
(c) In any manner, directly or indirectly, assist any
person, firm, association or corporation to make any
such contact or sale;
-10-
<PAGE>
(d) Participate, engage or be interested, directly or
indirectly, whether as director, officer, employee,
advisor, consultant, stockbroker, partner, joint
venture, owner, agent or in any other capacity, in any
business, in whole or in part, in the nature of or
competitive with the business of the Company in any
geographic territory served by the Company at the time
of termination of Employee's employment with the
Company; or
(e) Directly or indirectly, employ or solicit for employment
(by any person, firm, association or corporation other
than the Company), or engage in any manner any employees
of the Company, without the prior written consent of the
Company.
The Company agrees to furnish to Employee a reasonable listing
of competitors and customers within 90 days of termination.
6.4 Employee acknowledges that the restrictions contained in this
Section 6 are reasonable in view of the nature of the business
in which the Company is engaged, Employee's critical role in
the Company's operations and Employee's detailed knowledge of
the Company's Confidential Information, its business,
customers, employees and suppliers and that such restrictions
will not prevent Employee from earning a livelihood hereafter.
6.5 The parties acknowledge that any breach of this Section 6 will
cause the Company irreparable harm for which the Company will
have no adequate remedy at law. As a result, the Company will
be entitled to the issuance by an arbitrator or court of
competent jurisdiction of an injunction, restraining order or
other equitable relief prohibiting Employee from committing or
continuing any such violation. Any right to obtain an
injunction, restraining order or other equitable relief
hereunder will not be deemed a waiver of any right to assert
any other remedy the Company may have under this Agreement or
otherwise at law or in equity. The obligations of Employee
pursuant to this Section 6 shall survive any termination of
this Agreement.
7. OTHER OBLIGATIONS
Employee represents and warrants to the Company that he is not now
under any obligation to any person, firm, corporation or other entity,
and has no other interest which is known to be in conflict with his
duties and obligations, and the terms and conditions of which would
prevent, limit or impair in any way the performance by him of any of
the covenants or duties set forth herein.
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<PAGE>
8. NOTICES
All notices which either party hereto is required or permitted to give
to the other will be given by certified mail or by personal delivery.
The certified date of receipt of any such notice will deemed to be the
date of delivery thereof.
9. WAIVERS
No waiver by either party of any breach of nonperformance of any
provision or obligation of this Agreement shall be deemed to a waiver
of any preceding or succeeding breach of the same or any other
provision of this Agreement.
10. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties and
there are no representations, warranties, covenants or obligations
except as set forth herein. This Agreement supersedes all prior and,
contemporaneous agreements, understandings, negotiations and
discussions, written or oral, between the parties hereto, relating to
any transaction contemplated by the Agreement.
11. AMENDMENTS
This Agreement may be amended only in writing executed by the parties
hereto.
12. RECITALS; ENUMERATION AND HEADINGS
The enumeration and headings contained in this Agreement are for
convenience of reference only and are not intended to have any
substantive significance in interpreting this Agreement.
13. GENDER AND NUMBER
Unless the context otherwise requires, whenever used in this Agreement
the singular shall include the plural, the plural shall include the
singular, and the masculine gender shall include the neuter or feminine
gender and vice versa.
14. COMPUTATION OF TIME
Whenever any determination is to be made or action to be taken on a
date specified in this Agreement, if such date shall fall upon a
Saturday, Sunday or a legal holiday, the date for such determination or
action shall be extended to the first business day immediately
thereafter.
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<PAGE>
15. COUNTERPARTS
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterpart each of which when so
executed and delivered shall be an original document, but all of which
counterparts shall together constitute one and the same instrument.
This Agreement shall not be effective unless and until executed by all
parties hereto.
16 NONASSIGNABILITY
This Agreement and the benefits hereunder are personal to Employee and
are not assignable or transferable by Employee to any person, firm or
corporation. The Company may only assign this Agreement and the
benefits hereunder to an affiliated person, firm or corporation.
17. MISCELLANEOUS
Should any of the provisions of this Agreement require judicial
interpretation, it is agreed that the court or arbitrator interpreting
or construing the Agreement shall not apply a presumption that any
provision shall be more strictly construed against one party by reason
of the rule of construction, that a document is to be construed more
strictly against the party who itself or through its agents prepared
the same, it being agreed that both parties and their respective agents
have participated in the preparation of this Agreement,.
18. PARTIAL INVALIDITY
If any provision of this Agreement shall for any reason be held invalid
or unenforceable by any court, governmental agency or arbitrator of
competent jurisdiction, such invalidity or unenforceability shall be
construed as if such invalid or unenforceable provision had never been
contained herein.
19. GOVERNING LAWS
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
20. ARBITRATION
With the exception of the exercise by the Company of its injunctive
rights hereunder, all disputes arising under the agreement shall be
submitted to binding arbitration in, Pittsburgh, Pennsylvania, to a
single arbitrator chosen in accordance with the rules of the American
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<PAGE>
Arbitration Association as to the selection of the arbitrators and the
procedures for the conduct of the arbitrator. Such arbitrator's
decision shall be final and binding upon the parties, and shall be
entitled to enforcement in any court of competent jurisdiction. The
costs and expenses of the arbitrator shall be shared equally by the
parties.
IN WITNESS WHEREOF, the parties have Agreement as of the day and year first
above written.
BY:________________________________ DATE:____________
Michael A. Wolf
By: MK RAIL CORPORATION
BY:________________________________ DATE:____________
John C. Pope
Its Chairman
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<PAGE>
MK RAIL CORPORATION
-----------
STOCK APPRECIATION RIGHT AGREEMENT
This Stock Appreciation Right Agreement ("Agreement") dated as of July
1, 1996 is entered into between MK Rail Corporation ("Company") and Michael A.
Wolf (the "Holder").
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Grant of Stock Appreciation Right. In consideration of the Holder's
acceptance of employment as President and Chief Executive Officer of the
Company, effective as of July 1, 1996, the Company hereby grants to the Holder a
Stock Appreciation Right ("Right") as to 400,000 Shares of the Company's common
stock, $0.01 par value ("Shares" or "Common Stock"), all upon the terms and
conditions hereinafter set forth.
(a) Upon exercise of the Right, the Company shall pay to the
Holder, in cash or Shares at the sole and absolute discretion of the Committee
(as hereinafter defined), the Settlement Price (as hereinafter defined), less
any tax withheld as provided in paragraph 4 hereof. Subject to the provisions of
2(d) hereof, the Settlement Price for each Share exercised shall be equal to the
amount determined by the difference of (i) the greater of (A) any tender or
exchange offer price per Share in connection with any tender offer or merger or
consolidation of the Company with another Company, or (B) the closing price of
the Shares as reported on Nasdaq as of the trading day last ended as of the time
the Right is exercised, over (ii) $5.25 per Share, the closing price of the
Shares as reported on Nasdaq on May 13, 1996, the date upon which the parties
hereto agreed to the granting of the Right as part of the compensation
arrangement to be offered to the Holder upon his acceptance of employment as the
Company's President and Chief Executive Officer.
(b) The Right shall terminate on May 12, 2006, unless earlier
terminated as provided in this Agreement.
2. Exercise Rights.
The Holder's exercise of the Right shall be subject to the
following additional conditions and limitations:
(a) Subject to 100% of the Right becoming earlier exercisable
as provided in paragraph 2(b), (c) or (d) hereof, the Right shall become
exercisable in 20 percent increments,
1.
<PAGE>
with the first 20 percent increment exercisable on or after July 1, 1997 and
each remaining 20 percent increment exercisable on or after July 1, 1998, July
1, 1999, July 1, 2000 and July 1, 2001, respectively, provided that the Holder
has not voluntarily terminated his employment with the Company before any of
those dates. Vesting under this Section 2(a) terminates once the Holder
voluntarily terminates his employment with the Company.
(b) Except as otherwise provided in paragraph 2(c) or (d), (i)
if the Company terminates Holder's employment with the Company for any reason
other than Cause (as that term is defined in paragraph 4.2 of the Employment
Agreement between the Company and the Holder dated as of July 1, 1996
("Employment Agreement")), 100% of the Right shall become immediately
exercisable and will continue to be exercisable by the Holder or his
beneficiaries or legal representatives until the later to occur of (A) the date
three months after the termination or (B) the January 15th next following the
termination; (ii) if the Holder's employment with the Company is terminated due
to his death or disability, 100% of the Right shall become immediately
exercisable and will continue to be exercisable by the Holder or his
beneficiaries or legal representatives until one year after the date of
termination; (iii) if the Holder's employment with the Company shall be
terminated by the Company for Cause, vesting shall cease and the Right shall
immediately cease to be exercisable; and (iv) if the Holder's employment is
terminated for any reason other than those set forth in Paragraphs 2(b)(i), (ii)
or (iii), vesting shall cease, and any then vested and exercisable portion of
the Right will continue to be exercisable by the Holder until the later to occur
of (A) the date three months after the termination or (B) the January 15th next
following the termination.
(c) Notwithstanding anything to the contrary set forth herein,
in the event that (1) the Company shall propose to enter into an arrangement or
a transaction which shall constitute or result in a Change of Control (as
defined under Section 5.3(a) of the Employment Agreement), and (2) the Holder
proposes to exercise the Right on or before July 1, 1997 and, prior to the
exercise of the Right, either the Holder or the Company shall terminate or be
deemed to have terminated the Holder's employment with the Company (including a
termination of Holder's employment by the Company for Cause), then the Right
shall become immediately exercisable, on a provisional basis, as to any shares
as to which the Right had not previously become exercisable as provided above
(the "Provisional Shares") from the date ten (10) business days prior to the
scheduled date of the Change of Control until the time immediately prior to the
occurrence thereof; provided, however that (i) if made by the Holder, the
exercise of the Right as to any Provisional Shares shall be deemed to occur
immediately prior to the time of the Change of Control (and shall be ineffective
if the Change of Control does not occur); and (ii) if the Company announces that
it does not intend to proceed with any previously proposed arrangement or
transaction which would constitute or result in a Change of Control, the Right
shall thereupon cease to be immediately exercisable as to any Provisional Shares
(and the Holder's prior election to exercise the Right shall be deemed to be
withdrawn), but shall again become immediately exercisable on a provisional
basis as described above if the arrangement or transaction or another
arrangement or transaction which would constitute or result in a Change of
Control is thereafter
2.
<PAGE>
proposed to be consummated. The Right shall terminate upon the occurrence of a
Change of Control.
(d) Notwithstanding anything to the contrary set forth herein, in the
event that (i) the Shareholders of the Company approve an increase in the number
of Shares which may be awarded under the Company's Stock Incentive Plan
effective April 1, 1994 (the "Plan"), which increase is sufficient to enable the
Company to issue to Holder the Plan Option (as hereinafter defined) to purchase
400,000 shares of the Common Stock, and (ii) the Company issues to the Holder
within sixty (60) days after such approval an option under the Plan (the "Plan
Option") to purchase 400,000 shares of the Common Stock for an exercise price
equal to the closing price of the Common Stock as reported on Nasdaq on the
first trading day ended following the Shareholders' approval of an increase in
the number of Shares which may be awarded under the Plan, all on such terms as
are set in an option agreement in the form attached hereto as Exhibit 1, the
Settlement Price of the Right shall be the lesser of (i) the exercise price of
the Plan Option over $5.25 per Share or (ii) the Settlement Price determined as
provided in paragraph 1(a). The Right shall be exercisable independently of the
Plan Option, and shall survive the earlier exercise of the Plan Option.
3. The Committee.
The plan created by this Agreement shall be administered by a
committee (the "Committee"), which shall be comprised of two or more members of
the Board of Directors, each of whom shall be a "disinterested person" as
defined in Rule 16b-3 under the Exchange Act (or any successor provision)
promulgated by the Securities and Exchange Commission. A majority of the members
of the Committee shall constitute a quorum for the transaction of business, and
any determination or action may be taken at a meeting by a majority vote or may
be taken without a meeting by a written resolution signed by all members of the
Committee. Members of the Committee acting under the plan created by this
Agreement shall be fully protected in relying in good faith upon the advice of
counsel and shall incur no liability except for willful misconduct in the
performance of their duties.
4. Taxes.
Neither the Company nor the Committee nor any of their
representatives or agents has made any representations or warranties to the
Holder with respect to the amount of tax or other consequences of the
transactions contemplated by this Agreement, and the Holder is in no manner
relying on the Company, the Committee or any of their representatives or agents
for an assessment of the tax or other consequences. The Company's payment of the
Settlement Price shall be subject to the Company's obligation to withhold taxes
in accordance with its interpretation of applicable Federal and state tax laws.
3.
<PAGE>
5. Miscellaneous.
(a) The Right may not be assigned, encumbered or transferred,
except, in the event of death of the Holder, by will or the laws of descent and
distribution.
(b) This Agreement shall bind and inure to the benefit of the
Company and its successors and assigns, and the Holder and any heir, legatee, or
legal representative of the Holder.
(c) This Agreement shall be governed by and construed in
accordance with the law of the state of Delaware, regardless of the law that
might otherwise govern under applicable principles of conflicts of laws.
(d) All disputes arising under this Agreement, including any
questions regarding the interpretation of any provisions hereof, shall be
submitted to binding arbitration in Pittsburgh, Pennsylvania, to a single
arbitrator chosen in accordance with the rules of the American Arbitration
Association as to the selection of the arbitrators and the procedures for the
conduct of the arbitrator. Such arbitrator's decision shall be final and binding
upon the parties, and shall be entitled to enforcement in any court of competent
jurisdiction. The costs and expenses of the arbitrator shall be shared equally
by the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate as of the day and year first above written.
MK RAIL CORPORATION
---------------------------------
John C. Pope
Chairman
HOLDER:
---------------------------------
Michael A. Wolf
4.
<PAGE>
EXHIBIT 1
MK RAIL CORPORATION
-----------
STOCK OPTION AGREEMENT
UNDER STOCK INCENTIVE PLAN
This Stock Option Agreement ("Agreement") dated and effective as of
____[the date of the Shareholders' approval of an increase in the number of
Shares which may be awarded under the Plan], the date on which the Option
evidenced hereby was granted, is entered into between MK Rail Corporation
("Company") and Michael A. Wolf (the "Optionee"), pursuant to the MK Rail
Corporation Stock Incentive Plan ("Plan") as approved by Company shareholders on
March 29, 1994 and last amended on the date hereof.
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Grant of Option
In consideration of the Optionee's acceptance of employment as
President and Chief Executive Officer of the Company, effective as of July 1,
1996 and the services performed or to be performed by the Optionee the Company
hereby grants to the Optionee an Option ("Option") under the Plan to purchase a
total of 400,000 Shares of the Company's common stock, $0.01 par value ("Shares"
or "Common Stock"), all upon the terms and conditions hereinafter set forth.
(a) The Option is granted under and pursuant to the Plan, a
copy of which is attached hereto and incorporated herein by reference, and,
except as modified or limited hereby, is subject to all of the provisions
thereof. The Optionee represents and warrants that he has read the Plan and is
fully familiar with all the terms and conditions of the Plan and agrees to be
bound thereby.
(b) The Exercise Price per share of the Common Stock
exercisable under the Option shall be $___ per share [the closing price of the
Common Stock as reported on Nasdaq on the first trading day ended following the
Shareholders' approval of an increase in the number of Shares which may be
awarded under the Plan].
(c) The Option shall terminate on May 12, 2006, unless earlier
terminated as provided in this Agreement.
1.
<PAGE>
2. Exercise Rights
In addition to the terms and conditions for exercise of the
Option set forth in the Plan, the Optionee's right to exercise the Option shall
be subject to the following additional conditions and limitations:
(a) Subject to 100% of the Option becoming earlier exercisable
as provided in paragraph 2(b) or (c) hereof, the Option shall become exercisable
in 20 percent increments, with the first 20 percent increment exercisable on or
after July 1, 1997 and each remaining 20 percent increment exercisable on or
after July 1, 1998, July 1, 1999, July 1, 2000 and July 1, 2001, respectively,
provided that the Optionee has not voluntarily terminated his employment with
the Company before any of those dates. Vesting under this Section 2(a)
terminates once the Optionee voluntarily terminates his employment with the
Company.
(b) Except as otherwise provided in paragraph 2(c) hereof, (i)
if the Company terminates Optionee's employment with the Company for any reason
other than Cause (as that term is defined in paragraph 4.2 of the Employment
Agreement between the Company and the Optionee dated as of July 1, 1996
("Employment Agreement")), 100% of the Option shall become immediately
exercisable and will continue to be exercisable by the Optionee or his
beneficiaries or legal representatives until the later to occur of (A) the date
three months after the termination or (B) the January 15th next following the
termination; (ii) if the Optionee's employment with the Company is terminated
due to his death or disability, 100% of the Option shall become immediately
exercisable and will continue to be exercisable by the Optionee or his
beneficiaries or legal representatives until one year after the date of
termination; (iii) if the Optionee's employment with the Company shall be
terminated by the Company for Cause, vesting shall cease and the Option shall
immediately cease to be exercisable; and (iv) if the Optionee's employment is
terminated for any reason other than those set forth in Paragraphs 2(b)(i), (ii)
and (iii), vesting shall cease, and any then vested and exercisable portion of
the Option will continue to be exercisable by the Optionee until the later to
occur of (A) the date three months after the termination or (B) the January 15th
next following the termination.
(c) Notwithstanding anything to the contrary set forth herein,
in the event that (1) the Company shall propose to enter into an arrangement or
a transaction which shall constitute or result in a Change of Control (as
defined under Section 5.3(a) of the Employment Agreement), and (2) the Optionee
proposes to exercise the Option on or before July 1, 1997 and, prior to the
exercise of the Option, either the Optionee or the Company shall terminate or be
deemed to have terminated the Optionee's employment with the Company (including
a termination of Optionee's employment by the Company for Cause), then the
Option shall become immediately exercisable, on a provisional basis, as to any
shares as to which the Option had not previously become exercisable as provided
above (the "Provisional Shares") from the date ten (10) business days prior to
the scheduled date of the Change of Control until the time immediately prior to
the occurrence thereof; provided, however that (i) if made by the Optionee, the
exercise of the Option as to any Provisional Shares shall be deemed to occur
immediately prior to the time of the Change of Control (and shall be ineffective
if the Change of Control does not occur); and (ii) if the Company announces that
it does not intend to
2.
<PAGE>
proceed with any previously proposed arrangement or transaction which would
constitute or result in a Change of Control, the Option shall thereupon cease to
be immediately exercisable as to any Provisional Shares (and the Optionee's
prior election to exercise the Option shall be deemed to be withdrawn), but
shall again become immediately exercisable on a provisional basis as described
above if the arrangement or transaction or another arrangement or transaction
which would constitute or result in a Change of Control is thereafter proposed
to be consummated. The Option shall terminate upon the occurrence of a Change of
Control.
(d) The Option shall be exercisable independently of the Stock
Appreciation Right (the "Right") granted to the Optionee under that certain
Stock Appreciation Right Agreement dated as of July 1, 1996 between the Company
and Optionee, and shall survive the earlier exercise of the Right.
3. Taxes
Neither the Company nor the Committee nor any of their
representatives or agents has made any representations or warranties to the
Optionee with respect to the amount of tax or other consequences of the
transactions contemplated by this Agreement, and the Optionee is in no manner
relying on the Company, the Committee or any of their representatives or agents
for an assessment of the tax or other consequences. The Company's payment of the
Settlement Price shall be subject to the Company's obligation to withhold taxes
in accordance with its interpretation of applicable Federal and state tax laws.
4. Miscellaneous
(a) The Option may not be assigned, encumbered or transferred,
except, in the event of death of the Optionee, by will or the laws of descent
and distribution.
(b) This Agreement shall bind and inure to the benefit of the
Company and its successors and assigns, and the Optionee and any heir, legatee,
or legal representative of the Optionee.
(c) This Agreement shall be governed by and construed in
accordance with the law of the state of Delaware, regardless of the law that
might otherwise govern under applicable principles of conflicts of laws.
3.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate as of the day and year first above written.
MK RAIL CORPORATION
---------------------------------
John C. Pope
Chairman
OPTIONEE:
---------------------------------
Michael A. Wolf
4.
<PAGE>
EXHIBIT B
MK RAIL CORPORATION
DEFERRED COMPENSATION PLAN
FOR MICHAEL A. WOLF
Effective July 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I PURPOSE AND BACKGROUND.....................................1
----------------------
ARTICLE 11 DEFINITIONS................................................1
-----------
2.1 Account.............................................1
-------
2.2 Administrative Committee............................1
------------------------
2.3 Beneficiary.........................................2
-----------
2.4 Cause...............................................2
-----
2.5 Code................................................2
----
2.6 Compensation........................................2
------------
2.7 Compensation Committee..............................2
----------------------
2.8 Deferral Commitment.................................2
-------------------
2.9 Deferral Period.....................................2
---------------
2.10 Determination Date..................................3
------------------
2.11 Earnings Index......................................3
--------------
2.12 Elective Deferred Compensation ...3
------------------------------
2.13 Employer .......................................3
--------
2.14 ERISA...............................................3
-----
2.15 Financial...........................................3
---------
2.16 Participant.........................................3
-----------
2.17 Participation Agreement.............................3
-----------------------
2.18 Plan Benefit........................................4
------------
2.19 Rate of Return......................................4
--------------
2.20 SARs................................................4
----
ARTICLE III PARTICIPATION AND DEFERRAL COMMITMENTS.....................4
--------------------------------------
3.1 Eligibility and Participation.......................4
-----------------------------
3.2 Form of Deferral....................................4
----------------
3.3 Limitations on Deferral Commitment..................5
----------------------------------
3.4 Modification of Deferral Commitment................5
-----------------------------------
ARTICLE IV DEFERRED COMPENSATION ACCOUNT..............................5
-----------------------------
4.1 Account.............................................5
-------
4.2 Elective Deferred Compensation......................6
------------------------------
4.3 Allocation of Elective Deferred Compensation........6
--------------------------------------------
4.4 Makeup Contributions................................6
--------------------
4.5 Employer Discretionary Contributions................7
------------------------------------
4.6 Rate of Return......................................7
--------------
4.7 Determination of Account............................7
------------------------
<PAGE>
Page
4.8 Vesting of Account..................................7
------------------
4.9 Statement of Account................................8
--------------------
ARTICLE V PLAN BENEFITS..............................................8
-------------
5.1 Distributions Prior to Termination of Employment....8
------------------------------------------------
5.2 Distributions Following Termination of Employment...9
-------------------------------------------------
5.3 Form of Benefit Payment Following Termination
of Employment......................................10
-------------
5.4 Commencement of Deferral Payment...................10
--------------------------------
5.5 Death Benefit......................................11
-------------
5.6 Accelerated Distribution...........................11
------------------------
5.7 Withholding for Taxes..............................12
---------------------
5.8 Valuation and Settlement ....................12
------------------------
5.9 Payment to Guardian................................12
-------------------
ARTICLE VI BENEFICIARY DESIGNATION...................................13
-----------------------
6.1 Beneficiary Designation............................13
-----------------------
6.2 Changing Beneficiary...............................13
--------------------
6.3 Community Property.................................13
------------------
6.4 No Beneficiary Designation.........................14
--------------------------
ARTICLE VII ADMINISTRATION............................................15
--------------
7.1 Committee: Duties..................................15
-----------------
7.2 Agents.............................................15
------
7.3 Binding Effect of Decisions........................15
---------------------------
7.4 Indemnity of Administrative Committee ..15
-------------------------------------
ARTICLE VII CLAIMS PROCEDURE..........................................16
----------------
8.1 Claim..............................................16
-----
8.2 Review of Claim....................................16
---------------
8.3 Notice of Denial of Claim..........................16
-------------------------
8.4 Reconsideration of Denied Claim....................17
-------------------------------
8.5 Arbitration........................................18
-----------
8.6 Employer to Supply Information.....................18
------------------------------
ARTICLE IX AMENDMENT AND TERMINATION OF PLAN.........................18
---------------------------------
9.1 Amendment..........................................18
---------
9.2 Termination........................................19
-----------
<PAGE>
Page
ARTICLE X MISCELLANEOUS.............................................20
-------------
10.1 Unfunded Plan......................................20
-------------
10.2 Unsecured General Creditor.........................20
--------------------------
10.3 Trust Fund.........................................21
----------
10.4 Nonassignability...................................21
----------------
10.5 Not a Contract of EDI..............................21
---------------------
10.6 Protective Provisions..............................21
---------------------
10.7 Governing Law......................................22
-------------
10.8 Validity...........................................22
--------
10.9 Notice.............................................22
------
10.10 Successors.........................................22
----------
SIGNATURE PAGE...........................................................23
<PAGE>
MK RAIL CORPORATION
DEFERRED COMPENSATION PLAN
FOR MICHAEL A. WOLF
-----------------------------------------------------
ARTICLE I
PURPOSE AND BACKGROUND
The purpose of this Deferred Compensation Plan (the "Plan") is to
provide current tax planning opportunities as well as supplemental funds for the
retirement or death of Michael A. Wolf, the President and CEO of MK Rail
Corporation ("Company"). The Plan shall be effective as of July 1, 1996
("Effective Date").
ARTICLE II
DEFINITIONS
For the purposes of the Plan, the following terms shall have the
meanings indicated, unless the context clearly indicates otherwise.
2.1 Account. "Account" means the Account as maintained by the
Employer in accordance with Article IV with respect to any deferral of
Compensation pursuant to the Plan. The Participant's Account shall be utilized
solely as a device for the determination and measurement of the amounts to be
paid to the Participant pursuant to the Plan. Separate subaccounts shall be
maintained to properly reflect the Participant's balance and earnings thereon.
The Participant's Account shall not constitute or be treated as a trust fund of
any kind.
2.2 Administrative Committee. "Administrative Committee" means
the committee appointed to administer the employee benefit plans of the Company.
2.3 Beneficiary. "Beneficiary" means the person, persons or
entity entitled under Article VI to receive any Plan Benefits payable after the
Participant's death.
<PAGE>
2.4 Cause. "Cause" is defined as provided in the Participant's
Employment Agreement.
2.5 Code. "Code" means the Internal Revenue Code of 1986, as
amended.
2.6 Compensation. "Compensation" means the salary and all
bonuses payable to the Participant during the calendar year and considered to be
"wages" for purposes of federal income tax withholding, before reduction for
amounts deferred under the Plan, salary reduction contributions under Section
401 (k) of the Code, or any other deferral arrangements. For purposes of the
Plan, the term "bonus" includes cash payments made to the Participant upon the
exercise of SARS. Compensation does not include expense reimbursements, any form
of noncash Compensation or benefits, group life insurance premiums, or any other
payments or benefits other than salary or bonuses (as described above).
2.7 Compensation Committee. "Compensation Committee" means the
Compensation Committee of the Employer's Board of Directors.
2.8 Deferral Commitment. "Deferral Commitment" means an
election to defer Compensation made by the Participant pursuant to Article III
and for which a separate Participation Agreement has been submitted by the
Participant to the Administrative Committee.
2.9 Deferral Period. "Deferral Period" means the period over
which the Participant has elected to defer a portion of his Compensation. Each
calendar year shall be a separate Deferral Period, provided that the Deferral
Period may be modified pursuant to Section 3.4. The initial Deferral Period
shall be from July 1, 1996 through December 31, 1996.
2.10 Determination Date. "Determination Date" means the last
day of each calendar month.
2.
<PAGE>
2.11 Earnings Index. "Earnings Index" means a portfolio or
fund selected by the Participant to be used in calculating the Rate of Return.
The portfolio may include stocks, bonds and other types of securities that are
traded on a national securities exchange. Employer shall have no responsibility
for the Earnings Indices selected by the Participant.
2.12 Elective Deferred Compensation. "Elective Deferred
Compensation" means the amount of Compensation that the Participant elects to
defer pursuant to a Deferral Commitment.
2.13 Employer. "Employer" means MK Rail Corporation or any
successor to the business thereof.
2.14 ERISA. "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
2.15 Financial Hardship. "Financial Hardship" means an
unanticipated emergency that is caused by an event beyond the control of the
Participant that would result in severe financial hardship if an early
withdrawal from the Plan were not permitted.
2.16 Participant. "Participant" means Michael A. Wolf, the
President and CEO of the Employer.
2.17 Participation Agreement. "Participation Agreement" means
the agreement submitted by the Participant to the Administrative Committee prior
to the beginning of the Deferral Period, with respect to a Deferral Commitment
made for such Deferral Period.
2.18 Plan Benefit. "Plan Benefit" means the benefit payable to
the Participant as calculated in Article V.
3.
<PAGE>
2.19 Rate of Return. "Rate of Return" means the amount
credited to the Participant's Account under Section 4.6 to be determined by the
Administrative Committee based upon the net performance of the Earnings Indices
selected by the Participant. If the Employer elects, in its sole discretion, to
make investments that correspond to the Earnings Indices periodically elected by
the Participant, the Rate of Return shall be determined after subtracting any
transaction costs (e.g., commissions).
2.20 SARS. "SARS" means stock appreciation rights provided by
the Employer to the Participant.
ARTICLE III
PARTICIPATION AND DEFERRAL COMMITMENTS
3.1 Eligibility and Participation. Michael A. Wolf, the
President and CEO of the Employer, shall be the only Participant. His
participation begins as of July 1, 1996.
3.2 Form of Deferral. The Participant may elect Deferral
Commitments in the Participation Agreement as follows:
(a) Salary Deferral Commitment. A salary Deferral
Commitment shall apply to the salary payable by the Employer
to the Participant during the Deferral Period. The amount to
be deferred shall be stated as a percentage or dollar
amount.
(b) Bonus Deferral Commitment. A bonus Deferral
Commitment shall apply to the bonus Compensation payable to
the Participant during the Deferral Period. If the bonus is
cash payable upon the exercise of SARS, the Deferral
Commitment shall apply to SARs that are exercised during the
Deferral Period. The amount to be deferred shall be stated
as a percentage or dollar amount.
4.
<PAGE>
3.3 Limitations on Deferral Commitment. The following
limitations shall apply to Deferral Commitments:
(a) Minimum. The minimum salary deferral amount shall
be one hundred dollars ($100) for each pay period. There shall be no
minimum deferral amount for bonus in a bonus Deferral Commitment.
(b) Maximum. The maximum deferral amount shall be
fifty percent (50%) of salary in a salary Deferral Commitment and one
hundred percent (1 00%) of bonus in a bonus Deferral Commitment.
3.4 Modification of Deferral Commitment. A Deferral Commitment
shall be irrevocable except that the Administrative Committee may permit the
Participant to reduce the amount to be deferred, or waive the remainder of the
Deferral Commitment, upon a finding that the Participant has suffered a
Financial Hardship.
ARTICLE IV
DEFERRED COMPENSATION ACCOUNT
4.1 Account. For record keeping purposes only, an Account
shall be maintained for the Participant. Separate subaccounts shall be
maintained to the extent necessary to properly reflect the Participant's
election of Earnings Indices and total vested or nonvested Account balance.
4.2 Elective Deferred Compensation. The Participant's Elective
Deferred Compensation shall be credited to the Participant's Account as the
corresponding nondeferred portion of the Compensation becomes or would have
become payable. Any withholding of taxes
5.
<PAGE>
or other amounts with respect to deferred Compensation which is required by
state, federal or local law shall be withheld from the Participant's nondeferred
Compensation to the maximum extent possible with any excess being withheld from
the Participant's Account.
4.3 Allocation of Elective Deferred Compensation. The
Participant shall allocate the Account among the Earning Indices. The initial
allocation shall be made in the Participation Agreement. If the Participant has
not made an allocation election, the Participant's Account shall be allocated to
a money market or equivalent Earnings Index. The Participant may change his
allocation among the Earning Indices as of the first day of each month by prior
notice to the Administrative Committee.
The Employer shall be under no obligation to make investments
that correspond to the Earnings Indices elected by the Participant, even though
the Participant's elections are used to determine the Rate of Return.
4.4 Makeup Contributions.
(a) The Participant shall receive a makeup
contribution equal to two percent (2%) of the Participant's
Compensation, less the matching contribution to the 401 (k) plan
required to be allocated to Employer stock. The Participant is not
required to defer any amounts into the Plan in order to receive a
makeup contribution under this subsection.
(b) If the Participant defers into the Employer's 401
(k) plan an amount equal to the limit as set forth in Section 402(g) of
the Code, the Participant shall receive an additional makeup
contribution equal to fifty percent (50%) of the first six percent (6%)
deferred into the 401 (k) plan and the Plan. This makeup amount shall
be reduced by the
6.
<PAGE>
matching contribution to the 401 (k) plan which is directed by the
Participant. This makeup contribution shall be allocated as elected by
the Participant.
The total Employer contribution under this Section may never
exceed five percent (5%) of Compensation. All makeups under this Section shall
be credited to the Participant's Account no later than forty-five (45) days
after the end of the calendar year they would have been credited to the
underlying qualified plans if not for the limitations contained in the Code.
4.5 Employer Discretionary Contributions. The Employer may
make Discretionary Contributions to the Participant's Account. Discretionary
Contributions shall be credited at such times and in such amounts as the
Administrative Committee in its sole discretion shall determine. The amount of
the Discretionary Contributions shall be evident in a special Participation
Agreement approved by the Administrative Committee.
4.6 Rate of Return. The Participant's Account shall be
credited monthly with the Rate of Return specified in Section 2.19.
4.7 Determination of Account. The Participant's Account as of
each Determination Date shall consist of the balance of the Participant's
Account as of the immediately preceding Determination Date, plus the
Participant's Elective Deferred Compensation credited, any makeup contributions
and the applicable Rate of Return., minus the amount of any distributions made
since the immediately preceding Determination Date.
4.8 Vesting of Account. The Participant shall be vested in the
amounts credited to the Participant's Account and earnings thereon as follows:
7.
<PAGE>
(a) Amounts Deferred. The Participant shall be one hundred
percent (100%) vested at all times in the amount of Compensation elected to be
deferred under the Plan and Rate of Return thereon.
(b) Employer Makeups. The Employer makeups contributed to the
Participant's Account, and Rate of Return thereon, shall be vested to the same
extent that contribution in the underlying qualified plans are vested.
(c) Employer Discretionary Contributions. The Employer
Discretionary Contributions and Rate of Return thereon shall be vested as set
forth in the special Participation Agreement.
4.9 Statement of Account. The Administrative Committee shall
submit to the Participant, within one hundred twenty (1 20) days after the close
of each calendar year, or at such other time as determined by the Administrative
Committee, a statement setting forth the balance to the credit of the
Participant's Account.
ARTICLE V
PLAN BENEFITS
5.1 Distributions Prior to Termination of Employment. The
Participant's Account may be distributed to the Participant prior to termination
of employment with the Employer as follows:
(a) Early Withdrawals. The Participant may elect in a
Participation Agreement to withdraw all or any portion of
the amount deferred by that Participation Agreement as of a
date specified in the election. Such date shall not be
sooner than seven (7) years after the date the Deferral
Period commences. The amount withdrawn shall not
8.
<PAGE>
exceed the amount of Compensation deferred, without
earnings, and shall not include any makeup contribution.
Such election shall be made at the time the Deferral
Commitment is made and shall be irrevocable.
(b) Hardship Withdrawals. Upon a finding that the
Participant has suffered a Financial Hardship, the
Administrative Committee may, in its sole discretion, make
distributions from the Participant's Account. The amount of
such a withdrawal shall be limited to the amount reasonably
necessary to meet the Participant's needs resulting from the
Financial Hardship. If payment is made due to Financial
Hardship under the Plan, the Participant's deferrals under
the Plan shall cease for a twelve (12) month period. Any
resumption of the Participant's deferrals under the Plan
after such twelve (12) month period shall be made only at
the election of the Participant in accordance with Article
III herein.
(c) Form of Payment and Time. Any distribution pursuant
to Sections 5.1(a) or 5.1 (b) shall be payable in a lump
sum. The distribution shall be paid in the case of a partial
withdrawal, as provided in the Participation Agreement, and
in case of a Financial Hardship, within thirty (30) days
after the Administrative Committee approves the Financial
Hardship.
5.2 Distributions Following Termination of Employment. Upon
the Participant's termination of employment with the Employer for any reason
(which termination shall be for a period of at least five (5) days), the
Employer shall pay the Participant or, in the case of death, the Participant's
Beneficiary, benefits equal to the vested balance in the Participant's Account.
9.
<PAGE>
5.3 Form of Benefit Payment Following Termination of
Employment.
(a) Subject to Section 5.3(b), benefits shall be paid
in the form selected by the Participant in the Participation
Agreement. Options include:
(i) A lump sum payment.
(ii) Equal annual installments of the Account and Rate
of Return amortized over a period of five (5), ten (1 0), or
fifteen (1 5) years. The Account shall be amortized with an
assumed Rate of Return of seven percent (7%) unless the
Participant selects, and the Administrative Committee
approves, an alternative assumed Rate of Return. The Account
shall be reamortized annually based upon the actual Rate of
Return.
(b) Small Account(s). Notwithstanding Section 5.3(a),
if the Partici pant's Account is less than fifty thousand
dollars ($50,000) on the date of termination, the
benefit shall be paid in a lump sum.
5.4 Commencement of Deferral Payment.
(a) Subject to Section 5.4(b), benefits that are
payable upon the Participant's termination of employment
with the Employer shall commence as elected by the
Participant in the Participation Agreement. Options are:
(i) Payments to commence as soon as practical after
termination but in no case more than sixty (60) days after
termination.
(ii) Payment to commence as soon as practical in the
calendar year following termination but in no case more than
ninety (90) days after the beginning of the calendar year.
10.
<PAGE>
(iii) Payments to commence as soon as practical in the
calendar year following the later of the Participant's
termination or attainment of an age selected by the
Participant which shall not exceed age sixty-five (65). If
the Participant has selected this option and has an Account
balance less than fifty thousand dollars ($50,000) at
termination, the benefit shall commence as if the
Participant had selected Section 5.4(a)(ii) above.
(b) Notwithstanding Section 5.4(a), if the Participant is a
"covered employee" as defined in Section 162(m)(3) of the Code, the
Participant shall receive his first benefit payment as if the
Participant had elected option Section 5.4(a)(ii) above, unless the
Participant has elected Section 5.4(a)(iii) above and such
commencement date is after the date payable under Section 5.4(a)(ii).
5.5 Death Benefit. Upon the death of the Participant, the Employer shall I
pay to the Participant's Beneficiary an amount equal to the remaining unpaid
balance of the Participant's Account in a lump sum.
5.6 Accelerated Distribution. Notwithstanding any other provision of the
Plan, at any time the Participant shall be entitled to receive, upon written
request to the Administrative Committee, a lump sum distribution equal to ninety
percent (90%) of the vested Account balance as of the Determination Date
immediately preceding the date on which the Administrative Committee receives
the written request. The remaining balance shall be forfeited by the
Participant. The amount payable under this Section shall be paid in a lump sum
within thirty (30) days following the receipt of the notice by the
Administrative Committee from the Participant.
11.
<PAGE>
If the Participant receives a distribution under this Section,
his Deferral Commitments for the remaining portion of that calendar year shall
be revoked and he shall not be permitted to make Deferral Commitments for the
next succeeding calendar year.
5.7 Withholding for Taxes. To the extent required by the law
in effect at the time payments are made, the Employer shall withhold from the
payments made hereunder any taxes required to be withheld by federal, state or
local government, including any amount which the Employer determines is
reasonably necessary to pay any generation-skipping transfer tax which is or may
become due. A Beneficiary, however, may elect not to have withholding of federal
income tax pursuant to Section 3405(a)(2) of the Code, or any successor
provision thereto.
5.8 Valuation and Settlement. The amount of a lump sum payment
and the initial amount of installments shall be based on the value of the
Participant's Account on the Determination Date immediately preceding the
payment or commencement of installment payments.
5.9 Payment to Guardian. The Administrative Committee may
direct payment to the duly appointed guardian, conservators or other similar
legal representative of the Participant or Beneficiary to whom payment is due.
In the absence of such a legal representative, the Administrative Committee may,
in it sole and absolute discretion, make payment to a person having the care and
custody of a minor, incompetent or person incapable of handling the disposition
of property upon proof satisfactory to the Administrative Committee of
incompetency, minority, or incapacity. Such distribution shall completely
discharge the Administrative Committee from all liability with respect to such
benefit.
12.
<PAGE>
ARTICLE VI
BENEFICIARY DESIGNATION
6.1 Beneficiary Designation. Subject to Section 6.3, the
Participant shall have the right, at any time, to designate one (1) or more
persons or an entity as Beneficiary (both primary as well as secondary) to whom
benefits under the Plan shall be paid in the event of the Participant's death
prior to complete distribution of the Participant's Account. Each Beneficiary
designation shall be in a written form prescribed by the Administrative
Committee and shall be effective only when filed with the Administrative
Committee during the Participant's lifetime.
6.2 Changing Beneficiary. Subject to Section 6.3, any
Beneficiary designation may be changed by the Participant without the consent of
the previously named Beneficiary by the filing of a new designation with the
Administrative Committee. The filing of a new designation shall cancel all
designations previously filed.
6.3 Community Property. If the Participant resides in a
community property state, the following rules shall apply:
(a) If the Participant is married, the designation of
a Beneficiary other than the Participant's spouse shall not be
effective unless the spouse executes a written consent that
acknowledges the effect of the designation, or it is established the
consent cannot be obtained because the spouse cannot be located.
(b) If the Participant is married, the Participant's
Beneficiary designation may be changed with the consent of the
Participant's spouse as provided for in Section 6.3(a) by the filing of
a new designation with the Administrative Committee.
13.
<PAGE>
(c) If the Participant's marital status changes after the
Participant has designated a Beneficiary, the following shall
apply:
(i) If the Participant is married at the
time of death but was unmarried when the designation was made,
the designation shall be void unless the spouse has consented
to it in the manner prescribed in Section 6.3(a).
(ii) If the Participant is unmarried at the
time of death but was married when the designation was made:
a) The designation shall be void if the spouse was
named as Beneficiary.
b) The designation shall remain valid if a nonspouse
Beneficiary was named.
(iii) If the Participant was married when the
designation was made and is married to a different spouse at
death, the designation shall I be void unless the new spouse
has consented to it in the manner prescribed above.
6.4 No Beneficiary Designation. If the Participant fails to designate
a Beneficiary in the manner provided above, if the designation is void, or
if the Beneficiary designated by the Participant dies before the
Participant or before complete distribution of the Participant's benefits,
the Participant's Beneficiary shall be the person in the first of the
following classes in which there is a survivor:
(a) The Participant's spouse;
14.
<PAGE>
(b) The Participant's children in equal shares,
except that if any of the children predecease the Participant
but leaves issue surviving, then such issue shall take by
right of representation the share the parent would have taken
if living;
(c) The Participant's estate.
ARTICLE VII
ADMINISTRATION
7.1 Committee; Duties. The Plan shall be administered by the
Administrative Committee. The Administrative Committee shall consist of at least
three (3) individuals appointed by the Compensation Committee. The
Administrative Committee shall have the authority to amend (but not terminate)
the Plan (subject to Section 9.1), interpret and enforce all appropriate rules
and regulations for the administration of the Plan and decide or resolve any and
all questions, including interpretations of the Plan, as may arise in such
administration. A majority vote of the Administrative Committee members shall
control any decision.
7.2 Agents. The Administrative Committee may, from time to
time, employ agents and delegate to them such administrative duties as it sees
fit, and may from time to time consult with counsel who may be counsel to the
Company.
7.3 Binding Effect of Decisions. The decision or action of the
Administrative Committee with respect to any question arising out of or in
connection with the administration, interpretation and application of the Plan
and the rules and regulations promulgated hereunder shall be final, conclusive
and binding upon all persons having any interest in the Plan.
15.
<PAGE>
7.4 Indemnity of Administrative Committee. The Company shall
indemnify and hold harmless the members of the Administrative Committee against
any and all claims, loss, damage, expense or liability arising from any action
or failure to act with respect to the Plan on account of such person's service
on the Administrative Committee, except in the case of gross negligence or
willful misconduct.
ARTICLE VIII
CLAIMS PROCEDURE
8.1 Claim. The Administrative Committee shall establish rules
and procedures to be followed by the Participant and Beneficiaries in (a) filing
claims for benefits, and (b) for furnishing and verifying proofs necessary to
establish the right to benefits in accordance with the Plan, consistent with the
remainder of this Article. Such rules and procedures shall require that claims
and proofs be made in writing and directed to the Administrative Committee.
8.2 Review of Claim. The Administrative Committee shall review
all claims for benefits. Upon receipt by the Administrative Committee of such a
claim, it shall determine all facts which are necessary to establish the right
of the claimant to benefits under the provisions of the Plan and the amount
thereof as herein provided within ninety (90) days of receipt of such claim. If
prior to the expiration of the initial ninety (90) day period, the
Administrative Committee determines additional time is needed to come to a
determination on the claim, the Administrative Committee shall provide written
notice to the Participant, Beneficiary or other claimant of the need for the
extension, not to exceed a total of one hundred eighty (1 80) days from the date
the application was received.
16.
<PAGE>
8.3 Notice of Denial of Claim. In the event that the
Participant, Beneficiary or other claimant claims to be entitled to a benefit
under the Plan, and the Administrative Committee determines that such claim
should be denied in whole or in part, the Administrative Committee shall, in
writing, notify such claimant that the claim has been denied, in whole or in
part, setting forth the specific reasons for such denial. Such notification
shall be written in a manner reasonably expected to be understood by such
claimant and shall refer to the specific sections of the Plan relied on, shall
describe any additional material or information necessary for the claimant to
perfect the claim and an explanation of why such material or information is
necessary, and where appropriate, shall include an explanation of how the
claimant can obtain reconsideration of such denial.
8.4 Reconsideration of Denied Claim.
(a) Within sixty (60) days after receipt of the
notice of the denial of a claim, such claimant or duly authorized
representative may request, by mailing or delivery of such written
notice to the Administrative Committee, a reconsideration by the
Administrative Committee of the decision denying the claim. If the
claimant or duly authorized representative fails to request such a
reconsideration within such sixty (60) day period, it shall be
conclusively determined for all purposes of the Plan that the denial of
such claim by the Administrative Committee is correct. If such claimant
or duly authorized representative requests a reconsideration within
such sixty (60) day period, the claimant or duly authorized
representative shall have thirty (30) days after filing a request for
reconsideration to submit additional written material in support of the
claim, review pertinent documents, and submit issues and comments in
writing.
17.
<PAGE>
(b) After such reconsideration request, the
Administrative Committee shall determine within sixty (60) days of
receipt of the claimant's request for reconsideration whether such
denial of the claim was correct and shall notify such claimant in
writing of its determination. The written notice of decision shall be
in writing and shall include specific reasons for the decision, written
in a manner calculated to be understood by the claimant, as well as
specific references to the pertinent Plan provisions on which the
decision is based. In the event of special circumstances determined by
the Administrative Committee, the time for the Administrative Committee
to make a decision may be extended by an additional sixty (60) days
upon written notice to the claimant prior to the commencement of the
extension.
8.5 Arbitration. Any decision of the Administrative Committee
may be appealed to arbitration, pursuant to the arbitration procedure provided
for in the Participant's Employment Agreement.
8.6 Employer to Supply Information. To enable the
Administrative Committee to perform its functions, the Employer shall supply
full and timely information to the Administrative Committee and to the
Participant of all matters relating to the retirement, death or other cause for
termination of employment of the Participant, and such other pertinent facts as
the Administrative Committee or the Participant may require.
18.
<PAGE>
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
9.1 Amendment. The Administrative Committee may at any time
amend the Plan by written instrument with the Participant's written consent and
the written consent of any Beneficiaries to whom a benefit is due, subject to
the following:
(a) Preservation of Account Balance. No amendment shall
reduce the amount accrued in the Participant's Account to the
date such notice of the amendment is given.
(b) Changes in Earnings Rate. No amendment shall reduce the
Rate of Return to be credited after the date of the amendment to
the amount already accrued in the Account and any Deferred
Compensation credited to the Account under Deferral Commitments
already in effect on that date.
9.2 Termination. The Compensation Committee may at any time
partially or completely terminate the Plan with the Participant's written
consent, if, in the Compensation Committee's judgment, the tax, accounting or
other effects of the continuance of the Plan, or potential payments thereunder
would not be in the best interests of the Employer and the Participant.
(a) Partial Termination. With the Participant's written
consent, the Compensation Committee may partially terminate the
Plan by instructing the Administrative Committee not to accept
any additional Deferral Commitments. If such a partial
termination occurs, the Plan shall continue to operate and be
effective with regard to Deferral Commitments entered into prior
to the effective date of such partial termination.
19.
<PAGE>
(b) Complete Termination. With the Participant's written
consent, the Compensation Committee may completely terminate the
Plan by instructing the Administrative Committee not to accept
any additional Deferral Commitments, and by terminating all
ongoing Deferral Commitments. If such a complete termination
occurs, the Plan shall cease to operate and the Employer shall
pay out the Account. Payment shall be made in substantially equal
annual installments over the following period, based on the
Account balance:
Account Balance Payout Period
Less than $1 00,000 Lump Sum
$100,000 but less than $500,000 3 Years
More than $500,000 5 Years
Payments shall commence within sixty (60) days after the
Compensation Committee terminates the Plan and earnings shall continue to be
credited on the unpaid Account balance.
ARTICLE X
MISCELLANEOUS
10.1 Unfunded Plan. The Plan is an unfunded plan maintained
primarily to provide deferred compensation benefits for a select group of
"management or highly compensated employees" within the meaning of Sections 201,
301 and 401 of ERISA, and therefore is exempt from the provisions of Parts 2, 3
and 4 of Title I of ERISA.
10.2 Unsecured General Creditor. The Participant and his
Beneficiaries shall be unsecured general creditors, with no secured or
preferential right to any assets of the Employer or any other party for payment
of benefits under the Plan. Any life insurance policies, annuity contracts or
other property purchased by the Employer in connection with the Plan shall
remain
20.
<PAGE>
its general, unpledged and unrestricted assets. The Employer's obligation under
the Plan shall be an unfunded and unsecured promise to pay money in the future.
10.3 Trust Fund. At its discretion, the Employer may establish
one (1) or more trusts, with such trustees as the Compensation Committee may
approve, for the purpose of providing for the payment of benefits owed under the
Plan. Although such a trust shall be irrevocable, its assets shall be held for
payment of all the Company's general creditors in the event of insolvency or
bankruptcy. To the extent any benefits provided under the Plan are paid from any
such trust, the Employer shall have no further obligation to pay them. If not
paid from the trust, such benefits shall remain the obligation of the Employer.
10.4 Nonassignability. Neither the Participant nor any other
person shall have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt the amounts, if any, payable hereunder, or any part
thereof, which are, and all rights to which are, expressly declared to be
unassignable and nontransferable. No part of the amounts payable shall, prior to
actual payment, be subject to seizure or sequestration for the payment of any
debts, judgments, alimony or separate maintenance owed by the Participant or any
other person, nor be transferable by operation of law in the event of the
Participant's or any other person's bankruptcy or insolvency.
10.5 Not a Contract of Employment. The Plan shall not
constitute a contract of employment between the Employer and the Participant.
Nothing in the Plan shall give the Participant the right to be retained in the
service of the Employer or to interfere with the right of the Employer to
discharge the Participant pursuant to the Participant's Employment Agreement.
21.
<PAGE>
10.6 Protective Provisions. The Participant will cooperate
with the Employer by furnishing any and all information requested by the
Employer in order to facilitate the payment of benefits hereunder, and by taking
such physical examinations as the Employer may deem necessary and taking such
other action as may be requested by the Employer.
10.7 Governing Law. The provisions of the Plan shall be
construed and interpreted according to the laws of the Commonwealth of
Pennsylvania, except as preempted by ERISA or other federal law.
10.8 Validity. In case any provision of the Plan shall be held
illegal or invalid for any reason, said illegality or invalidity shall not
affect the remaining parts hereof, but the Plan shall be construed and enforced
as if such illegal and invalid provision had never been inserted herein.
10.9 Notice. Any notice required or permitted under the Plan
shall be sufficient if in writing and hand delivered or sent by registered or
certified mail. Such notice shall be deemed as given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification. Mailed notice to the Administrative
Committee shall be directed to the Company's address. Mailed notice to the
Participant or Beneficiary shall be directed to the individual's last known
address in the Employer's records.
10.10 Successors. The provisions of the Plan shall bind and
inure to the benefit of the Employer and its successors and assigns. The term
successors as used herein shall include any corporate or other business entity
which shall, whether by merger, consolidation, purchase or otherwise, acquire
all or substantially all of the business and assets of the Employer, and
successors of any such corporation or other business entity.
22.
<PAGE>
MK RAIL CORPORATION
Dated , 1996 By
Its
23.
<PAGE>
EXHIBIT B (Cont.)
TRUST AGREEMENT
TRUST UNDER DEFERRED COMPENSATION PLAN FOR
MICHAEL A. WOLF
(a) This Agreement made this day of 1996 by and ----------
- ----------------------- between M. K. RAIL CORPORATION ("Company") and
("Trustee");
(b) WHEREAS, Company has adopted a nonqualified deferred
compensation plan (the "Deferred Compensation Plan") for Michael A. Wolf (the
"Participant");
(c) WHEREAS, Company has incurred or expects to incur
liability under the terms of such Deferred Compensation Plan with respect to the
Participant;
(d) WHEREAS, Company wishes to establish a trust (hereinafter
called "Trust") and to contribute to the Trust assets that shall be held
therein, subject to the claims of Company's creditors in the event of Company's
Insolvency, as herein defined, until paid to the Participant and his
beneficiaries in such manner and at such times as specified in the Deferred
Compensation Plan;
(e) WHEREAS, it is the intention of the parties that this
Trust shall constitute an unfunded arrangement and shall not affect the status
of the Deferred Compensation Plan as an unfunded plan maintained for the purpose
of providing deferred compensation for a select group of management or highly
compensated employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974; and
1.
<PAGE>
(f) WHEREAS, it is the intention of Company to make
contributions to the Trust to provide itself with a source of funds to assist it
in the meeting of its liabilities under the Deferred Compensation Plan;
NOW THEREFORE, the parties do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust
(a) Company hereby deposits with Trustee in trust $ ,
which shall become the principal of the Trust to be held,
administered and disposed of by Trustee as provided in this
Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust of
which Company is the grantor, within the meaning of subpart
E, part 1, subchapter J, chapter 1, subtitle A of the
Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust and any earnings thereon
shall be held separate and apart from other funds of Company
and shall be used exclusively for the uses and purposes of
the Participant and general creditors as herein set forth.
The Participant and his beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in,
any assets of the Trust. Any rights created under the
Deferred Compensation Plan and this Trust Agreement shall be
mere unsecured contractual rights of the Participant and his
beneficiaries against Company. Any assets held by the Trust
will be subject to the claims of Company's general creditors
under federal and state law in the event of Insolvency, as
defined in Section 3(a) herein.
2.
<PAGE>
(e) Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other property in trust with
Trustee to augment the principal to be held, administered and disposed of by
Trustee as provided in this Trust Agreement. Neither Trustee nor the Participant
or his beneficiaries shall have any right to compel such additional deposits.
(f) Upon a Change in Control, Company shall, as soon as
possible, but in no event longer than 30 days following the Change in Control,
as defined herein, make an irrevocable contribution to the Trust in an amount
that is sufficient to pay the Participant or his beneficiary the benefits to
which the Participant or his beneficiaries would be entitled pursuant to the
terms of the Deferred Compensation Plan as of the date on which the Change in
Control occurred.
For purposes of this Trust, the term Change in Control shall
have the same meaning as in the Participant's Employment Agreement with Company.
Section 2. Payments to the Participant and His Beneficiaries
(a) Company shall deliver to Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of the Participant (and
his beneficiaries), that provides a formula or other instructions acceptable to
Trustee for determining the amounts so payable, the form in which such amount is
to be paid (as provided for or available under the Deferred Compensation Plan),
and the time of commencement for payment of such amounts. Except as otherwise
provided herein, Trustee shall make payments to the Participant and his
beneficiaries in accordance with such Payment Schedule. Trustee shall make
provision for the reporting and withholding of any federal, state or local taxes
that may be required to be withheld
3.
<PAGE>
with respect to the payment of benefits pursuant to the terms of the Deferred
Compensation Plan and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported, withheld and paid
by Company.
(b) The entitlement of the Participant or his beneficiaries to
benefits under the Deferred Compensation Plan shall be determined by Company or
such party as it shall designate under the Deferred Compensation Plan, and any
claim for such benefits shall be considered and reviewed under the procedures
set out in the Deferred Compensation Plan.
(c) Company may make payment of benefits directly to the
Participant or his beneficiaries as they become due under the terms of the
Deferred Compensation Plan. Company shall notify Trustee of its decision to make
payment of benefits directly prior to the time amounts are payable to the
Participant or his beneficiaries. In addition, if the principal of the Trust,
and any earnings thereon, are not sufficient to make payments of benefits in
accordance with the terms of the Deferred Compensation Plan, Company shall make
the balance of each such payment as it falls due. Trustee shall notify Company
where principal and earnings are not sufficient.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
When Company Is Insolvent
(a) Trustee shall cease payment of benefits to the Participant
and his beneficiaries if Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay
its debts as they become due, or (ii) Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code.
4.
<PAGE>
(b) At all times during the continuance of this Trust, as
provided in Section l(d) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of Company under federal and state law as
set forth below.
(1) The Board of Directors and the Chairman of the Board of
Company shall have the duty to inform Trustee in writing of
Company's Insolvency. If a person claiming to be a creditor of
Company alleges in writing to Trustee that Company has become
Insolvent, Trustee shall determine whether Company is Insolvent
and, pending such determination, Trustee shall discontinue
payment of benefits to the Participant or his beneficiaries.
(2) Unless Trustee has actual knowledge of Company's
Insolvency, or has received notice from Company or a person
claiming to be a creditor alleging that Company is Insolvent,
Trustee shall have no duty to inquire whether Company is
Insolvent. Trustee may in all events rely on such evidence
concerning Company's solvency as may be furnished to Trustee and
that provides Trustee with a reasonable basis for making a
determination concerning Company's solvency.
(3) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to the Participant
or his beneficiaries and shall hold the assets of the Trust for
the benefit of Company's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of the Participant
or his beneficiaries to pursue their rights as general creditors
of Company with respect to benefits due under the Deferred
Compensation Plan or otherwise.
5.
<PAGE>
(4) Trustee shall resume the payment of benefits to the
Participant or his beneficiaries in accordance with Section 2 of
this Trust Agreement only after Trustee has determined that
Company is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
Participant or his beneficiaries under the terms of the Deferred Compensation
Plan for the period of such discontinuance, less the aggregate amount of any
payments made to the Participant or his beneficiaries by Company in lieu of the
payments provided for hereunder during any such period of discontinuance.
Section 4. Payments to Company
Except as provided in Section 3 hereof, Company shall have no
right or power to direct Trustee to return to Company or to divert to others any
of the Trust assets before all payments of benefits have been made to the
Participant and his beneficiaries pursuant to the terms of the Deferred
Compensation Plan.
Section 5. Investment Authority
(a) The assets of the Trust may be invested and reinvested
in common and preferred stocks, shares, or certificates of
participation issued by investment companies, investment trusts,
and mutual funds, common or pooled investment funds, bonds,
debentures, insurance and annuity contracts, limited partnership
interests, obligations of governmental bodies, both domestic and
foreign, notes, commercial paper, certificates of deposit, and
other securities or evidences of indebtedness, secured or
unsecured, including variable amount notes, convertible
6.
<PAGE>
securities of all types and kinds, interest-bearing savings or deposit accounts
with any federally insured bank or trust company (including Trustee), or any
federally insured savings and loan association, and-any other property permitted
as trust investments under applicable law.
(b) Trustee has the power to hold any or all securities or
property in Trustee's name, as Trustee, or in the name of a
nominee or nominee of an affiliate, and in accounts or deposits
administered in any location by Trustee or any affiliate of
Trustee. In the event the same are held in its own name or in the
name of a nominee or nominees, suitable designation is to be made
upon the books and records of Trustee that said securities or
property are so held as part of any trusts hereunder.
(c) In no event may Trustee invest in securities (including
stock or rights to acquire stock) or obligations issued by
Company, other than a de minimis amount held in common investment
vehicles in which Trustee invests. All rights associated with
assets of the Trust shall be exercised by Trustee or the person
designated by Trustee, and shall in no event be exercisable by or
rest with the Participant.
Section 6. Disposition of Income
During the term of this Trust, all income received by the
Trust, net of expenses and taxes, shall be accumulated and reinvested.
Section 7. Accounting by Trustee
Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
Company and Trustee. Within 30 days following the
7.
<PAGE>
close of each calendar year and within 30 days after the removal or resignation
of Trustee, Trustee shall deliver to Company a written account of its
administration of the Trust during such year or during the period from the close
of the last preceding year to the date of such removal or resignation, setting
forth all investments, receipts, disbursements and other transactions effected
by it, including a description of all securities and investments purchased and
sold with the cost or net proceeds of such 'purchases or sales (accrued interest
paid or receivable being shown separately), and showing all cash, securities and
other property held in the Trust at the end of such year or as of the date of
such removal or resignation, as the case may be.
Section 8. Responsibility of Trustee
(a) Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by Company which is contemplated by, and
in conformity with, the terms of the Deferred Compensation Plan or this Trust
and is given in writing by Company. In the event of a dispute between Company
and a party, Trustee may apply to a court of competent jurisdiction to resolve
the dispute.
(b) Trustee may consult with legal counsel (who may also be
counsel for Company generally) with respect to any of its duties or obligations
hereunder.
(c) Trustee shall have, without exclusion, all powers
conferred on Trustees by applicable law, unless expressly provided otherwise
herein; provided, however, that if an insurance policy is held as an asset of
the Trust Trustee shall have no power to name a
8.
<PAGE>
beneficiary of the policy other than the Trust to assign the policy (as distinct
from conversion of the policy to a different form) other than to a successor
Trustee, or to loan to any person the proceeds of any borrowing against such
policy.
(d) Notwithstanding any powers granted to Trustee pursuant to
this Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
(e) Trustee, its affiliates, their officers, directors,
employees and agents, shall not be liable for any act or omission of Company,
any investment manager (other than an investment manager affiliated with
Trustee), or any officer, director, employee or agent of any of them (other than
an officer, director, employee or agent of an investment manager affiliated with
Trustee).
Section 9. Compensation and Expenses of Trustee
Company shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
Trustee shall be entitled to receive compensation for its
services hereunder, to be determined from time to time by the application of the
schedule of fees as published by Trustee and in effect at the time such fees are
charged for trusts of a similar size and character, and in the event that
Trustee shall be called upon to render any extraordinary services, it shall be
entitled to additional compensation therefor.
9.
<PAGE>
Section 10. Resignation and Removal of Trustee
(a) Trustee may resign at any time by written notice to
Company, which shall be effective 30 days after receipt of such notice unless
Company and Trustee agree otherwise.
(b) Trustee may be removed by Company on 30 days notice or
upon shorter notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment of
a successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 30 days after receipt
of notice of resignation, removal or transfer, unless Company extends the time
limit.
(d) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 1.1 hereof, by the effective date of
resignation or removal under paragraph(s) (a) or (b) of this section. If no such
appointment has been made, Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses of
Trustee in connection with the proceeding shall be allowed as administrative
expenses of the Trust.
Section 11. Appointment of Successor
If Trustee resigns or is removed in accordance with Section I
0(a) or (b) hereof, Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace Trustee upon resignation or removal. 'Me
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee, including
ownership
10.
<PAGE>
rights in the Trust assets. The former Trustee shall execute any instrument
necessary or reasonably requested by Company or the successor Trustee to
evidence the transfer.
Section 12. Amendment or Termination
(a) This Trust Agreement may be amended by a written
instrument executed by Trustee and Company. Notwithstanding the foregoing, no
such amendment shall conflict with the terms of the Deferred Compensation Plan
or shall make the Trust revocable after it has become irrevocable in accordance
with Section I (b) hereof.
(b) The Trust shall not terminate until the date on which the
Participant and his beneficiaries are no longer entitled to benefits pursuant to
the terms of the Deferred Compensation Plan. Upon termination of the Trust, any
assets remaining in the Trust shall be returned to Company.
(c) Upon written approval of the Participant or his
beneficiaries entitled to payment of benefits pursuant to the terms of the
Deferred Compensation Plan, Company may terminate this Trust prior to the time
all benefit payments under the Deferred Compensation Plan have been made. All
assets in the Trust at termination shall be returned to Company.
Section 13. Miscellaneous
(a) Any provisions of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition, without invalidating
the remaining provisions thereof.
(b) Benefits payable to the Participant and his beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged,
11.
<PAGE>
encumbered or subjected to attachment, garnishment, levy, execution or other
legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of Michigan.
Section 14. Effective Date
The effective date of this Trust Agreement shall be_____ 1996.
IN WITNESS OF WHICH, Company and Trustee have executed this
Trust Agreement by their duly authorized officers.
MK RAIL CORPORATION
By
Its
PNC BANK, NATIONAL ASSOCIATION
By
Its: Trustee
12.
<PAGE>
Exhibit 10.61
AMENDMENT TO THE CREDIT AGREEMENT
BANCOMER, S.A., MULTIPLE BANKING INSTITUTION,
BANCOMER FINANCIAL GROUP
(BANCOMER)
MK GAIN, S.A. DE C.V.
(BORROWER)
Translated from Spanish by
Latin American Trade Finance, Ltd.
<PAGE>
INDEX
DECLARATIONS.............................................................1
I. Declarations of the Borrower....................................1
II. Declarations of Bancomer........................................2
CLAUSES 2
Clause 1. Amendment to the Credit Agreement................2
Clause 2. Validity and Legal Effect of the Credit
Agreement........................................2
Clause 3. Definition of Terms..............................3
Clause 4. Modifications to the Credit Agreement............3
A. Modifications to Paragraph N. of Clause 1.......................3
B. Modifications to Paragraph U. of Clause 1.......................3
C. Modifications to Paragraph DD. of Clause 1......................3
D. Modifications to Paragraph FF. of Clause 1......................4
E. Modifications to Clause 5.......................................4
F. Modifications to Paragraph H. of Clause 7.......................4
G. Modifications to Paragraph F. of Clause 8.......................4
H. Modifications to Paragraph C. of Clause 12......................5
I. Modifications to Paragraph T. of Clause 18......................6
J. Modifications to Paragraph W. of Clause 18......................7
K. Addition of Paragraph X. of Clause 18...........................8
L. Modifications to Paragraph I. of Clause 20......................8
M. Modifications to Paragraph O. of Clause 20......................8
N. Modifications to Paragraph R. of Clause 20......................9
O. Addition of Paragraphs Z.,AA. and BB. of Clause 20..............9
P. Modifications to Paragraph B. of Clause 30......................9
Q. Modifications to Annex "F" Financial Ratios.....................10
R. Modifications to Annex "H" Shop Improvements....................10
S. Modifications to Annex "I" Calculation of Success Commission....10
T Modifications to Annex "J" Maintenance Contract.................10
Clause 5 Commissions.....................................................10
Clause 5. Governing Law....................................10
Clause 6. Jurisdiction.....................................10
ANNEX "A" COPY OF THE CREDIT AGREEMENT
ANNEX "B" FINANCIAL RATIOS
ANNEX "C" MODIFICATIONS TO ANNEX "H" PROGRAM OF
SHOP IMPROVEMENTS
ANNEX "D" MODIFICATIONS TO ANNEX "I" METHOD FOR CALCULATION OF
SUCCESS COMMISSION
ANNEX "E" MODIFICATIONS TO ANNEX "J" MODIFICATIONS OF
MAINTENANCE CONTRACT
<PAGE>
AMENDMENT TO THE CREDIT AGREEMENT
------------------------------------------------------
Amendment Agreement to the Credit Agreement signed on December 13, 1996
by and between:
(i) Bancomer, S.A., Multiple Banking Institution, Bancomer Financial
Group, a credit institution constituted and existing under the laws of the
United Mexican States (identified hereinafter as "Bancomer"), and
(ii) MK Gain, S.A. de C.V., a corporation constituted and existing
under the laws of the United Mexican States (identified hereafter as the
"Borrower").
in accordance with the following declarations and clauses:
DECLARATIONS
I. Borrower's Recitals. Borrower states that:
a) It is a corporation organized under the laws of the United Mexican
States with full capacity under its by-laws to execute this Agreement and to
undertake its obligations as established hereunder, as evidenced by Public Deed
No. 23 granted on January 26, 1994, before Mr. Jose Luis Cardenas Davila, Notary
Public No. 12 in and for Sabinas, Coahuila, whose first public deed was
inscribed in the Public Property Registry of Sabinas, State of Coahuila, under
number 1,771, 10th volume, 3rd book, commercial section, on January 27, 1994,
and the Public Deed No. 22,796 granted on July 5, 1995 before Mr. Carlos A.
Duran Loera, Public Notary No. 11 of the Federal District, whose first public
deed was inscribed in the Public Registry of Commerce of Mexico City, D.F. on
page number 20,849 dated June 24, 1996.
b) Its representatives are duly empowered and have full legal capacity
to execute this Agreement on its behalf and representation, without
modification, restriction or revocation as of the date of this Agreement, as
evidenced by a copy, certified by the Secretary of the Board of Directors of the
Borrower, of the minutes dated December 11, 1996, of the resolution taken by the
Board of Directors of the Borrower to grant the necessary powers of attorney to
enter into this Amendment Agreement.
c) That on July 6, 1995 it entered into a credit agreement with
Bancomer (hereinafter referred to as the Credit Agreement) of which a copy is
attached hereto as Annex "A".
d) It has requested from Bancomer a Loan Disbursement (as such term is
defined in the Credit Agreement) for an amount greater than the Credit Agreement
allows to be made in one Disbursement of the Credit.
II. Bancomer's Recitals. Bancomer states that:
a) It is a credit institution duly organized and validly existing under
the laws of the United Mexican States and is fully empowered to execute this
Agreement, as evidenced by Public Deed No. 8525 granted on October 8, 1945,
before Mr. Tomo s O'Gorman, Notary Public No. 1 of the Federal District with
first public deed written under Folio No. 53, Page 310, Volume 207, Book 3 of
the Public Registry of Commerce, Federal District.
b) That its representative has the sufficient legal capacity and
authorization to enter into this Agreement on its behalf and representation,
without having been modified, restricted or revoked as of the date of execution
of this Agreement, as evidenced by (i) Public Deed No. 20,373, granted on April
21, 1994, before Mr. Rogelio Magana Luna, Notary Public No. 56 of the Federal
District, whose first public deed was inscribed under number 23,900, page 12 of
volume 268 of the Public Registry of Property and Commerce of the city of San
Luis Potasi, San Luis Potasi.
c) That for the purpose of clarifying some terms used in the Credit
Agreement and some of the obligations of the parties thereto, it wishes to enter
into this Amendment Agreement to the Credit Agreement.
d) That it has received from the borrower a request to make a Loan
Disbursement for an amount greater than as permitted by the Credit Agreement in
one Loan Disbursement.
NOW THEREFORE, in consideration of the foregoing declarations, the
parties hereto agree to the following:
CLAUSES
Clause 1. Modification to the Credit Agreement. Bancomer and the
Borrower, by means of this Amendment Agreement expressly agree to modify and
hereby do modify the Credit Agreement, under the terms established in this
Amendment Agreement.
Clause 2. Validity and Legal Effect of the Credit Agreement. Bancomer
and the Borrower expressly provide and agree that with respect to all terms and
conditions of the Credit Agreement not expressly modified by this Amendment, all
such terms and conditions will continue to be in full force and effect in the
manner that they were initially agreed. Furthermore, the parties expressly agree
that under no circumstances should this Amendment be interpreted as a novation
of the obligations of the parties under the Credit Agreement, and therefore the
parties ratify in all aspects the provisions of the Credit Agreement not
modified by means of this Amendment.
Clause 3. Definition of Terms. The terms that are used in the present
Amendment Agreement and that related to the Credit Agreement have the meanings
attributed to them in the Credit Agreement.
Clause 4. Modifications to the Credit Agreement.
A. Modifications to Paragraph N. of Clause 1. Bancomer and the Borrower
agree to modify and hereby do modify Paragraph N. of Clause 1 of the Credit
Agreement, in order to read as follows:
"N. "Maintenance Contract" means the Contract for the Maintenance of
Traction and Haulage Equipment entered into between the Borrower and
Ferrocarriles on March 15, 1994, and the amending agreement to the
contract dated August 30, 1996."
B. Modifications to Paragraph U. of Clause 1. Bancomer and the Borrower
agree to modify and hereby do modify Paragraph U. of Clause 1 of the Credit
Agreement, in order to read as follows:
"U. "Loan Disbursement", means the disbursements of the Credit made by
the Borrower in accordance with the terms of this Agreement; provided
however that: (i) the borrower may make only Loan Disbursement for each
calendar month during the duration of the Disbursement period; (ii) the
first Loan Disbursement may be made for up to the amount of U.S.
$3,000,000.00 (Three Million and 00/100 Dollars); (iii) each one of the
second and subsequent Loan Disbursements shall be in an amount not
greater than $U.S. $1,540,000.00 (One Million Five Hundred Forth
Thousand and 00/100 Dollars); (iv) the dates and amounts of the Loan
Disbursements may only be modified with the prior approval of Bancomer;
and (v) any Loan Disbursement may not be for less than U.S. $100,000.00
(One Hundred Thousand and 00/100 Dollars).
C. Modifications to Paragraph DD. of Clause 1. Bancomer and the
Borrower agree to modify and hereby do modify Paragraph DD. of Clause 1 of the
Credit Agreement, in order to read as follows:
"DD. "Maximum Risk Amount" means the amount of U.S. $27,100,000.00
(Twenty Seven Million One Hundred Thousand and 00/100 Dollars).
D. Modifications to Paragraph FF. of Clause 1. Bancomer and the
Borrower agree to modify and hereby do modify Paragraph FF. of Clause 1 of the
Credit Agreement, in order to read as follows:
"FF. "Financial Ratios", mean the financial ratios set forth in Annex F
to this Agreement and which are to be complied with by the Borrower during the
term of this Agreement."
E. Modifications to Clause 5. Bancomer and the Borrower agree to modify
and hereby do modify Clause 5 of the Credit Agreement, in order to read as
follows:
"Clause 5. Loan Disbursements. During the Loan Disbursement Period
provided in Clause 4 above, the Borrower shall notify Bancomer in
writing with five (5) Business Days Notice of its intention to make a
Loan Disbursement, specifying (i) the amount of the Loan Disbursement,
and (ii) the Disbursement Date. Provided that all the conditions
precedent set forth in (i) of this Agreement, for the first Loan
Disbursement and (ii) in Clause 8, for subsequent Loan Disbursements,
have been duly satisfied and the Note or Notes referred to in Clause 6
of this Agreement are in terms and conditions which are satisfactory to
Bancomer, Bancomer shall disburse to the Borrower the Loan Disbursement
on the Disbursement Date requested by the Borrower, by means of
depositing the respective funds precisely in Dollars to the bank
account and in accordance with the instructions provided to the bank by
Bancomer for such purpose in the notice referred to in this Clause".
F. Modifications to Paragraph H. of Clause 7. Bancomer and the Borrower
agree to modify and hereby do modify Paragraph H. of Clause 7 of the Credit
Agreement, in order to read as follows:
"H. That Bancomer shall have received, to its complete satisfaction the
Ferrocarriles certificate with respect to the first Loan Disbursement,
confirming that Farrocarriles has (i) received and inspected the works
and services mentioned therein, and (ii) agrees that the works and
services mentioned therein shall serve as a basis for determining One
Hundred Percent of the termination value to be calculated in accordance
with Annex B of the Ferrocarriles Agreement."
G. Modifications to Paragraph F. of Clause 8. Bancomer and the Borrower
agree to modify and hereby do modify Paragraph F. of Clause 8 of the Credit
Agreement, in order to read as follows:
"F. That Bancomer shall have received, to its complete satisfaction the
Ferrocarriles certificate with respect to the second and subsequent
Loan Disbursements, confirming that Farrocarriles has (i) received and
inspected the works and services mentioned therein, and (ii) agrees
that the works and services mentioned therein shall serve as a basis
for determining One Hundred Percent of the termination value to be
calculated in accordance with Annex B of the Ferrocarriles Agreement."
H. Modifications to Paragraph C. of Clause 12. Bancomer and the
Borrower agree to modify and hereby do modify Paragraph C. of Clause 12. of the
Credit Agreement, in order to read as follows:
"C. The Success Commission in an amount totaling US$950,000 (Nine
Hundred Fifty Thousand and 00/100 Dollars) payable in 12 semiannual
installments, (i) the first of which is to be paid in the amount of
US$90,000.00 (Ninety Thousand Dollars), and (ii) the 11 (eleven)
remaining payments of this commission, each of which will be in the
amount of US$75,000.00 (Seventy Five Thousand Dollars) will be paid on
the 15th day of the months of August and February of each calendar
year; with the understanding that:
(I) the first payment of the Success Fee will be made on the
date which occurs on the later of: (y) the 30th of December, 1996, or
(z) the date on which the Borrower disburses part or all of the amount
of US$2,720,000.00 (Two Million Seven Hundred Twenty Thousand 00/100
Dollars) in one single Loan Disbursement in accordance with the prior
authorizations and waivers that Bancomer requires under the Contract;
provided, however, that if the Loan Disbursement in the amount of
US$2,720,000.00 (Two Million Seven Hundred Twenty Thousand 00/100
Dollars) is not made on the respective Drawdown Date for reasons caused
by the Borrower, the Borrower shall pay the first payment of the
Success Fee on December 30, 1996 provided that the Line of Credit is
open and available to Bancomer;
(ii) the last payment of the Success Fee will be on August 15,
2002;
(iii) if the Borrower elects to prepay the Loan in full in
accordance of Clause 10 of this Agreement, then the Borrower shall
prepay to Bancomer on such date and in one lump sum an amount equal to
the sum of all amounts relating to the Success Fee payable after the
date on which the Borrower makes the full prepayment of the Loan,
calculated in accordance with Annex I of this Agreement;
(iv) if Bancomer accelerates the term for payment of the Loan
in accordance with Clause 10 of this Agreement, then it shall be
understood that the Success Fee shall not be paid by the Borrower;
except that if Bancomer shall accelerate the term for payment for the
Loan because of (y) any Event of Acceleration whose existence has been
caused intentionally caused by the Borrower with the intent of avoiding
payment of the Success Fee, or (z) whose existence could be have been
reasonably avoided by the Borrower, then the Borrower shall pay to
Bancomer, on the date on which Bancomer accelerates the term for
payment of the Loan in one lump sum, an amount equal to the sum of all
amounts relating to the Success Fee payable subsequent to the date on
which the Borrower makes full prepayment of the Loan calculated in
accordance with Annex I of this Agreement;
(v) any dispute which arises with respect to the determination
by Bancomer as to whether (y) the Borrower has intentionally caused an
Event of Acceleration in order to avoid payment of the Success Fee, or
(z) the Borrower could have reasonably avoided an Event of
Acceleration, the same shall be resolved in a definitive and final
manner through an arbitration carried out under the Rules of
Conciliation and Arbitration of the International Chamber of Commerce
of Paris. This Arbitration shall be carried out three (3) arbitrators
designated by the parties within ten (10) calendar days after the date
on which either of the parties shall notify the other of its request
that the dispute be submitted to arbitration and shall specify the
subject matter of the dispute and any other relevant fact. The party in
whose favor the arbitration award shall be made shall have the right to
receive from the other party payment of all costs and expenses that
have been incurred in relation to the arbitration.
Bancomer shall designate one (1) of the arbitrators,
the Borrower shall designate an additional arbitrator and these two (2)
arbitrators shall designate a third arbitrator. If the first two
arbitrators designated doe not agree on the designation of a third
arbitrator within a period of ten (10) calendar days after their
designation, or if either of the parties does not designate an
arbitrator, then the arbitrator or arbitrators who have not been
designated in this manner shall be designated by the International
Chamber of Commerce of Paris.
The arbitration procedure shall be carried out in
Mexico, shall be held in English and in accordance with the laws of
Mexico;
(vi) if any day on which payment of the Success Fee is to be
made shall be on a day which is not a business day, then the respective
payment of the Success Fee shall be made on the immediately preceding
business day, and
(vii) in case of delay in the prompt and full payment of any
amount of the Success Fee on the date when due and payable under this
Clause, the amount not paid shall bear penalty interest from the date
it is due until the date on which it is paid in full, payable on demand
at the Penalty Interest Rate.
I. Modifications to Paragraph T. of Clause 18. Bancomer and the
Borrower agree to modify and hereby do modify Paragraph T. of Clause 18 of the
Credit Agreement, in order to read as follows:
"T. Maintain the Reserve Fund during the term of this Agreement with a
minimum average monthly balance equal to the greater of (i) ten percent
(10%) of the unpaid principal balance of the Loan on the date on which
the balance of the Reserve Fund is to be determined, and (ii) the sum
of all amounts of principal and interest under the Loan due and payable
by the Borrower to Bancomer on the Interest Payment Dates and Principal
Payments Dates falling within one hundred fifty (150) calendar days
after the date on which the balance in the Reserve Fund is to be
determined, times one point twenty five (1.25)."
J. Modifications to Paragraph W. of Clause 18. Bancomer and the
Borrower agree to modify and hereby do modify Paragraph W. of Clause 18 of the
Credit Agreement, in order to read as follows:
"W. Fails to:
(I) pay dividends without the prior written consent of
Bancomer;
(ii) make payments in any amount with respect to the MK Rail
Debt, without the prior written consent of Bancomer;
(iii) reduce its paid in capital;
(iv) modify its by-laws or change its business purpose;
(v) enter into liquidation or dissolution;
(vi) take or fail to take any action when such taking or
failure to take shall result in the acceleration for the compliance
with any of its contractual obligations;
(vii) acquire Indebtedness for (i) an amount greater than
individually or in the aggregate amounts to U.S. $1,000,000.00 (One
Million and 00/100 Dollars) or its equivalent in any other currency, or
(ii) has a term greater than the one (1) year, without the prior
written approval of Bancomer except for obligations generated by law or
in the normal course of business;
(viii) modify or waive any right granted by the Maintenance
Contract and/or the Trust, without the prior written consent of Bancomer which
consent shall not be unreasonably withheld by Bancomer; except for modifications
to the Maintenance Agreement that the Borrower shall agree with Ferrocarriles in
terms which are substantially similar to the terms of the document attached to
this Agreement as Annex J and as long as such modifications are formalized in a
legal manner.
(ix) setoff in any way any amount which is owed to it under
the Maintenance Agreement; provided that (i) if Ferrocarriles shall make a
setoff against any of the Borrower's invoices for an amount greater than ten
percent (10%) of such invoice, the Borrower shall obtain from Bancomer within
thirty (30) calendar days after the date on which such setoff has occurred,
Bancomer's approval in writing for this setoff, and (ii) if the Borrower shall
not obtain the authorization from Bancomer specified in clause (i) above within
such period, Bancomer may declare the existence of an Event of Acceleration."
K. Addition of Paragraph X. to Clause 18. Bancomer and the Borrower
agree to modify and hereby do modify Paragraph X. of Clause 18 of the Credit
Agreement, in order to read as follows:
"X. Maintain a commercial credit account with MK Rail, with respect to
the purchase of materials and equipment from MK Rail or any of its
subsidiaries or affiliates, with a minimum balance equal to the greater
of (i) the sum of U.S. $1,500,000.00 (One Million Five Hundred Thousand
and 00/100 Dollars), and (ii) the amount which corresponds to purchases
of material and equipment from MK Rail in the normal course of its
operation during a period of 45 (forty-five) calendar days; provided
however that if the minimum balance in this account shall be reduced
for any purpose then the Borrower shall be obligated to increase the
minimum balance in the reserve fund up to the amount equal to the sum
of amounts of principal and interest under the Loan due and payable to
the Borrower to Bancomer on the Interest Payment Dates and Principal
Payment Dates, multiplied by one point five (1.5) times; provided,
however, that the commercial credit account shall not be considered as
part of the MK Rail Debt."
L. Modifications to Paragraph I. of Clause 20. Bancomer and the
Borrower agree to modify and hereby do modify Paragraph I. of Clause 20 of the
Credit Agreement, in order to read as follows:
"I. If the Borrower pays dividends, makes payments with respect to the
MK Rail Debt, reduces its paid-in capital, modifies its corporate
purpose or changes its commercial direction, enters into dissolution or
liquidation or merges with another company without the prior written
consent of Bancomer."
M. Modifications to Paragraph O. of Clause 20. Bancomer and the
Borrower agree to modify and hereby do modify Paragraph O. of Clause 20 of the
Credit Agreement, in order to read as follows:
"O. If deviations with respect to the Investment Program of fifteen
percent (15%) with respect to the advancement of investments plus
costs, as set forth in the Investment Program, calculated on a
quarterly basis, and if the same are not clarified by the Borrower
within a period of fifteen (15) Business Days following a request is
made by Bancomer for this purpose; provided, however, that if
Ferrocarriles shall accept these deviations for a difference percentage
then such percentage shall be accepted by Bancomer provided that it
should not be greater than fifteen percent (15%)."
N. Modifications to Paragraph R of Clause 20. Bancomer and the Borrower
agree to modify and hereby do modify Paragraph R. of Clause 20 of the Credit
Agreement, in order to read as follows:
"R. If the Borrower (i) fails to comply with its obligation to maintain
the "availability factor" in accordance with the terms of the
Maintenance Contract, or (ii) fails to comply with any other of its
obligations under the Maintenance Contract for a period of two (2)
consecutive months, in such a way, in the opinion of the Technical
Committee that the respective noncompliance may give to Ferrocarriles
the right to cancel or rescind the Maintenance Contract."
O. Addition of Paragraphs Z., AA. and BB. to Clause 20. Bancomer and
the Borrower agree to modify and hereby do modify Clause 20 of the Credit
Agreement by adding new Paragraphs Z., AA., and BB. to read as follows:
"Z. If the funding of the CIBC Line of Credit is suspended, for any
reason not attributable to Bancomer, for a period greater than 60
(sixty) calendar days and such funding is not renewed."
"AA. If the Borrower does not comply with its obligation to
immediately increase the balance of the Reserve Fund referred to in
paragraph X. of Clause 18 of this Agreement."
"BB. If Ferrocarriles shall make a setoff of any amount which it is to
pay under the Maintenance Agreement against any amount owed in its
favor under any other obligation of the Borrower apart from those
resulting from the Maintenance Agreement."
P. Modifications to Paragraph B of Clause 30. Bancomer and the Borrower
agree to modify and hereby do modify Paragraph B. of Clause 30 of the Credit
Agreement, in order to read as follows:
"B. The Borrower shall pay to Bancomer or to the party designated by
Bancomer, as sight, and without any requirement by Bancomer: (i) up to
the sum of U.S. $80,000.00 (Eight Thousand and 00/100 Dollars) for the
cost of technical supervision of the shops and the income of the Trust
during the first year of this Agreement, and (ii) up to the sum of U.S.
$80,000.00 (Eight Thousand and 00/100 Dollars) for the same purposes
for the following years as long as their exists an unpaid balance of
the Loan; provided, however, that the Technical Committee shall review
the quotations and scopes of services of the Technical Supervisor and
the Financial Supervisor in respect to the period being quoted at least
four (4) months before the beginning of the period for which the
quotation is made, for the purpose of deciding on its acceptance or the
contracting of different providers for similar services in a less
expensive manner for the Borrower. If there is no Agreement on a less
expensive contract as described above, the Borrower shall pay the
amount first written in this paragraph.
The Borrower agrees that in case of delay in the punctual and full
payment of all amounts relating to costs and expenses referred to in
this clause on the date on which they are due and payable in accordance
with the provisions of this clause, the unpaid amount shall accrue
penalty interest from its due date up to the date it is paid in full at
the Penalty Interest Rate."
Q. Modifications to Annex "F" Financial Ratios. Bancomer and the
Borrower agree to modify and hereby do modify Annex "F" Financial Ratios to the
effect that the same shall read as contained in Annex "B" to this Amendment
Agreement.
R. Modifications to Annex "H" Shop Improvements. Bancomer and the
Borrower agree to modify and hereby do modify Annex "H" Shop Improvements to the
effect that the same shall include the 1997 Investment Program in accordance
with the document attached as Annex "C" to this Amendment Agreement.
S. Modifications to Annex "I" Success Commission. Bancomer and the
Borrower agree to modify and hereby do modify Annex "I" Success Commission to
the effect that the same shall read as contained in Annex "D" to this Amendment
Agreement.
T. Modifications to Annex "J" Maintenance Contract. Bancomer and the
Borrower agree to modify and hereby do modify Annex "J" Maintenance Contract to
the effect that the same is edited in the manner contained
in Annex "E" to this Amendment Agreement.
Clause 5. Commissions. The Borrower shall be obligated by means of this
Amendment Agreement to pay to Bancomer a structuring fee in the amount of U.S.
$45,000 (Forty Five Thousand and 00/100 Dollars), payable on the date which is
the earlier of: (i) December 30, 1996, and (ii) the date on which the Borrower
disperses all or a portion of the sum of U.S. $2,720,000.00 (Two Million Seven
Hundred Twenty Thousand and 00/100 Dollars) in accordance with the
authorizations and waivers by Bancomer under the Credit Agreement.
Clause 6. Governing Law. This Amendment Agreement is to be interpreted
in accordance with the laws of the United Mexican States.
Clause 7. Jurisdiction. To all that relates to the interpretation and
compliance of the obligations derived from this Amendment Agreement, the parties
submit irrevocably to the jurisdiction of any competent court or courts in
Mexico City, Federal District, United Mexican States, or any competent court or
courts in the city of San Luis Potosi, San Luis Potosi, United Mexican States,
expressly renouncing any other forum to which they have rights or possess by
virtue of domicile or any other reason.
In witness whereof, the parties to this Agreement have given their
approval and the duly authorized representatives sign as of the date mentioned
in the preamble to this Agreement.
Bancomer:
Bancomer, S.A., Multiple Banking Institution,
Grupo Financiero Bancomer
----------------------------------
By:
Title:
----------------------------------
By:
Title:
Borrower:
MK Gain, S.A. de C.V.
----------------------------------
By:
Title:
<PAGE>
ANNEX "A"
MODIFICATIONS TO ANNEX "F" FINANCIAL RATIOS
<PAGE>
ANNEX "B"
MODIFICATIONS TO ANNEX "H" SHOP IMPROVEMENTS
<PAGE>
ANNEX "C"
MODIFICATIONS TO ANNEX "I" SUCCESS COMMISSION
<PAGE>
ANNEX "D"
MODIFICATIONS TO ANNEX "J" MAINTENANCE CONTRACT
<PAGE>
Exhibit 10.62
LOAN AGREEMENT
BANCOMER, S.A., MULTIPLE BANKING INSTITUTION,
BANCOMER FINANCIAL GROUP
(BANCOMER)
MK GAIN, S.A. DE C.V.
(BORROWER)
U.S.$3,500,000.00
Translated by
Latin American Trade Finance, Ltd.
<PAGE>
TABLE OF CONTENTS
RECITALS 1
I. Borrower's Recitals 2
II. Bancomer's Recitals
SECTIONS 3
Section 1. Certain Definitions 3
-------------------
A. "Additional Income" 3
B. "Agreement" 3
C. "Bancomer CDs" 3
D. "Bancomer CDs Rate" 3
E. "Business Day" 3
F. "CIBC" 4
G. "Comfort Letter" 4
H. "Consolidation Date" 4
I. "Construction and Refurbishing Program" 4
J. "Cost of Funds" 4
K. "Default Rate" 4
L. "Debts" 4
M. "Disbursement Date" 4
N. "Disbursement Period" 5
O. "Dollars" and "U.S.$" 5
P. "Event of Default" 5
Q. "Exhibit" 5
R. "Eximbank Loan Agreement" 5
S. "Ferrocarriles" 5
T. "Ferrocarriles Agreement" 5
U. "Financial Ratios" 5
V. "Financial Supervisor" 5
W. "Funding Rate" 5
X. "Interest Payment Dates" 5
Y. "Interest Period" 6
Z. "Interest Rate" 6
AA. "Libor" 6
BB. "Line of Credit" 6
CC. "Loan" 6
DD. "Loan Disbursements" 6
EE. "Loan Repayment Dates" 7
FF. "Maintenance Agreement" 7
GG. "MK Rail" 7
HH. "MK Rail Debt" 7
II. "PCGA" 7
JJ. "Pesos" 7
KK. "Promissory Notes" 7
LL. "Regulatory Change 7
MM. "Reserve Fund" 8
NN. "Rights for Collection" 8
OO. "Spread" 8
PP. "Subordination Agreement" 8
QQ. "Taxes" 8
RR. "Technical Assistance Agreement" 8
SS. "Technical Committee" 8
TT. "Technical Supervisor" 8
UU. "Technical Supervisor's Certificate" 8
VV. "Trust" 8
Section 2. Amount of the Loan 9
------------------
Section 3. Use of Proceeds 8
Section 4. Disbursement Period 9
Section 5. Loan Disbursement 9
Section 6. Promissory Notes 10
Section 7. Conditions Precedent for the First Loan Disbursement 10
----------------------------------------------------
Section 8. Conditions Precedent for Subsequent Loan Disbursements 12
------------------------------------------------------
Section 9. Payments of Principal 13
Section 10. Prepayment 13
Section 11. Interest 14
Section 12. Commissions 15
Section 13. Alternate Interest Rate 15
Section 14. Increased Costs and Funding Losses 17
----------------------------------
Section 15. Taxes 18
Section 16. Place and Form of Payment 18
----------------- -------
Section 17. Representations & Warranties 19
Section 18. Covenants of the Borrower 20
-------------------------
Section 19. Insurance 24
Section 20. Events of Default 25
Section 21. Trust Guaranty 29
Section 22. Monetary Conversion 29
Section 23. Restriction 30
Section 24. Successors and Assigns 30
Section 25. No Waiver 30
Section 26. Amendments 30
Section 27. Notices 31
Section 28. Governing Law 32
Section 29. Jurisdiction 32
Section 30. Costs and Expenses 32
Section 31. Condition Precedent for Validity of this Agreement 33
--------------------------------------------------
EXHIBIT "A" FERROCARRILES' AGREEMENT
EXHIBIT "B" COMFORT LETTER
EXHIBIT "C" FORM OF TECHNICAL SUPERVISOR'S CERTIFICATE
EXHIBIT "D" SUBORDINATION AGREEMENT
EXHIBIT "E" TRUST
EXHIBIT "F" FINANCIAL RATIOS
EXHIBIT "G" FORM OF PROMISSORY NOTE
EXHIBIT "H" CONSTRUCTION AND REFURBISHING PROGRAM EXHIBIT "I"
AMOUNT OF AMORTIZATION INSTALLMENTS
EXHIBIT "J" AMENDMENT TO THE FNM MAINTENANCE AGREEMENT
<PAGE>
========================================================================
LOAN AGREEMENT
BANCOMER, S.A., MULTIPLE BANKING INSTITUTION,
BANCOMER FINANCIAL GROUP
(BANCOMER)
MK GAIN, S.A. DE C.V.
(BORROWER)
U.S.$3,500,000.00
========================================================================
Translated by
Latin American Trade Finance, Ltd.
<PAGE>
Bancomer, S.A.
MK GAIN, S.A. de C.V.
US$3,500,000 Loan Agreement
LOAN AGREEMENT
-----------------------------------
Loan Agreement, dated as of December 13, 1996, by and among:
(i) Bancomer, S. A., Multiple Banking Institution, Bancomer Financial
Group, a credit institution organized and existing under the laws of the United
Mexican States (hereinafter referred to as "Bancomer"); and
(ii) MK Gain, S. A. de C. V., a corporation organized and existing
under the laws of the United Mexican States (hereinafter referred to as the
"Borrower").
RECITALS
I. Borrower's Recitals. Borrower states that:
a) It is a corporation organized under the laws of the United Mexican
States with full capacity under its by-laws to execute this Agreement and to
undertake its obligations as established hereunder, as evidenced by Public Deed
No. 23 granted on January 26, 1994, before Mr. Jose Luis Cardenas Davila, Notary
Public No. 12 in and for Sabinas, Coahuila, whose first public deed was
inscribed in the Public Property Registry of Sabinas, State of Coahuila, under
number 1,771, 10th volume, 3rd book, commercial section, on January 27, 1994,
and the Public Deed No. 22,796 granted on July 5, 1995 before Mr. Carlos A.
Duran Loera, Public Notary No. 11 of the Federal District, whose first public
deed was inscribed in the Public Registry of Commerce of Mexico City, D.F. on
page number 20,849 dated June 24, 1996.
b) Its representatives are duly empowered and have full legal capacity
to execute this Agreement on its behalf and representation, without
modification, restriction or revocation as of the date of this Agreement, as
evidenced by a copy, certified by the Secretary of the Board of Directors of the
Borrower, of the minutes dated December 11, 1996, of the resolution taken by the
Board of Directors of the Borrower to grant the necessary powers of attorney to
enter into this amending agreement.
c) That on July 6, 1995 it entered into a Loan Agreement with Bancomer
for up to US$30,000,000 (Thirty Million Dollars United States Currency) with
funds guaranteed by the Export-Import Bank of the United States (the "Eximbank
Loan Agreement").
d) Has incorporated the Trust (as such term is hereinafter defined) to
guarantee its obligations hereunder and under this Loan and the Eximbank Loan
Agreement.
e) It has requested from Bancomer the granting of an additional loan
for the financing of improvements to the Ferrocarriles shops (as such term is
hereinafter defined) in accordance with the Maintenance Agreement (as such term
is hereinafter defined).
II. Bancomer's Recitals. Bancomer states that:
a) It is a credit institution duly organized and validly existing under
the laws of the United Mexican States and is fully empowered to execute this
Agreement, as evidenced by Public Deed No. 8525 granted on October 8, 1945,
before Mr. Tomas O'Gorman, Notary Public No. 1 of the Federal District with
first testimony written under Folio No. 53, Page 310, Volume 207, Book 3 of the
Public Registry of Commerce, Federal District.
b) That its representative has the sufficient legal capacity and
authorization to enter into this Agreement on its behalf and representation,
without having been modified, restricted or revoked as of the date of execution
of this Agreement, as evidenced by (i) Public Deed No. 20,373, granted on April
21, 1994, before Mr. Rogelio Magana Luna, Notary Public No. 56 of the Federal
District, whose first deed was inscribed under number 23,900, page 12 of volume
268 of the Public Registry of Property and Commerce of the city of San Luis
Potasi, San Luis Potasi.
c) That it is negotiating with the Canadian Imperial Bank of Commerce,
New York office ("CIBC"), a line of credit for the purpose of granting to the
Borrower the requested loan in accordance with this Agreement, which can be
contracted with Bancomer with CIBC or any other financial institution at the
option of Bancomer (herein after defined as the "Line of Credit"); provided,
however, if Bancomer negotiates the Line of Credit with a financial institution
different from CIBC, then all references to CIBC in this agreement shall be
understood as referring to such other financial institution provided that such
negotiation does not alter terms and conditions as provided in this Agreement,
and subject to the provisions of Clause 31 of this Agreement.
d) That based on the Borrower's declarations, statements and
warranties, it is willing to grant the loan requested by the Borrower, under the
terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the foregoing declarations, the
parties hereto agree to the following:
SECTIONS
Section 1. Certain Definitions. As used in this Agreement, the
following terms shall have the respective meanings set forth below:
A. "Additional Income", means any and all of the Borrower's rights to
collect any kind of fees, consideration or payment for any other services
rendered to any third party in connection with the overhaul of locomotives and
maintenance of other rail equipment, different than the Rights for Collection,
and/or income for any other concept.
B. "Agreement", means this Loan Agreement entered into by Bancomer, as
lender, and the Borrower, as borrower along with its Exhibits.
C. "Bancomer CDs", means certificates of deposit issued by Bancomer,
S.A., London Branch and offered on the London market, as negotiable bearer
instruments transferable without endorsement, which conform to the Bank of
England's guidelines and the British Banker's Association market guidelines for
certificates of deposit on the London market.
D. "Bancomer CDs Rate", means, with respect to any failure to pay on
the part of the Borrower, the average rate, as determined by Bancomer, at which
Bancomer CDs with maturities of ninety (90) days are quoted in the London market
at 11:00 a.m. (London Time) two Business Days prior to the date on which the
Borrower fails to make any payment to Bancomer in accordance with this
Agreement.
E. "Business Day", means any day in which dealings for the deposit of
Dollars are carried out in the London interbank market, and on which banks are
open for business in Mexico City, Federal District, United Mexican States, the
City of New York, New York and in London, England and accept deposits in Dollars
in the London interbank market.
F. "CIBC", will have the meaning ascribed in Declaration II.C of this
Agreement.
G. "Comfort Letter", means the comfort letter dated July 6, 1995,
signed by MK Rail for the benefit of Bancomer, a copy of which is attached to
this Agreement as Exhibit "B".
H. "Consolidation Date", means July 15, 1997 or any other date agreed
by the parties with CIBC.
I. "Construction and Refurbishing Program", means the program for the
construction and refurbishing of Ferrocarriles' workshops and supply centers for
1997 in accordance with the terms and conditions of the Maintenance Agreement, a
copy of which is attached hereto as Exhibit "J".
J. "Cost of Funds", means, with respect to any failure to pay on behalf
of the Borrower, the cost of funds in Dollars to Bancomer, for amounts similar
to the amount created as a result of the failure to pay by the Borrower, for
terms of thirty (30) days, including, but not limited to, costs derived by
virtue of Bancomer's failure to comply with tax reserves for any competent
authority, calculated by Bancomer precisely from the date on which the Borrower
fails to make any payment to Bancomer.
K. "Default Rate", means, with respect to the Loan Disbursements, the
interest rate that results from the higher of: (i) the Bancomer CD's Rule
multiplied by two (2) , and (ii) the Cost of Funds multiplied by two (2). Once
the applicable Default Rate is determined, Bancomer will notify the Borrower of
such Default Rate which will, in the absence of manifest error, be final,
conclusive and obligatory for the Borrower.
L. "Debts", means, with respect to the Borrower, : (i) debts for
amounts of money in Pesos, Dollars or any other currency; (ii) all contingent
liabilities that result from discounting with recourse negotiable instruments;
and (iii) all contingent liabilities that result from any performance bond or
other similar instrument by which contingent responsibilities are assumed for
obligations to third parties.
M. "Disbursement Date", means with respect to each of the Disbursements
of the Loan, the Business Day on which Bancomer disburses the respective
Disbursement of the Loan.
N. "Disbursement Period", shall have the meaning ascribed to such term
in Clause 4 hereto.
O. "Dollars" and "U.S.$", means the legal currency in the United States
of America.
P. "Event of Default", shall have the meaning ascribed to such term in
Section 18 hereof.
Q. "Exhibit", means any writing, list, catalog, drawing, graphic and/or
other document attached to this Agreement, which when referred to by this
Agreement and attached, forms part of this Agreement as if it were inserted
completely in the place of places referenced.
R. "Eximbank Loan Agreement", has the meaning ascribed to it in
Declaration I.c. of this Agreement.
S. "Ferrocarriles", means Ferrocarriles Nacionales de Mexico.
T. "Ferrocarriles Agreement", means the document issued by
Ferrocarriles substantially in the form of the document attached to this
Agreement as Annex A, under which Ferrocarriles confirms, among other things,
its consent to assign the Rights for the Collection of Payments derived from the
Maintenance Contract.
U. "Financial Ratios", means those financial ratios established in
Exhibit "H" to this Agreement and which must be complied with by the Borrower
during the life of this Agreement.
V. "Financial Supervisor" shall have the meaning ascribed to such term
in the Trust.
W. "Funding Rate" means LIBOR plus two and eleven sixteenths percent
(2.6875%).
X. "Interest Payment Dates", means, with respect to each Loan
Disbursement, the 15th day of each of the months of February and August of every
calendar year or any other dates agreed by the parties with CIBC, commencing
from the date of the first Loan Disbursement is made; provided, however that:
(i) the first Interest Payment Date shall be with respect to Loan Disbursements
made prior to the Consolidation Date shall be the Consolidation Date; (ii) the
last Interest Payment Date shall be the last Principal Payment Date, and (iii)
if any of these dates falls on a date which is not a Business Day, then the
corresponding Interest Payment Date shall be the next succeeding Business Day.
Y. "Interest Period", means, with respect to each Disbursement of the
Loan (i) the period that begins on the respective Disbursement Date and ends on,
but does not include, the following Interest Payment Date and (ii) subsequently,
the period that begins on each Interest Payment Date and ends on, but does not
include, the following Interest Payment Date.
Z. "Interest Rate", means, with respect to each Loan Disbursement and
for each Interest Period, the Funding Rate plus the Spread. Once the Interest
Rate applicable for an Interest Period is determined, Bancomer will notify the
Borrower of such Interest Rate, which will, in the absence of manifest error, be
final, conclusive and obligatory for the Borrower.
AA. "Libor", means, (i) for any Interest Period occurring within the
period which begins on the date of signing of this Agreement and ends on the
Consolidation Date and with respect to the unpaid balance of the Loan during
such period, the arithmetic mean (rounded upward, if necessary, to the nearest
1/16 of 1%), as determined by the London CIBC office, of the rates per annum
offered by prime banks in the London interbank market of Dollar deposits for
terms equal to or similar to such Interest Period and in amounts approximately
equal or similar to the principal amount of the respective Loan Disbursement,
payable during such Interest Period at approximately 11:00 am (London time) two
Business Days before the first day of such Interest Period, and (ii) for any
Interest Period occurring from the Consolidation Date and with respect to the
unpaid balance of the Loan from such date, the fixed rate of interest which
results from a determination of the arithmetic average (rounded upward, if
necessary, to the nearest 1/16 of 1%), as determined by the London CIBC office,
of the rates per annum offered by prime banks in the London interbank market of
Dollar deposits for terms equal or similar to 39 (thirty nine) months and in
amounts approximately equal or similar to the unpaid principal balance of the
Loan at approximately 11:00 am (London time) two Business Days before the
Consolidation Date.
BB. "Line of Credit", shall have the meaning ascribed to it in
Declaration II.c) of this Agreement.
CC. "Loan", means up to the full amount of the Loan made by Bancomer to
the Borrower as established in Section 2 of this Agreement under the terms
hereof.
DD. "Loan Disbursements", means the disbursements of the Loan that the
Borrower makes in accordance with the terms of this Agreement; with the
understanding, however, that: (i) the Borrower can only make one disbursement of
the Loan for each calendar month during the Disbursement Period; (ii) the total
amount of the loan shall be disbursed in 3 (three) Loan Disbursements, and (iii)
each of the Loan Disbursements cannot be less than US$1,000,000 (One Million
Dollars).
EE. "Loan Repayment Dates", means, with respect to each Loan
Disbursement, the 15th day of the months of February and August of each calendar
year, or any other date which the parties may agree with CIBC, commencing from
the date on which the first Loan Disbursement is made; provided, however that:
(i) the first Loan Repayment Date shall be August 15, 1997; (ii) the last Loan
Repayment Date cannot fall on a date later than the fifth anniversary of the
Consolidation Date, and (iii) if any of those dates falls on a day other than a
Business Day, then the corresponding Loan Repayment Date shall be the next
succeeding Business Day.
FF. "Maintenance Agreement", means the Maintenance Agreement of
Tractive and Hauling Equipment entered into by and between the Borrower and
Ferrocarriles on March 15, 1994 and the amending agreement thereto dated August
30, 1996, copies of which are attached hereto as Exhibit E.
GG. "MK Rail", means MK Rail Corporation, a Delaware corporation,
United States of America.
HH. "MK Rail Debt", means the financing that as of the present date
equals US$16,551,000.67 (Sixteen Million Five Hundred Fifty One Thousand and One
67/100 Dollars) extended by MK Rail in favor of the Borrower and for which
payment is subordinated to the payment of the Loan and the Eximbank Loan in
accordance with the Subordination Agreement.
II. "PCGA", means the generally accepted Mexican accounting principles,
applied on a basis consistent with the individual and/or, in its case,
consolidated financial information of the Borrower.
JJ. "Pesos" and the sign "$" means the legal currency of the United
Mexican States.
KK. "Promissory Notes", means the Promissory Notes to be subscribed by
the Borrower in favor of Bancomer to evidence each Loan Disbursement in terms
substantially similar to the form of Promissory Notes attached hereto as Exhibit
"I".
LL. "Regulatory Change", shall have the meaning as defined in paragraph
C, Clause 14 of this Agreement.
MM. "Reserve Fund", means the "Fondo de Reserva" as such term is
defined in the Trust.
NN. "Rights for Collection", means the Borrower's rights to collect the
maintenance fees from Ferrocarriles pursuant to the Maintenance Agreement, as
well as any other right for collection the Borrower has from Ferrocarriles
pursuant to the Maintenance Agreement, including, without limiting to, the
rights the Borrower has to receive from Ferrocarriles any amount that
Ferrocarriles must pay the Borrower in the event of default or early termination
of the Maintenance Agreement, pursuant to the Maintenance Agreement and the
Ferrocarriles Agreement.
OO. "Spread", means three (3.00) percentage points.
PP. "Subordination Agreement", means the subordination agreement dated
July 6, 1995 between Bancomer and MK Rail, a copy of which is attached to this
Agreement as Exhibit "F", through which MK Rail agrees to subordinate the
payment of MK Rail Debt to the payment of the Loan and the Eximbank Loan.
QQ. "Taxes", means whatever taxes, tributes, contributions, charges,
deductions or retention of any nature that are imposed or made at any time by
any authority.
RR. "Technical Assistance Agreement", means the Technical Assistance
Agreement dated January 1, 1995 between the Borrower and MK Rail, and under
which MK Rail will provide technical assistance to the Borrower in order for it
to comply with the terms and conditions of the Maintenance Agreement, a copy of
which is attached to this Agreement as Exhibit D.
SS. "Technical Committee", means the "Comite Tecnico" as such term is
defined in the Trust.
TT. "Technical Supervisor", shall have the meaning ascribed in the
Trust Agreement.
UU. "Technical Supervisor's Certificate", means each of the
certificates issued by the Technical Supervisor with respect to the work and
services performed by the Borrower in accordance with the Maintenance Contract,
substantially in the form of Exhibit "C" to this Agreement.
VV. "Trust", means the administration, guaranty and payment trust dated
July 6, 1995 and amended by means of an amending agreement dated December 13,
1996, incorporated by the Borrower, copy of which is attached hereto as Exhibit
"G", under which the Borrower contributed the Rights for Collection and, when
applicable, the Additional Income in accordance with the terms of this agreement
and the Eximbank Agreement, to guarantee its payment obligations derived
hereunder and under the Eximbank Agreement.
The terms defined in accordance with this Agreement are expressed in singular as
well as plural and they refer to generic as well as all generics. The references
in this Agreement to Recitals, Sections, Paragraphs or Exhibits means the
Recitals, Sections, Paragraphs or Exhibits of or in reference to this Agreement.
Section 2. Amount of the Loan. Bancomer hereby establishes the Loan,
upon the terms and conditions set forth in this Agreement, in favor of the
Borrower in an amount of up to U.S.$3,500,000.00 (Three Million Five Hundred
00/100 Dollars), which amount does not include interest, commissions, nor
expenses derived thereof.
Section 3. Use of Proceeds. The Loan shall be applied by the Borrower
only for financing of up to 75% (seventy five percent) of cost of investments in
shops and supply centers owned by Ferrocarriles' in accordance with the
Maintenance Contract and the Construction and Refurbishing Program subsequent to
October 31, 1996, but prior to the Consolidation Date.
Section 4. Disbursement Period. The Borrower may disburse all of the
Loan, in up to three Loan Disbursements, during the period that shall begin on
the date hereof and shall end on the Consolidation (hereinafter referred to as
the "Disbursement Period").
Section 5. Loan Disbursement. During the Disbursement Period
established in Section 4 above, the Borrower shall notify Bancomer in writing
five (5) Business Days in advance, of its intention to make a Loan Disbursement,
specifying (i) the amount of such Loan Disbursement, and (ii) the date on which
the Loan Disbursement is to be made. In the event all of the conditions
precedent established in (i) Section 7 of this Agreement for the first Loan
Disbursement, and (ii) Section 8 for subsequent Loan Disbursements, have been
satisfied and that the Promissory Notes referred to in Section 6 hereof is under
terms and conditions satisfactory to Bancomer, then Bancomer will disburse to
the Borrower the Loan Disbursement on the date requested by the Borrower, by
deposit of the corresponding proceeds in the bank account indicated by the
borrower to Bancomer for such purpose in the notification mentioned in this
section.
Section 6. Promissory Notes. Simultaneously with the notice referred to
in Section 5 hereof, the Borrower shall furnish Bancomer with Promissory Notes
in order to evidence the Loan Disbursement, which: (i) shall be in an amount of
principal equal to the Loan Disbursement; (ii) shall include as interest payment
dates the Interest Payment Dates; and (iii) shall have as a maturity date the
Consolidation Date.
Similarly, and subsequent to the Consolidation Date, the Borrower shall be
obligated to document the Loan Disbursements with new Promissory Notes such that
said notes reflect the Interest Rate and Loan Repayment Dates applicable to the
Interest Periods subsequent to the Consolidation Date. The parties agree that
the documentation of the Loan Disbursements with new Promissory Notes shall in
no event be interpreted as a novation of any of the obligations of the parties
to this Agreement.
Section 7. Conditions Precedent for the First Loan Disbursement. The
obligation of Bancomer to disburse the first Loan Disbursement shall be subject
to the prior satisfaction of the following conditions precedent, or to
Bancomer's waiver in writing thereof:
A. Bancomer and CIBC have received from the Borrower the documentation
required in conformance with the policies and guidelines of CIBC for the first
disbursement of the loan and such documentation shall be satisfactory to
Bancomer and CIBC. In any case, Bancomer will inform the Borrower within ten
(10) Business Days that the Borrower has furnished Bancomer with the
documentation that is requested in accordance with the policies and guidelines
of CIBC and if such documentation complies with the policies and guidelines of
CIBC.
B. The Line of Credit is open and available in favor of Bancomer.
C. Bancomer has received from CIBC the Funds from the first Loan
Disbursement with the understanding, however, that if CIBC suspends funding for
whatever and such funding is not renewed within the Disbursement Period,
Bancomer will not be obliged to make the first Loan Disbursement without any
responsibility on the part of Bancomer, except as provided in the first
paragraph of Clause 12 of this Agreement.
D. Bancomer shall have received, to its entire satisfaction, a copy,
certified by the Secretary of the Board of Directors of the Borrower, of (i) the
current by-laws of the Borrower and, (ii) the power of attorney granted by the
Borrower to its corresponding representative in order to legally enter into this
Agreement and execute the Promissory Notes.
E. Bancomer has received from the Borrower a certificate executed by
the Corporate Secretary in which is specified the name and shows the signatures
of the person(s) authorized by the Borrower to sign this Agreement and the
Promissory Notes for the first and subsequent Loan Disbursements.
F. Bancomer shall have received to its entire satisfaction the
notification referred to in Section 5 of this Agreement and the Promissory Note
evidencing the first Loan Disbursement.
G. Bancomer has received to its entire satisfaction: (i) the Comfort
Letter duly signed by MK Rail and (ii) the Subordination Agreement.
H. Bancomer shall have received to its entire satisfaction the
certificate issued by the Technical Supervisor pursuant to the first Loan
Disbursement which certifies that the Technical Supervisor has: (i) reviewed and
inspected the works and services in question; (ii) confirmed that the works and
services in question comply with the terms and conditions of the Maintenance
Contract; and (iii) certifies the amount of the costs eligible for works to be
financed with the first Loan Disbursement.
I. The Trust and its amendments shall have been duly incorporated and
be in full force and effect to Bancomer's satisfaction.
J. The Maintenance Contract and the Ferrocarriles Agreement should be
validly existing and on terms and conditions satisfactory to Bancomer.
K. The amount of the first Loan Disbursement to be disbursed should not
exceed the maximum amount
of the Loan.
L. The representations and warranties of the Borrower contained in
Section 17 of this Agreement hereof shall continue to be true and correct as of
the date when the first Loan Disbursement shall occur, as if they were made on
such date, and the Borrower shall so certify in writing in the event Bancomer
requests the Borrower to do so.
M. No Event of Default and no event which but for the giving of notice
or the lapse of time or both would constitute an Event of Default exists or will
exist after giving effect to the Loan Disbursement.
N. Bancomer shall have received to its entire satisfaction the
documentation for the Technical Assistance Agreement and such Agreement is in
full force and effect and will continue to exist for a term at least equal to
the Maintenance Contract.
O. Bancomer has received the Program of Construction and Refurbishing
on terms satisfactory to Bancomer.
P. The Borrower has paid all commissions due to be paid before the date
of the first Loan Disbursement in accordance with Section 12 of this Agreement
as well as the costs and expenses that are referred to in Section 30 of this
Agreement.
Q. The Borrower shall have evidenced, to Bancomer's satisfaction, that
the Maintenance Agreement has a minimum duration of at least eight (8) years
from the date of its commencement, and that the Borrower shall evidence to
Bancomer's satisfaction that there is no breach caused by the Borrower or
Ferrocarriles under the Maintenance Agreement.
R. Bancomer shall have received to its entire satisfaction a copy of
the insurance policies which the Borrower must maintain in accordance with
Section 19 of this Agreement.
Section 8. Conditions Precedent for Subsequent Loan Disbursements. The
obligation of Bancomer to disburse the subsequent Loan Disbursements shall be
subject to the prior satisfaction of the following conditions precedent, or to
Bancomer's waiver in writing thereof:
A. Bancomer and CIBC have received from the Borrower whatever
documentation is required in conformance with the policies and guidelines of
CIBC for the subsequent disbursements of the loan and such documentation shall
be satisfactory to Bancomer and CIBC. In any case, Bancomer will inform the
Borrower within ten (10) Business Days that the Borrower has furnished Bancomer
with the documentation that is requested in accordance with the policies and
guidelines of CIBC and if such documentation complies with the policies and
guidelines of CIBC.
B. The Line of Credit is open and available in favor of Bancomer.
C. Bancomer has received from CIBC the Funds for the subsequent Loan
Disbursements: with the understanding, however, that if CIBC suspends funding of
the Loan for whatever reason, Bancomer will not be obliged to make the
subsequent Loan Disbursements without any responsibility on the part of
Bancomer, except as provided in the first paragraphs of Section 12 of this
Agreement.
D. Bancomer shall have received to its entire satisfaction each one of
the Promissory Note evidencing the subsequent Loan Disbursements.
E. The amount of the Loan Disbursements to be disbursed does not exceed
the maximum amount of the Loan, and that this disbursement will not create as a
consequence that the total balance of all the Loan Disbursements from the date
of the first disbursement through to the subsequent disbursements should not
exceed the maximum amount of the Loan.
F. Bancomer shall have received to its entire satisfaction, the
certificate issued by the Technical Supervisor pursuant to the subsequent Loan
Disbursements which certifies that the Technical Supervisor has: (i) reviewed
and inspected the works and services in question in accordance with the
applicable terms and condition of the Maintenance Contract; (ii) confirmed that
the works and services in question comply with the terms and conditions of the
Maintenance Contract; and (iii) certifies the amount of the costs eligible for
works to be financed with the subsequent Loan Disbursements.
G. The Borrower has paid all commissions due to be paid before the date
of the first Loan Disbursement in accordance with Section 12 of this Agreement
and which should be paid during the term of this Agreement, as well as the costs
and expensed referred to in Section 30 of this Agreement,
H. The representations and warranties of the Borrower contained in
Section 17 of this Agreement hereof shall continue to be true and correct as of
the date of the subsequent Loan Disbursements, as if they were made on such
date, and the Borrower shall so certify in writing in the event Bancomer
requests the Borrower to do so.
I. No Event of Default and no event which but for the giving of notice
or the lapse of time or both would constitute an Event of Default exists or will
exist after giving effect to the Loan Disbursement.
Section 9. Payments of Principal. The Loan shall be paid to Bancomer in
ten (10) semi-annual and successive installments of principal, payable on each
Principal Payment Date, each of such installments in the amounts set forth in
Exhibit "K" attached hereto; provided, however, that the Borrower shall pay the
total amount outstanding on the Loan on the last Principal Payment Date.
Section 10. Prepayment. The Borrower may not prepay the Loan in full or
in part without Bancomer's prior written consent. In the event the Borrower
wishes to obtain such consent, and unless Bancomer otherwise agrees in writing:
(i) the Borrower shall deliver to Bancomer in writing an irrevocable notice to
prepay the Loan, at least thirty (30) Calendar Days before the date on which it
intends to prepay the Loan; (ii) any prepayment of the Loan shall be made on an
Interest Payment Date; (iii) the Borrower shall pay all interest due and accrued
on the Loan's unpaid principal amount; (iv) the Borrower shall pay all
commissions owing and payable on the date on which the Borrower wishes to make a
prepayment; (v) any prepayment must be in an amount equal to or in any multiple
of US$100,000.00 (One Hundred Thousand 00/100 Dollars), and (vi) partial
prepayments shall be applied by Bancomer, at its sole discretion, to the payment
of installments of principal in inverse order of maturity.
At any time Bancomer agrees to receive from the Borrower a partial or
total prepayment as referred to in this Section, the Borrower shall pay to
Bancomer a commission or premium to be determined by applying to said amount,
the following percentages:
A. Two and one half percent (2.5%) in the event the prepayment is made
during the period between (i) the date on which the first Loan Disbursement is
made and, (ii) the last Calendar Day of the period ending two years from the
date of the first Loan Disbursement; or
B. Two percent (2%) in the event the prepayment is made during the
period between (i) the Calendar Day immediately succeeding the last Calendar Day
of a period of two (2) calendar years as from the date of the first Loan
Disbursement and, (ii) the last day of a calendar period of five (5) years
counted from the first Loan Disbursement date; and
C. All and each of the commissions that are charged by CIBC to Bancomer
in relation to the prepayment of the CIBC Line of Credit which Bancomer notifies
to the Borrower.
Section 11. Interest. From and after the Loan Disbursement and until
the last Principal Payment Date is made, the Borrower shall pay to Bancomer
ordinary interest on the unpaid principal amount of Loan on each Interest
Payment Date for each Interest Period, at a rate equal at all times during each
Interest Period to the Interest Rate; provided, however, that if any amount of
principal is not paid in full when due, the unpaid amount of principal shall
bear interest from the date on which payment should have been made until said
amount is paid in full, at a rate equal to the Default Rate, and shall be
payable upon demand.
Ordinary and delinquent interest rates shall be calculated based on a
year of 360 days and the actual number of days elapsed.
Section 12. Commissions. The Borrower shall be obligated under this
Agreement to pay the following commissions; provided, however, that if for any
reason CIBC shall suspend the Line of Credit, and as a result, the Borrower is
not able to make Loan Disbursements, then Bancomer shall reimburse the Borrower
the amounts which represent commissions paid to Bancomer as mentioned below on a
proportional basis to the amounts which the Borrower has effectively not
disbursed; and if no Loan Disbursements have been made, Bancomer shall reimburse
to the Borrower the commissions which have been paid:
A. An opening commission equivalent to zero point fifty percent (0.50%)
on the total amount of the Loan, payable to Bancomer on December 30, 1996.
B. A structuring commission equivalent to one percent (1.00%) on the
total amount of the Loan,
payable to Bancomer on December 30, 1996.
C. An opening commission to be charged by CIBC equal to zero point
fifty percent (0.50%) of the total amount of the Loan, payable on the dates
indicated by CIBC.
D. A commitment fee to be charged by CIBC which shall be equal to zero
point fifty percent (0.50%) per annum on the undisbursed balance of the Loan,
payable on the dates indicated by CIBC.
The commissions described in paragraphs C and D of this section shall be paid by
the Borrower only if they are charged by CIBC.
Section 13. Alternate Interest Rate.
A. If prior to the commencement of any Interest Period, Bancomer
receives notice from CIBC that (i) in CIBC's ordinary course of business there
is no London interbank market for deposits in Dollars available to CIBC in
amounts and for terms sufficient to make any Loan Disbursement; or (ii) due to
circumstances affecting the London interbank market, adequate methods do not
exist to determine Libor for the respective Interest Period; or (iii) Libor does
not reflect CIBC's actual cost for funding the Loan or disbursement or
maintenance of the respective Loan disbursement; and (iv) that for any of the
above-mentioned reasons CIBC uses the rate determined by CIBC in such notice to
substitute for Libor in determining the Funding Rate (the "Substitute Funding
Rate"), then Bancomer shall notify the Borrower of such circumstances and the
Borrower agrees to pay to Bancomer, during the entire period for which the
circumstances indicated by CIBC persist, interest on the unpaid balance of the
Loan at the Substitute Funding Rate plus the Spread.
B. If at any time during the term of this Agreement Bancomer receives
notification from CIBC that in the reasonable judgment of CIBC, it is illegal to
disburse or maintain any Loan Disbursement based upon Libor, and for this
reason, CIBC shall use the Substitute Funding Rate as set forth in such notice,
then Bancomer, accordingly, shall notify the Borrower of these circumstances,
and the Borrower agrees to pay to Bancomer, during the entire time during which
the circumstances indicated by CIBC continue, interest on the unpaid balance of
the Loan at the Substitute Funding Rate plus the Spread.
C. Within ten (10) Calendar Days after the notice referred to in the
previous Paragraph A and/or B above, the Borrower may give notice (which shall
be irrevocable) to Bancomer, of its decision to prepay the Loan, together with
the accrued and unpaid interest as of such date, which will be calculated at the
Interest Rate in effect as of the date on which the Borrower receives the notice
referred to in Paragraph A and/or B above, in which case the Borrower shall pay
the total unpaid principal amount of the Loan accrued interest thereon and other
unpaid amounts payable to Bancomer as provided hereof and as provided under the
Promissory Notes in a term that shall not exceed twenty (20) Calendar Days as
from the date of the notice.
D. In any of the events referred to in Paragraphs A and/or B above,
once the Borrower receives notice in writing from Bancomer and/or CIBC that the
circumstances referred to in said Paragraphs A and/or B have ceased to exist, at
the end of the then current Interest Period, interest on the Loan shall cease to
be calculated using the Substitute Funding Rate and shall be calculated at the
Interest Rate during the immediately succeeding Interest Period for the Loan.
E. In any of the events referred to in Paragraphs A and/or B above, the
Borrower shall substitute the Promissory Notes evidencing the Loan
Disbursements, in order to reflect the terms and conditions of interest rates
and other conditions applicable to the Loan from then on.
<PAGE>
Section 14. Increased Costs and Funding Losses.
A. If by virtue of any Regulatory Change which (i) changes the taxable
basis of any amount under the Loan payable to Bancomer by the Borrower and/or by
Bancomer to CIBC (except for taxes charged on the total net income of Bancomer
and/or CIBC); (ii) imposes or modifies any reserves, deposits, taxes or other
conditions affecting Bancomer and/or CIBC; or (iii) imposes any other condition
which affects this Agreement or the Promissory Notes, or there is an increase in
the cost to Bancomer and/or CIBC of opening, maintaining, or disbursing the
Loan, the Borrower shall pay to Bancomer upon demand by means of prior notice
from Bancomer, reasonable and documentable additional amounts which are required
to compensate Bancomer and/or CIBC for such increase in the cost of opening,
maintaining or disbursing the Loan.
B. Notwithstanding the provisions of Paragraph A above, if CIBC at any
time notifies Bancomer that Bancomer must pay to CIBC any increase in the cost
of opening, disbursing or maintaining the Line of Credit from CIBC, which CIBC
determines under the Line of Credit, then Bancomer shall so notify the Borrower
and the Borrower agrees to reimburse Bancomer upon demand the amount which
Bancomer is obligated to pay to CIBC in accordance with this notification.
C. For the purposes of this Section, "Regulatory Change" shall mean any
change or modification to, or the introduction of, any law, regulation, circular
or other provision issued by any authority of the United States of America
and/or the United Mexican States applicable to Bancomer and/or CIBC or to any of
their respective offices charges with administering and funding the Loan.
D. Bancomer shall use its best efforts to avoid an increase in costs
due to Regulatory Changes if possible by changing the office charges with
administering the Loan and if by doing so, Bancomer does not incur any
additional cost or expense.
E. Any request for payment or reimbursement notified to the Borrower
under this Section shall be delivered together with a certificate issued by CIBC
and/or Bancomer setting forth in reasonable detail the bases for calculation of
the amounts to be paid or reimbursed, and such certificate, absent manifest
error shall be conclusive and binding upon the Borrower.
F. Any increase in the cost to Bancomer and/or CIBC of opening,
maintaining or disbursing the Loan which due to reasons attributable to Bancomer
results in the imposition by Banco de Mexico on Bancomer of any fine for the
failure of Bancomer to comply with any law or with the regulations issued by
Banco de Mexico shall not be considered an increase in cost to Bancomer.
Section 15. Taxes.
A. All amounts that the Borrower shall pay for amortization of
principal of the Loan, ordinary and default interest as the case may be,
commissions, expenses and costs, and whatever other amount to be paid by the
Borrower to Bancomer in accordance with this Agreement and the Promissory Notes
will be paid without deduction for and free of any Taxes, except for Taxes on
the Mexican income that is charged on the total net income of Bancomer and that
Bancomer must pay directly under applicable law.
B. In the case that the Borrower is obliged to make any withholding on
the payments of principal, ordinary or default interest as the case may be,
commissions, expenses and costs and any other quantity to be paid to Bancomer in
accordance with this Agreement and the Promissory Notes for reason of Taxes or
any other reason, the Borrower will pay to Bancomer the additional amounts that
are required so that Bancomer receives the amount that it would have received if
there had not been such withholding.
C. All Taxes will be paid by the Borrower for its own account and not
later than the date on which such corresponding Taxes are due and payable. The
Borrower will also furnish to Bancomer the original receipts that evidence the
payment of such Taxes within five (5) working days following the date on which
such Taxes were due and payable.
D. The Borrower will indemnify Bancomer for all charges to Bancomer
which arise because of such Taxes and will be obliged to reimburse Bancomer on
demand for any quantity that Bancomer will be obligated to pay for reason of
such Taxes caused by the transaction contemplated in this Agreement and the
Promissory Notes.
E. The obligations of the Borrower derived from this Section will
continue to exist for a period determined by the Taxes independent of whether
the Loan is totally paid prior to the term of such period.
Section 16. Place and Form of Payment.
The Loan shall be repaid by the Borrower precisely on the Loan
Repayment Dates and interest on the Loan shall be paid by the Borrower to
Bancomer on each Interest Payment Date.
All amounts of principal, ordinary interest, penalty interest,
commissions and any other amount payable by the Borrower to Bancomer hereunder
and under the Promissory Notes shall be paid exclusively in Dollars in
immediately available funds, without any deduction, retention or setoff of any
nature whatsoever by crediting the account No. 400 019042 of Bancomer, S.A., at
Chase Manhattan Bank, N.A. ABA No. 021 000 128 New York, New York, United States
of America (or in any other place that Bancomer indicates to the Borrower with
prior notice) no later than 11:00 (eleven) o'clock (New York time) on the date
on which the corresponding payment is due.
Section 17. Representations and Warranties of the Borrower. The
Borrower represents and warrants to Bancomer that:
A. The Borrower is a corporation duly organized and validly existing
under the laws of the United Mexican States.
B. The execution, delivery and performance by the Borrower of this Loan
Agreement, the Promissory Notes and the Trust and the Maintenance Contract (i)
do not and will not violate any provision of any applicable law of the United
Mexican States or of any political subdivision thereof; (ii) do not and will not
result in the breach of, or constitute a default under, or require any consent
under the charter and by-laws of the Borrower, or any indenture, bank loan or
credit agreement, mortgage, or other agreement or instrument to which the
Borrower is a party or by which the Borrower or any of its respective properties
may be bound or affected, and (iii) when duly executed and delivered by the
Borrower, will constitute the valid, binding and enforceable obligations of the
Borrower in accordance with its respective terms, except as limited by the laws
relating to insolvency or bankruptcy.
C. All authorizations, registrations and approvals of, or filings or
registrations with the United Mexican States, or of any governmental agency
thereof or therein which are necessary or advisable (i) for the execution,
delivery and performance of this Agreement and the Promissory Notes, and (ii)
the validity, binding effect and enforceability of this Agreement and the
Promissory Notes have been obtained and are binding and enforceable and in full
force and effect.
D. The Borrower is in compliance with the payment of all taxes and
legal and contract liabilities, which non-compliance would affect substantially
and adversely its financial standing.
E. There is no action, suit or proceeding at law by or before any
governmental agency or authority now pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower, or any of its respective
properties or rights, which if adversely determined would substantially impair
the right of the Borrower to carry on its business substantially as now
conducted, or would materially adversely affect the financial condition of the
Borrower.
F. The audited financial statements of the Borrower as of December 31,
1995, reflect in an accurate and complete manner, its financial standing as of
such date, were prepared in accordance with PCGA, and there has been no
important adverse change in its financial standing since the date of those
financial statements and until the date of this Agreement.
Section 18. Covenants of the Borrower. Until payment in full of the
Loan and the Promissory Notes and performance of all other obligations of the
Borrower hereunder and under the Promissory Notes, the Borrower agrees that,
unless Bancomer shall otherwise consent in writing:
A. To furnish Bancomer within sixty (60) Calendar Days following the
end of every quarter of each accounting period, quarterly financial statements
(balance sheet, statement of profits and losses and surplus) duly certified by
its Director General and/or Finance Director.
B. To furnish Bancomer within one hundred twenty (120) Calendar Days
following the end of their respective fiscal year, annual financial statements
(balance sheet, statement of profits and losses and surplus) duly audited by an
independent auditor.
C. To provide Bancomer within forty five (45) Calendar Days after the
closing of each one of its accounting period, an annual certificate granted by
its insurance agent acceptable to Bancomer, confirming that their assets are
duly insured pursuant hereof.
D. To provide Bancomer within forty-five (45) calendar days after the
end of each quarter with a comparison of the actual costs of operation and
administration of the Borrower against the budgeted costs of operation and
administration through which the Technical Committee authorized the payments
from the Trust for such matters.
E. To provide Bancomer with prompt notice, under no circumstances later
than ten (10) days after it has had itself knowledge of, of any event that
represents, or with the lapse of time may represent an Event of Default,
together with a declaration including the details of such event, and the action
proposed to be taken by the Borrower with respect thereto.
F. Maintain its accounting information and statements in accordance
with PCGA.
G. To provide Bancomer with all of the relevant information pursuant to
its business and financial standing as may be reasonably requested by Bancomer,
in the understanding that Bancomer might inspect its business, request for
balance sheets or accounting statements, data or documents, and to make or cause
to make appraisals of its assets whenever it deems it necessary to verify
compliance of the obligations of the Borrower derived hereof, the Borrower being
obligated to provide all of the facilities necessary to such effect.
H. Provide to Bancomer within forty-five (45) calendar days after the
end of each quarter, a Financial Supervisor report which indicates the manner
for calculation during the quarter of the corresponding Reserve Fund and
Financial Ratios.
I. To preserve and maintain its corporate status in full force and
effect, as well as all of its rights, licenses, permits, authorizations,
certifications, registrations and approvals required for the operation of all of
its business in each and every jurisdiction where it operate.
J. To upkeep all of the necessary assets for its business' operations
and to procure and provide said assets with all the services, maintenance,
repairs, substitutions, additions and/or upgrading deemed necessary or
convenient.
K. To obtain all of the licenses, authorizations, permits,
certifications, registrations or approvals required hereinafter to allow for the
adequate performance of its obligations derived hereunder, the Promissory Notes,
and all laws, regulations, decrees, agreements and applicable decrees issued by
any governmental authority.
L. To pay on time all of the fiscal debts of its business and the
quotas of the Mexican Social Security Institute and of the National Institute
for Workers Housing Development, except for those that are in dispute in good
faith by the Borrower, through the right procedures and by previously
establishing the corresponding reserves.
M. To duly comply with all of their respective contractual obligations
including, without being limited to, the Maintenance Agreement.
N. To furnish Bancomer with this Agreement duly ratified before a
Notary Public, within ten (10) Business Days after execution hereof.
O. To furnish Bancomer, within sixty (60) calendar days following the
end of each semester of each and every fiscal year, a letter signed by the
Director General or Director of Finance which certifies that the Borrower is not
under breach of contract pursuant to the Maintenance Agreement.
P. To provide Bancomer, within fifteen (15) calendar days after the end
of each calendar month, financial information with respect to the Trust and the
business of the Borrower, so that Bancomer may determine if the Borrower is
complying with the Financial Ratios that are referred to in Exhibit "H" hereto.
Q. To provide to Bancomer, within fifteen (15) calendar days after the
end of each quarterly financial reporting period, a report prepared by the
Technical Supervisor covering the progress of the Program of Construction and
Remodeling and the services carried out on the equipment in accordance with the
Maintenance Contract.
R. To secure the insurance policies referred to in Section 19 hereof.
S. Maintain the Financial Ratios referred to in Exhibit "H" attached
hereto, for the periods referred in said Exhibit.
T. Maintain the Reserve Fund, during the entire term of the Agreement,
at an average monthly balance equal to the greater of (i) ten percent (10%) of
the sum of the outstanding balance of principal of the Loan and the principal of
the Eximbank Loan at the time when the Reserve Fund balance is calculated, and
(ii) the sum of the amounts of interest and principal of the Loan and the and
Eximbank Loan due and payable by the Borrower to Bancomer on the Interest
Payment Date and the Principal Payment Date which falls within one hundred and
fifty (150) calendar days after the date on which the Reserve Fund balance is
calculated, multiplied by one point twenty-five (1.25) times; provided that
during the first six (6) months following the last Loan Disbursement, the
amounts of the debt service under this Agreement shall be included in the
calculation of the required levels of the Reserve Fund, and that following the
end of such six (6) month period, such amounts shall not be included in this
calculation. However, if the Borrower does not comply with the Financial Ratios
in such non-compliance is not cured within a period of thirty (30) calendar days
from the date on which Bancomer notifies the Borrower of such non-compliance,
the Borrower shall be obligated to include such debt service in the calculation
referred to above until the Borrower is able to demonstrate, to Bancomer's
satisfaction, that it is again in compliance with the Financial Ratios.
U. Commit to the Trust Additional Income within five (5) calendar days
after the date that Bancomer notifies the Borrower, in case that, at whatever
time during the term of this Agreement, the Borrower does not comply with the
financial ratios that are referred to in paragraph S of Section 18, or does not
comply with the maintenance of the Reserve Fund minimum balance referred to in
paragraph T of Section 18.
V. Comply with the obligations relating to the utilization of goods
financed under this Agreement as may be specified by CIBC and requested of the
Borrower by Bancomer.
W. To refrain from:
(i) paying dividends, without the prior written consent of
Bancomer.
(ii) making payments of whatever amount with respect to the
MK Rail Debt without the prior written consent of Bancomer.
(iii) reducing its capital stock.
(iv) modifying its corporate purpose or change its line of
business.
(v) filing for liquidation or dissolution.
(vi) performing, or refraining from any action, whenever the
consequence of it is to waive in advance the term for the
fulfillment of any of its contract liabilities.
(vii) incurring Debt for its charge for (i) an aggregate
amount greater than US$1,000,000 (One Million Dollars) or its
equivalent in any other currency, or (ii) terms greater than one
(1) year, without the prior written consent of Bancomer, except
for indebtedness mandated by law or in the normal course of
business.
(viii) agree to any amendment to or modification of, waive
any material right under, or terminate the Maintenance Agreement
and/or the Trust, without the prior written authorization of
Bancomer, which authorization shall not be unreasonably denied.
(ix) setoff in any way any amount which is owed to it under
the Maintenance Agreement; provided that (i) if Ferrocarriles
shall make a setoff against any of the Borrower's invoices for an
amount greater than ten percent (10%) of such invoice, the
Borrower shall obtain from Bancomer within thirty (30) calendar
days after the date on which such setoff has occurred, Bancomer's
approval in writing for this setoff, and (ii) if the Borrower
shall not obtain the authorization from Bancomer specified in
clause (i) above within such period, Bancomer may declare the
existence of an Event of Acceleration."
X. Maintain a commercial credit account with MK Rail, with respect to
the purchase of materials and equipment from MK Rail or any of its
subsidiaries or affiliates, with a minimum balance equal to the greater
of (i) the sum of U.S. $1,500,000.00 (One Million Five Hundred Thousand
and 00/100 Dollars), and (ii) the amount which corresponds to purchases
of material and equipment from MK Rail in the normal course of its
operation during a period of 45 (forty-five) calendar days; provided
however that if the minimum balance in this account shall be reduced
for any purpose then the Borrower shall be obligated to increase the
minimum balance in the reserve fund up to the amount equal to the sum
of amounts of principal and interest under the Loan due and payable to
the Borrower to Bancomer on the Interest Payment Dates and Principal
Payment Dates, multiplied by one point five (1.5) times; provided,
however, that the commercial credit account shall not be considered as
part of the MK Rail Debt."
Section 19. Insurance.
A. The Borrower shall evidence to Bancomer, to Bancomer's satisfaction,
within a thirty (30) Calendar Day term as from the date of this Agreement, that
the Borrower has secured the insurance policies referred to in the Maintenance
Agreement, and that such insurance policies are in full force and effect.
B. The Borrower shall evidence to the satisfaction of Bancomer the
payment of the premiums for such insurance with the corresponding receipts of
payment, within two (2) Business Days after the day it receives the
corresponding request from Bancomer.
C. Notwithstanding the provisions of Section 20 of this Agreement, in
the event that for any reason the Borrower fails to comply with any of its
obligations established under this Section, Bancomer shall be expressly
authorized to contract such insurance on behalf of the Borrower, and pay for all
of the amounts required to keep in effect said insurance, in which case the
Borrower shall pay, on demand, for the amounts spent by Bancomer for such
concepts, in the understanding that such amounts shall cause interest at the
Default Interest Rate calculated at the CPP rate multiplied by three (3), from
the date such payment is made by Bancomer and until such payment when they are
totally paid for; provided, however, that the authorization to Bancomer to
contract insurance as set forth in this Section is not an obligation and in the
case that such insurance is not contracted, Bancomer shall have no
responsibility therefore. In any case, Bancomer shall notify the Borrower as to
any contraction of insurance referred to in this Section within five (5)
Business Days after such insurance has been contracted for.
For the purposes of this Paragraph C of this Section 19, "Tasa CPP"
shall mean the last Costo Percentual Promedio de Captacion for purposes of the
rate and, in its turn, the spread of interest on the liabilities in national
currency corresponding to loans to companies and individuals, deposited for
terms (except savings), as if appropriate, bank bonds issued by the Central Bank
of Mexico that the Central Bank of Mexico publishes in the Official Diary of the
Federation with a date prior to when the Borrower fails to make its payment
obligation that is referred to in the previous paragraph; with the understanding
that if at any time the Central Bank of Mexico does not publish said Costo
Porcentual Promedio de Captacion, then the last Costo Porcentual Promedio de
Captacion published by the Central Bank of Mexico in the Official Diary of the
Mexican Federation will be used or the index which replaces it.
Section 20. Events of Default. Bancomer may declare an event of default
during the term of the payment of the Loan, its principal, ordinary interest,
commissions, costs and expenses and whatever amount is to be paid by the
Borrower to Bancomer in accordance with this Agreement and the Promissory Notes,
without demand, presentment, notice of dishonor and protest, in which case all
such amounts will be due and payable on demand if any of the following events
(identified in this Agreement as "Events of Default") shall occur and any curing
period available to the Borrower to remedy such Events of Default has
transpired:
A. Default by the Borrower in the payment, when due, of any installment
of principal or interest or any commissions whatsoever, costs or expenses in
connection with the Loan or the Promissory Notes, and such event is not remedied
within a term of five (5) calendar days as from the date any such payment is
due.
B. If the Borrower shall fail to comply with any of its respective
obligations derived hereunder, under the Agreement, Promissory Notes or under
the Trust, including those set forth in this Section or in Section 18 of this
Agreement within a term of forty-five (45) Business Days following the date on
which Bancomer notifies the Borrower of such noncompliance.
C. If any of the representation and/or warranties of, or any
information provided to Bancomer by the Borrower under the terms of this
Agreement shall prove to be untrue, incorrect or incomplete.
D. If the Loan's proceeds shall totally or partially be used for
purposes different to those established under this Agreement, or if the
Borrower's fixed assets shall be disposed in any way different to those provided
under this Agreement.
E. If fixed assets of the Borrower, with a value equal or higher to ten
percent (10%) of the total value of its respective fixed assets, shall be
condemned, seized or appropriated in full or in part by legal, administrative or
any other authorities, except for when such seizure or appropriation, in
Bancomer's sole judgment, is contrary to law, or could be contested by the
Borrower in good faith with possibilities for success through rightful
procedures.
F. If the Borrower's fixed assets are not insured as provided for in
this Agreement, or if the Borrower fails to comply with any of its obligations
under Section 19 of this Agreement.
G. If the Borrower shall fail to pay without cause any fiscal debt of
its respective business or the corresponding fees to the Mexican Social Security
Institute or the Institute for Workers National Housing Development, or if the
business of the Borrower shall be disrupted or shall present conflicts or
conditions of any sort that in Bancomer's reasonable sole judgment affect the
good performance of the business of the Borrower or put in danger its respective
economic or financial standing.
H. If any Event of Default occurs on any other loan authorized by
Bancomer for the Borrower, including the Loan authorized under the Eximbank Loan
Agreement, or if there is an Event of Default authorized by any other creditor
to the Borrower in an amount equal to or greater to US$500,000 (U.S. Dollar Five
Hundred Dollars), or its equivalent in any other currency.
I. If the Borrower shall pay dividends, make a payment with respect to
the MK Rail debt, decrease its respective capital stock, modify its respective
corporate purpose or change its respective line of business, file for
dissolution or liquidation, or merge with another corporation, without the prior
written authorization of Bancomer.
J. If there shall be instituted a judicial procedure for involuntary
bankruptcy against the Borrower or if any judicial authority shall designate a
custodian, under the applicable provisions of any bankruptcy law and such
proceeding or designation is not declared improper within the periods which are
applicable under the respective laws or judicial procedures.
K. If the Borrower begins voluntary proceedings in order to obtain a
suspension of payments, in accordance with any applicable law on such matters,
or consents to institute or proceed with the declaration of the suspension of
payments that would lead to any cessation of any substantial part of its assets
for the benefit of creditors or does not comply in a general manner with any
payment of its debts or obligations, or takes any action that would lead to any
of the above mentioned situations.
L. If the shareholders of the Borrower, which on the date hereof owning
more than fifty percent (50%) of the voting shares of the Borrower and having
the capacity to appoint the majority of the members of the Board of Directors of
the Borrower, shall change or cease to hold direct control over the majority of
the stock with right to vote and/or would cease to have the right to appoint the
majority of the members of the Board of Directors of the Borrower, except if any
of the above causes shall occur with the prior written approval of Bancomer.
M. If the Borrower shall fail to comply to maintain the Financial
Ratios and/or the balance in the Reserve Fund as provided in paragraph S of
Section 18 hereof for a term of three (3) successive calendar months or during a
term that in total sums six (6) months during any calendar year.
N. If Ferrocarriles shall early terminate or rescind the Maintenance
Agreement, in accordance with the provisions thereof.
O. If deviations with respect to the Investment Program of fifteen
percent (15%) with respect to the advancement of investments plus costs, as set
forth in the Investment Program, calculated on a quarterly basis, and if the
same are not clarified by the Borrower within a period of fifteen (15) Business
Days following a request is made by Bancomer for this purpose; provided,
however, that if Ferrocarriles shall accept these deviations for a difference
percentage then such percentage shall be accepted by Bancomer provided that it
should not be greater than fifteen percent (15%)."
P. If the Borrower shall incur in indebtedness without the prior
written consent of Bancomer for (i) an amount greater than US$1,000,000 (U.S.
Dollar One Million) in individual or in aggregate, or its equivalent in any
other currency, or (ii) terms greater than one (1) year, except for those
indebtedness generated by legal mandate or during the normal course of its
business transactions.
Q. If Ferrocarriles shall fail to make the payments corresponding to
the Right to Collection for more than two (2) consecutive occasions.
R. If the Borrower (i) shall fail to comply with its obligations to
maintain the "availability factor" in accordance with the Maintenance Agreement
or (ii) fails to comply with any other of its obligations under the Maintenance
Agreement for a term of two(2) successive months, in such a way that in the
opinion of the Technical Committee, the noncompliance could give Ferrocarriles
the right to terminate or rescind the Maintenance Agreement.
S. If the Technical Assistance Agreement is terminated for any reason.
T. If the Trust and/or Maintenance Agreement shall cease to be in full
force and effect for any reason whatsoever or if the Borrower agrees to any
amendment to or modification of, waives any material right under, or terminates
the Maintenance Agreement, without the prior written authorization of Bancomer
which consent shall not be unreasonably withheld by Bancomer.
U. If the Borrower does not comply with the Reserve Fund balance that
is referred to paragraph T of Section 18 of this Agreement.
V. If the Borrower fails to give to the Trust Additional Income within
the term established in paragraph U of Section 18, or if MK Rail does not comply
with its obligations established in the Comfort Letter within a term of five (5)
calendar days following the date on which Bancomer notifies them of its request.
W. If the Borrower does not pay on time the expenses that are referred
to in Section 30 of this Agreement.
X. Under all those other cases contemplated in this Agreement and by
the applicable laws.
Y. If CIBC requires Bancomer for any reason beyond Bancomer's control
to pay any amount with respect to any disbursement of the Loan.
Z. If the funding of the Line of Credit is suspended for any reason not
attributable to Bancomer for a period greater than sixty (60) calendar days, in
which case the provisions of the first paragraph of Section 12 of this Agreement
shall also be applicable.
AA. If the Borrower does not comply with its obligation to immediately
increase the balance in the Reserve Fund referred to in Paragraph X of Section
18 of this Agreement.
BB. If the Borrower does not comply with its obligation to obtain the
written authorization of Bancomer as provided in clause (ix) of Paragraph W of
Section 18 of this Agreement.
CC. If Ferrocarriles shall make a setoff of any amount which it is to
pay under the Maintenance Agreement against any amount owed in its favor under
any other obligation of the Borrower apart from those resulting from the
Maintenance Agreement."
Section 21. Trust Guaranty. In order to guarantee the punctual payment
when due of each and every one of the obligations of the Borrower hereunder,
under the Eximbank Loan Agreement, under the Promissory Notes and under the
Promissory Notes executed in accordance with this Agreement, the Eximbank Loan
Agreement, and especially to guarantee the punctual payment when due of the
Loan, the Eximbank Loan, its principal, both ordinary and default interest as
well as commissions, costs and expenses, and any and all other amounts payable
by the Borrower to Bancomer including court costs and expenses, if any, and all
other legal consequences and accessories thereon, the Trust is incorporated by
the Borrower in accordance with which contributes the Rights for Collection, in
order to apply such resources to the punctual payment when due of each and every
one of the obligations of the Borrower hereunder and under the Promissory Notes,
and especially to guarantee the punctual payment when due of the Loan, the
Eximbank Loan, its principal, both ordinary and default interest as well as
commissions, costs and expenses interest, and any and all other amounts payable
by the Borrower to Bancomer, court costs and expenses, if any, and all other
legal consequences and accessories thereon.
Section 22. Monetary Conversion.
A. If for the purpose of obtaining a judgment in any court it is
necessary to convert any amount of Dollars owed under this Agreement or the
Promissory Notes into any other currency, the rate of exchange to be used shall
be that which, in accordance with normal banking practices, Bancomer may acquire
Dollars with such currency on the Business Day immediately preceding the day on
which the judgment is obtained.
B. The payment obligations of the Borrower with respect to any amount
owed by the Borrower to Bancomer under the Loan in accordance with this
Agreement and the Promissory Notes will be complied with and satisfied,
notwithstanding any judgment in any other currency, only to the extent that on
the Business Day succeeding the day on which Bancomer receives any amount which
has been declared due and payable in any other currency under the respective
judgment, Bancomer may acquire Dollars with such other currency under normal
banking practices. If the amount of Dollars acquired in this manner is less than
the amount originally owed to Bancomer by the Borrower in accordance with this
Agreement and the Promissory Notes, the Borrower shall be obligated to, as a
separate obligation independent and irrespective of any judgment, indemnify
Bancomer for any loss which it may have incurred as a result of the Borrower's
obligations under this Agreement and the Promissory Notes.
Section 23. Restriction. In accordance with the provisions of article
294 of the General Law of Securities and Credit Operations of the United Mexican
States, the parties may agree, that Bancomer may be entitled to restrict the
disbursement period of the Loan and the principal amount of the Loan, or such
disbursement period of the Loan and the principal amount of the Loan at the same
time due to force majeure.
Section 24. Successors and Assigns. The Borrower cannot seed its rights
or obligations under this Agreement or the Promissory Notes.
Bancomer may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in the Loan;
provided however, that Bancomer cannot grant interest participations with
respect to the Loan (i) to any person or entity that competes in the same market
of goods or services as the Borrower, or (ii) when so prohibited by CIBC. In the
event of any such grant by Bancomer of a participating interest to a
Participant, whether or not upon notice to the Borrower, (i) Bancomer shall
remain responsible for negotiating, discounting or any other form of assigning
the Promissory Notes and will continue to act under this Agreement as holder of
the Promissory Notes; (ii) the Participant(s) will be obliged to assume the
obligations of Bancomer in writing that arise from this Agreement; (iii)
Bancomer will remain responsible for complying with its obligations under this
Agreement and the Borrower will continue to deal directly with Bancomer with
respect to the rights and obligations of Bancomer under this Agreement, and (iv)
the Borrower will continue to be obligated to give Bancomer the necessary
materials to review the investment of the Funds provided under the Loan and to
care for the authorized warranties granted by the Borrower.
Section 25. No Waiver. No failure on the part of Bancomer to exercise,
and no delay in exercising, any right hereunder or under the Promissory Notes
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder or under the Promissory Notes, preclude any other or further
exercise thereof or the exercise of any other right.
Section 26. Amendments. No amendment or waiver to any provision under
this Agreement or under the Promissory Notes, and no consent granted to the
Borrower to divert from the terms and conditions of this Agreement or of the
Promissory Notes, shall have any effect unless it is in writing and is
subscribed by Bancomer and, even in such an event, such waiver or consent shall
have effect only in the event and for the specific purpose for which it was
granted.
Section 27. Notices. For purposes of this Agreement, each of the
Parties provides as its principle headquarters for the receipt of any kind of
notice, the following:
If to Bancomer:
Bancomer, S.A.
Direccion Regional
Banca Impresarial
A.Los Torres #113
Colonia El Paseo
San Luis Potosi, San Luis Potosi
MExico
Attention: Regional Director
Fax #: (48) 18-74-05
with a copy to:
Bancomer, S.A.
Direccion
Banca Corporativa
Proyectos e Infraestructura
Bancomer, S.A.
Montes Urales 470 - 2 Piso
Lomas de Chapultepec
11000 MExico, D.F.
Attention: Director
Fax#: 226-9276
Borrower:
MK Gain, S.A. de C.V.
Av. 20 de Noviembre
No. 1200
78030 San Luis Potosi, San Luis Potosi
Attention: Director of Finance
Fax#: (48) 12-6699
All notices, requests and demands shall be given in writing and (except as
otherwise expressly specified herein) by telegram, telex, facsimile or other
similar means of communication or through certified or registered mail and must
be directed to the addresses given above. It is understood that a notice will
have been given if it has been sent by telegram, telex, facsimile or other
similar means of communication with confirmation on the date that the notice was
sent and if it is sent by certified or registered mail on the date that the
notice was received. Even if the parties do not notify in writing of a change in
address in accordance with this Section, the notices and judicial proceedings
that are sent to the addresses indicated will be in full force and effect.
Section 28. Governing Law. This Agreement is registered and will be
interpreted in accordance with the laws of the United Mexican States.
Section 29. Jurisdiction. In case of any judicial proceeding in
relation to any matter arising under this Agreement, the parties hereto
irrevocably agree that any such matter may be adjudged or determined in any
court or courts of competent jurisdiction sitting in Mexico City, Federal
District, United Mexican States, or in any court or courts of competent
jurisdiction sitting in San Luis Potosi, San Luis Potosi, United Mexican States,
and the parties hereto irrevocably submit generally and unconditionally to the
jurisdiction of such courts and of any of them in relation to such matters,
expressly waiving any other jurisdiction to which they may be entitled by reason
of present or future domicile or otherwise.
Section 30. Costs and Expenses.
A. The Borrower will pay to Bancomer without notice from Bancomer
within thirty (30) calendar days within the signing of this Agreement up to the
amount of US$20,000.00 (Twenty Thousand Dollars) in respect of legal fees and
expenses incurred by Bancomer in connection with the negotiation, preparation
and documentation of this Agreement and the Promissory Notes.
B. The Borrower will pay to Bancomer without notice from Bancomer
within thirty (30) calendar days within the signing of this Agreement up to the
amount of US$3,000.00 (Three Thousand Dollars) in respect of legal fees and
expenses incurred by Bancomer in connection with modification of the Trust.
C. The Borrower will pay to Bancomer without notice from Bancomer
within thirty (30) calendar days within the signing of this Agreement up to the
amount of US$35,000.00 (Thirty Five Thousand Dollars) in respect of expenses for
issuance of the Technical Supervisor's Certificate in accordance with the
provisions of Sections 7 and 8 of this Agreement.
The Borrower agrees that it will pay punctually for all the amounts
that are discussed and the costs and expenses that are referred in this Section
on the date when they are due and payable in accordance with the terms of this
Section, and any amounts not paid will incur default interest from the date that
they are due up to the time that they are paid in full on sight including the
default interest rate.
Section 31. Condition Precedent for Validity of this Agreement.
This Agreement shall have no effect until the Borrower shall have
received from Bancomer written notice that (i) it has contracted for the Line of
Credit under terms and conditions which do not change the terms and conditions
for the Loan, or (ii) it has contracted for an alternative line of credit which
permits Bancomer to extend the Loan in terms which are satisfactory to the
Borrower; provided, however, that (y) if Bancomer does not deliver either of
these confirmations in writing no later than December 29, 1996, or the Borrower
does not accept the confirmation mentioned in sub clause (ii) of this Section,
then this Agreement shall terminate on such date, without any requirement for
notification and with no responsibility for either of the parties, and (z) if
Bancomer confirms to Borrower that it has contracted for the Line of Credit
under terms and conditions equal to those set forth in this Agreement, then it
is agreed that this Agreement shall enter into effect automatically of the date
on which Bancomer issues such confirmation.
In witness whereof, the parties hereto have caused this Agreement to be
executed by their duly authorized officers and representatives as of the date
first written above.
Bancomer:
Bancomer, S.A., Institucion de Banca Multiple,
Grupo Financiero Bancomer
- ------------------------------------
By:
Position:
- ------------------------------------
By:
Position:
The Borrower:
MK GAIN, S.A. DE C.V.
- ------------------------------------
By:
Position:
<PAGE>
EXHIBIT "A"
FERROCARRILES' AGREEMENT
<PAGE>
EXHIBIT "B"
COMFORT LETTER
<PAGE>
EXHIBIT "C"
FORM OF TECHNICAL SUPERVISOR'S CERTIFICATE
<PAGE>
EXHIBIT "D"
SUBORDINATION AGREEMENT
<PAGE>
EXHIBIT "E"
TRUST
<PAGE>
EXHIBIT "F"
FINANCIAL RATIOS
<PAGE>
EXHIBIT "G"
FORM OF PROMISSORY NOTE
<PAGE>
EXHIBIT "H"
CONSTRUCTION AND REFURBISHING PROGRAM
<PAGE>
EXHIBIT "I"
AMOUNT OF INSTALLMENTS
<PAGE>
EXHIBIT "J"
AMENDMENT TO THE FNM MAINTENANCE AGREEMENT
<PAGE>
Exhibit 23.01
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-78660, 33-80702 and 33-80704 of MotivePower Industries, Inc. (formerly MK
Rail Corporation) on Form S-8 of our reports dated February 10, 1997 (except for
Note 7, as to which the date is February 27, 1997 and Note 18, as to which the
date is March 6, 1997), appearing in this Annual Report on Form 10-K of
MotivePower Industries, Inc. for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
March 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the year ended December 31, 1996 and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 5236
<SECURITIES> 0
<RECEIVABLES> 26506
<ALLOWANCES> 284
<INVENTORY> 78438
<CURRENT-ASSETS> 117169
<PP&E> 87627
<DEPRECIATION> 43644
<TOTAL-ASSETS> 234044
<CURRENT-LIABILITIES> 77720
<BONDS> 15535
0
0
<COMMON> 176
<OTHER-SE> 120804
<TOTAL-LIABILITY-AND-EQUITY> 234044
<SALES> 291407
<TOTAL-REVENUES> 291407
<CGS> 232434
<TOTAL-COSTS> 234560
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9143
<INCOME-PRETAX> 20287
<INCOME-TAX> 7714
<INCOME-CONTINUING> 12573
<DISCONTINUED> 0
<EXTRAORDINARY> 1064
<CHANGES> 0
<NET-INCOME> 11509
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
</TABLE>
