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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES ACT OF 1934
For the fiscal year ended October 3, 1999 Commission File No. 0-24492
CITATION CORPORATION
(exact name of registrant as specified in its charter)
Delaware 63-0828225
(State of Incorporation) (IRS Employer I.D. No.)
2 Office Park Circle, Suite 204
Birmingham, Alabama 35223
(Address of principal executive offices)
(205) 871-5731
(Registrant's Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
Common stock, $.01 par value
--------------------------------
(Title of Class)
Indicate whether the registrant 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, and has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Substantially all of the registrant's common equity is presently held by
affiliates of the registrant, and there is no market for the common equity.
Therefore, as of the date of this report, the aggregate market value of the
registrant's common stock held by non-affiliates of the registrant was none.
----
As of December 15, 1999 there were 15,180,266 shares of the registrant's Common
Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement/Prospectus dated October 29, 1999 filed in
connection with Citation Corporation's Registration Statement on Form S-4
(Registration No. 333-89431), are incorporated by reference into Part III of
this Report.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page No.
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<S> <C> <C>
PART I
1. Business............................................................. 3
2. Properties........................................................... 17
3. Legal Proceedings.................................................... 18
4. Submission of Matters to a Vote of Security Holders.................. 18
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................................. 19
6. Selected Financial Data.............................................. 20
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 21
7a. Quantitative and Qualitative Disclosures About Market Risk........... 31
8. Financial Statements................................................. 31
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................................. 71
PART III
10. Directors and Executive Officers of the Registrant................... 71
11. Executive Compensation............................................... 74
12. Security Ownership of Certain Beneficial Owners and Management....... 77
13. Certain Relationships and Related Transactions....................... 79
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..... 81
SIGNATURES .......................................................................... 87
</TABLE>
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CITATION CORPORATION
PART I
ITEM 1: BUSINESS
Citation Corporation, established in 1974, is a leading manufacturer of
cast, forged and machined components made primarily from iron, steel and
aluminum materials. The Company believes that it is the second largest castings
supplier and the third largest forgings supplier in the markets in which it
competes, with an overall 3% market share of the estimated $23 billion castings
and forgings market in North America.
The Company's products are used primarily in the automotive, construction
equipment, aerospace, agriculture and capital and durable goods industries. The
Company's cast and forged products are used in a wide range of applications,
including braking, steering, engine and drive train parts for passenger cars and
light trucks; suspension and transmission parts for heavy trucks; ground
engaging tools for construction equipment; parts for aircraft engines, landing
gear and structural airframes; and thousands of other critical parts for capital
and durable goods.
Citation markets its products to many of the major original equipment
manufacturers ("OEMs") and Tier 1 suppliers including, among others, Ford Motor
Company, Caterpillar Inc., Dana Corporation, TRW LucasVarity PLC, General Motors
and DaimlerChrysler Corp. Through innovative design and manufacturing expertise
developed by the Company, and through selective acquisitions, the Company has
established a leading market share in many of its product lines. In order to
increase its product breadth and technological capabilities, the Company has
grown significantly over the past several years through strategic acquisitions,
resulting in an increase in the number of divisions operated to 18 at the end of
fiscal 1999 from seven at the end of fiscal 1994.
Subsequent Events; Recent Change in Control
Following the end of the fiscal year, and as previously announced, on
December 1, 1999, RSJ Acquisition Co., a Delaware corporation ("Merger Co."),
and an affiliate of Kelso & Company, was merged (the "Merger") with and into
Citation Corporation, pursuant to an Agreement and Plan of Merger and
Recapitalization dated as of June 24, 1999, as amended (the "Merger Agreement"),
by and between Merger Co. and the Company. The Company was the surviving
corporation in the Merger.
In connection with the consummation of the Merger, certain investment
partnerships, other persons affiliated with Kelso & Company and certain other
stockholders invested $240.0 million in Merger Co., as a result of which such
stockholders now own approximately 93.0% of stock of the Company. Pursuant to
the Merger Agreement, certain existing holders of Citation common stock at the
effective time of the Merger (the "Effective Time") elected to retain an
aggregate of 1,062,619 shares of Citation common stock in the Merger,
constituting approximately 7.0% of the outstanding
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common stock of the Company. All remaining shares of Citation common stock
issued and outstanding at the Effective Time, other than treasury shares, were
converted into the right to receive cash in the amount of $17.00 per share. As a
consequence of the Merger, Citation common stock is now held by 21 shareholders.
In addition to the $240 million of equity provided by Kelso and affiliates
and the approximately $18.1 million of retained equity shares held by existing
holders of Citation common stock, the merger was financed through a senior
credit facility of approximately $260 million from a consortium of banks led by
The Chase Manhattan Bank, senior subordinated financing of $135 million from
Donaldson, Lufkin & Jenrette, Chase Securities, and First Union Capital Markets,
and retained debt of $6.3 million. The aggregate financing for the transaction
was $659.4 million. The Company also has a $100 million revolver available
through the senior credit facility that was not drawn upon at the time of the
merger.
As the surviving corporation in the merger, Citation continues to conduct
its business and operations substantially as they were conducted prior to the
merger. However, Citation stock has ceased to be publicly traded as of December
1, 1999, and is no longer listed on the Nasdaq Stock Market.
Pursuant to the Merger Agreement, the directors of Merger Co. at the
Effective Time, Thomas R. Wall, IV and Frank K. Bynum, Jr., became the directors
of the Company, and Frederick F. Sommer, the President and Chief Executive
Officer of the Company, was also elected to the Board of Directors. To the best
of the Company's knowledge, there are no known arrangements other than those
described herein which may at a subsequent date result in a change in control of
the Company.
Fiscal 1999 Overview
During fiscal 1999, there were several factors, sometimes contradictory,
which had an impact upon Citation's operations.
First, motor vehicle sales, particularly passenger car and light truck
sales, were extremely strong overall with projections for North America nearing
17 million for calendar 1999. This represents approximately half of Citation's
business.
Second, and related to the first, Citation launched substantial new
passenger car and light truck associated casting and machining business in
fiscal 1999. This included major new programs for Delphi Corporation and for
TRW LucasVarity, PLC.
Third, several markets, representing approximately 25 percent of Citation's
business under normal conditions, were extremely weak. This included
construction and mining equipment, farm equipment, and oil tool business. There
were different factors impacting these markets; construction equipment was
affected by weak export markets in fiscal 1999, while poor sales for farm
equipment was due to weak prices for farm goods, and the oil tool sector was
similarly affected by oil prices.
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Fourth, Citation acquired two companies in the first quarter of fiscal 1999
- - Custom Products, a machiner of industrial and automotive parts, and Citation-
Marion, the second largest producer of thin wall exhaust manifolds for passenger
cars and light trucks in North America.
These issues will be reviewed in more detail in the discussion of each
Citation group.
Markets and Customers.
Following is a review of Citation's largest customers and markets during fiscal
1999.
Citation seeks to maintain a significant presence in heavy capital goods
markets as well as in the automotive and light truck markets, and it focuses on
major customers within those markets in which Citation can attain a significant
presence. Citation's shipments by market are as follows;
<TABLE>
<CAPTION>
Fiscal Year
Market 1999 1998 1997
- ------ ---- ---- ----
<S> <C> <C> <C>
Automotive/Light Truck 50.8% 39.9% 34.7%
Medium and Heavy Truck 10.0 12.4 15.1
Construction Equipment 7.1 11.9 11.3
Internal Combustion Engines 6.1 3.2 4.7
Aircraft and Aerospace 4.7 4.7 2.7
Pumps, Valves & Compressors 3.3 5.5 6.9
Agricultural Equipment 2.3 5.0 4.2
Railroad Equipment 2.2 3.5 2.0
Electrical Equipment 1.6 2.1 1.9
Oil Field Equipment 1.5 5.3 6.1
Mining Equipment 1.0 2.0 1.5
Waterworks 0.7 1.0 1.4
Machine Tools 0.4 0.9 0.9
Other Uses 8.3 2.6 6.6
- ---------- ----- ----- -----
TOTAL 100.0% 100.0% 100.0%
</TABLE>
There were several significant changes in market shipments during fiscal
1999. In the automotive/light truck market, shipments increased from 39.9% in
fiscal 1998 to 50.8% in fiscal 1999. Four issues caused the increase. First,
the sales of new cars, light trucks and sport utility vehicles are presently
expected to reach approximately 17 million vehicles in 1999, significantly
stronger than anticipated. Second, Citation brought on several major new
programs for General Motors, Delphi, Chrysler, and TRW LucasVarity in fiscal
1999. Third, the acquisition of Citation-Marion, which produces light vehicle
exhaust manifolds, further increased market shipments to the
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automotive market. Fourth, the weakness in the industrial markets the Company
serves resulted in a higher concentration in Automotive/Light Truck shipments in
fiscal 1999.
Four key capital goods markets - construction equipment, agricultural
equipment, oil field equipment, and mining equipment - declined sharply in
fiscal 1999. Combined, the four markets represented 11.9% of shipments in 1999
versus 24.2% in fiscal 1998, a drop of almost 51%. These declines represent
economic activity, rather than lost business. Oil field equipment dropped the
most of the four; from 5.3% in fiscal 1998 to only 1.5% in fiscal 1999, a
decrease of approximately 72%.
Citation's top 10 customers also showed changes in fiscal 1999.
<TABLE>
<CAPTION>
Percentage of Sales
Fiscal Year
Company 1999 1998 1997 1996
- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Ford Motor Co. 10.3% 9.5% 10.5% 5.8%
TRW LucasVarity 8.2 6.9 2.1 1.8
Dana Corporation 5.5 6.3 5.6 5.2
Caterpillar, Inc. 4.3 6.3 8.7 4.3
DaimlerChrysler 3.2 2.2 2.0 2.1
Simpson Industries 2.6 2.6 2.4 2.0
Cummins Engine Co. 2.6 0.6 0.6 0.3
General Motors 2.5 0.9 1.6 0.7
Delphi Automotive Systems 2.4 0.8 -- --
Freightliner 2.1 1.0 1.2 1.5
</TABLE>
Citation's top 10 customers are based upon fiscal 1999 rankings by sales.
There were several changes of note. The continuing increase of TRW LucasVarity,
PLC is related to a supply agreement signed several years ago in connection with
the Company's Camden acquisition and additional new business being developed
each year since the signing of that agreement.
The reduction in Caterpillar from the 8.7% in fiscal 1997 is related to the
economy, principally the reduction in export business in 1998 and 1999. While
some improvement is expected in fiscal 2000, Caterpillar is expected to continue
operating at reduced levels for the next year or two.
The increase at DaimlerChrysler is due to the acquisition of Citation-
Marion, which supplies DaimlerChrysler and other automotive manufacturers with
exhaust manifolds, as well as new business at other Citation automotive plants.
The major increase for Cummins Engine Co. is primarily based upon the
acquisition of Citation Custom Products, a machining company. Cummins was, and
remains, a large customer of Citation Custom Products. The increases at both
General Motors and Delphi Automotive Systems
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are new products successfully started up at several Citation divisions.
Likewise, Freightliner has new programs at several Citation divisions.
Citation's product mix has also been evolving from the mix of iron and
steel in 1994, to a more balanced mix of castings, forgings and machined
components today.
<TABLE>
<CAPTION>
Product Mix
(Classified by Sales Dollars)
Fiscal Year
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Ductile Iron 44.9% 41.1% 39.1% 52.8%
Gray Iron 7.8 11.1 13.4 17.8
High Alloy Iron 1.4 1.9 1.1 1.5
Aluminum Castings 18.3 17.5 14.6 14.9
Steel Castings 5.4 6.4 7.1 13.0
Steel Forgings 9.3 14.6 17.6 --
Machined Components 12.9 7.4 7.1 --
</TABLE>
In general, several trends are apparent. First, iron castings as a percent
of the entire mix are less than in 1996. Iron in fiscal 1996 was 72% of the mix;
in fiscal 1999, it was 54%, while the total amount of iron shipments have
actually increased. Aluminum castings, steel forgings and machined components
have grown at a faster rate, largely as the result of acquisitions of Citation
Interstate (a forging manufacturer), Citation Custom (an industrial machining
company), and several aluminum casting producers.
Steel castings percentage of the total has been reduced due to the
divestiture of Pennsylvania Steel and the idling of the Steel Division of Texas
Foundries in 1996 and due to unfavorable economic conditions for heavy capital
goods in fiscal 1999. These same weak capital goods markets were also
responsible for the reduction of steel forgings as a percentage of the total
product mix in fiscal 1999.
Ductile iron castings, as a percentage, increased in fiscal 1999, both as a
result of reductions of shipments for steel castings and forgings, and the
acquisition of Citation Marion, a producer of ductile iron exhaust manifolds.
The strong automotive market in fiscal 1999 also positively affected ductile
iron and aluminum castings shipments.
The Automotive Group. The Automotive Group is Citation's largest group
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in terms of sales. It consists of the following divisions:
Citation's Automotive Group:
Southern Aluminum - aluminum castings, machining and assembly
Bohn Aluminum - aluminum permanent mold castings
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Dycast - aluminum die cast and squeeze mold and machining
Camden - ductile iron brake castings
Marion - ductile iron thin wall exhaust manifold castings
Alabama Ductile - ductile iron automotive castings
Texas Foundries - ductile iron automotive castings and machining
In fiscal 1999, the Automotive Group had sales of $381.8 million versus
sales in fiscal 1998 of $290.6 million. Excluding the effect of acquisitions on
the sales, same store sales still increased by $50.0 million or 17.2%.
As indicated, the Automotive Group's sales are predominantly for light
trucks and sport utility vehicles and passenger cars. Products produced are
used on automotive engines such as intake and exhaust manifolds, oil filter
adapters, and various engine brackets. Parts are also used in braking and
steering systems such as ABS calipers and anchor plates and steering knuckles as
well as suspension parts such as control arms.
In fiscal 1999, Citation benefitted from positive trends in automotive
sales with sales of new cars, light trucks and sport utility vehicles
approaching 17 million vehicles. In addition, Citation had several major new
programs that had an impact on fiscal 1999 business. This included both a major
package of steering knuckles outsourced by a large automotive manufacturer as
well as increasing sales of calipers, anchor plates and other braking parts to
TRW LucasVarity.
Also during the year, Citation acquired one additional company, which was
renamed Citation-Marion. Citation-Marion was purchased from a group of Japanese
companies exiting from the U.S. market. It is the second largest producer of
ductile iron thin wall exhaust manifolds for automobile engines in North
America. The unit produced sales of $31.6 million in fiscal 1999 following its
purchase in late December 1998. Citation-Marion employs approximately 420
persons.
In addition to the acquisition of Citation-Marion, the structure of the
Group was slightly changed.
Hi-Tech, Inc., a machining company with fiscal 1999 sales of $12.9 million
was combined with Citation Custom Products, a machining company that is part of
the Industrial-Iron Group, after the end of fiscal 1999. The fiscal 1998 and
1999 results discussed herein have been adjusted retroactively to reflect this
change. This will be discussed in the section on Industrial-Iron.
Citation Bohn Aluminum exited the medium volume market and now produces
only high volume permanent mold aluminum castings, predominantly for the
automotive market. Removal of the medium volume cell from Bohn, while it did
not increase plant capacity, did improve plant layout.
There were also a number of major capital projects in the group, which
increased capacity and allowed production of new products.
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Citation Alabama Ductile added new shear units, non-destructive testing and
robot pick and place arms for the production of new automotive brake brackets.
Citation Camden completed the upgrading of two high-speed molding lines,
replacing three molding lines previously in operation. However, because the
speed on the upgraded lines is more than double the old lines, capacity of the
plant is actually increased. In addition, Camden added a new Isocure core
machine to enable production of a new family of TRW LucasVarity disc brake
calipers for Chrysler mini-vans.
Hi-Tech, Inc., now named Citation Custom Products-Albion, added machining
capacity for a ductile iron clutch hub, cast at Citation Alabama Ductile. The
clutch hub is part of the transmission used on the Chrysler Jeep Cherokee
transmission.
Citation Southern Aluminum had two major projects initiated in fiscal 1999.
First was the addition of new machining and assembly capacity for the oil filter
adapter assembly, which is utilized by Ford. The second was the addition of a
permanent mold production carousel for an automotive suspension rear upper
control arm. Addition of this carousel gives Southern Aluminum the capability
for aluminum sand and permanent mold casting methods, as well as machining and
assembly of automotive components.
Citation Dycast added two die casting machines and robotics for a Ford
Motor transmission part. Cost was approximately $3.3 million.
In all, Citation's Automotive Group spent $15.5 million on new capital
expenditures in fiscal 1999.
The Industrial-Iron Group. Ranked by sales, the Industrial-Iron Group is
--------------------------
the second largest in the corporation. It includes the following divisions:
Citation's Industrial-Iron Group:
Wisconsin Castings (Berlin and Browntown locations) - small
complex gray and ductile iron castings at Berlin and large gray iron
castings at
Browntown for heavy industrial uses.
Castwell Products -- high alloy gray and ductile iron castings in
green sand and shell molding for automotive and industrial
applications.
Custom Products (Menomonee Falls, WI, Oconomowoc, WI, and Albion,
IN) - machines castings and forgings for industrial and automotive
applications.
Foundry Service - small, medium volume, ductile iron castings for
industrial and heavy truck applications.
Mabry - medium and large ductile and gray iron castings for industrial
applications.
Mansfield - medium volume, small ductile iron castings for industrial,
heavy truck, and rail applications.
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Southern Ductile (Bessemer, Centerville and Selma, AL locations) -
small, medium volume industrial and light truck applications.
Citation's Industrial-Iron Group had sales volume of $284.9 million in
fiscal 1999, versus $249.4 million in fiscal 1998, an increase of $35.5 million.
However, excluding acquisitions, 1999 sales were $216.1 million, a $33.3 million
decrease from the previous year. Only two divisions had better sales in fiscal
1999 than fiscal 1998.
Approximately 85% of the Industrial-Iron Group's sales are to industrial
customers. In general, the Group serves more and smaller customers than the
Automotive Group. Major markets include heavy trucks, construction equipment,
mining equipment, farm equipment, industrial valves, oil tools, and automotive.
The Group casts and machines several thousand different parts.
While heavy truck sales were relatively strong in 1999, other heavy
industrial markets were very weak. Specifically, orders for cast and machined
products for construction and mining equipment, farm equipment, and oil tools
were substantially below 1998, and this had significant impact upon Citation
industrial sales.
The Industrial-Iron Group did acquire one new division in fiscal 1999,
Citation Custom Products, which was acquired in November 1998. Custom Products
is a high volume machiner of cast and forged aluminum, iron and steel products
for industrial products manufacturers, with two plants in the Milwaukee area.
The Company had sales of $68.8 million in fiscal 1999. Its markets are internal
combustion engines, construction equipment, farm implement, and automotive
manufacturers.
Because of Custom Products' strong management and technology, Citation Hi-
Tech division was combined with Custom Products and renamed Citation Custom
Products-Albion. The purpose is to strengthen Albion's technology, management
support, to reduce administrative costs, and balance machining workload. With
Custom Products, Citation has the capability to quote and produce designed, cast
and/or forged, machined and assembled components. This adds value to Citation
products and produces a better margin return.
To strengthen industrial coverage and reduce costs, industrial sales and
marketing for the group was centralized during the year. Previously, each unit
had its own sales department and sales force. The operating strategy of the new
sales and marketing group was to focus its efforts on the development of key
industrial customers and markets. In addition, the direct sales force is
significantly smaller than the previous sales force, since one sales person can
now represent all units within the group and outside sales representative
coverage is greatly reduced. The effect is to improve key account coverage and
new business development, and to reduce sales and marketing costs.
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Administrative and control costs were also reduced by combining two
Wisconsin divisions into one, Citation Wisconsin Castings, with Iroquois and
Berlin Foundries placed under one General Manager, with a Plant Manager at each
location.
The Industrial-Iron Group completed a number of capital projects during the
year. Citation's Custom Products installed equipment to machine a steering
knuckle for another product line at a cost of about $0.5 million.
Citation's Foundry Service expanded its melt area by approximately 25% at a
cost of $2.35 million. The expansion enabled Foundry Service to reduce
operations from three shifts to two shifts with approximately the same output.
The Citation Mansfield division added an additional core manufacturing
machine and a shear press, both to enable production of an exhaust manifold,
which will be machined at Citation's Custom Products. Cost was approximately
$1.5 million. The plant also added a trim press system to allow faster
production of Buffalo Brake parts.
Citation's Southern Ductile expanded its grinding and shipping area at a
cost of $0.4 million and upgraded computer systems at the Bessemer plant at a
cost of $0.2 million. Further, a Hunter 20 molding machine for casting
production was moved from the Mabry facility where production was not needed to
the Southern Ductile Centerville facility where it will be better utilized.
In all, the Industrial-Iron Group spent $19.8 million on capital
expenditures during fiscal 1999.
The Industrial-Steel Group. The Industrial-Steel Group is the third
---------------------------
largest group, ranked by sales. It includes the following divisions:
Citation's Industrial-Steel Group:
Interstate-Midwest - low to medium volume small steel forgings
primarily for farm and construction equipment.
Interstate-Southwest - medium to high-volume large steel forgings for
heavy truck, construction equipment, aircraft, and oil tool markets.
The largest closed-die forging press in the United States is located at
the Southwest Division.
Texas Steel - produces large carbon and stainless steel castings for
construction and mining equipment.
Aceros Fundidos Internacionales (AFI) - steel foundry located in Mexico
to produce ground-engaging tools for Caterpillar. Under construction
during fiscal 1999. (Jointly owned with Caterpillar, Inc.)
In fiscal 1999, the Industrial-Steel Group had sales of $109.3 million,
versus sales of $146.4 million, a decrease of approximately 25%. There was no
impact of acquisitions in fiscal 1999. The percentage decline in sales was
relatively the same at both divisions in the Group and represented
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reductions in orders from customers in the oil tool, mining and construction
equipment and agricultural equipment markets.
The Industrial-Steel Group was reorganized in fiscal 1999 to better utilize
management of Interstate at Texas Steel. This includes combining sales and
marketing activities into one Industrial-Steel sales group. This enabled the
reduction of sales representatives and the combining of steel marketing
personnel into one group, reducing selling costs and improving efficiency.
While capital was limited due to weak sales, Interstate-Southwest did
complete installation of a 7,000-ton press to augment capacity of the 6,000-ton
press at the same plant. This is now the second largest press at the Southwest
plant.
In addition, while funded separately from the Industrial-Steel Group, AFI
completed construction shortly after the end of the fiscal year. The facility
was going through ramp up at the calendar year end.
Totally, excluding the cost of AFI, the group spent approximately $1.7
million on capital expenditures in fiscal 1999.
The Aerospace and Technology Group. The Aerospace and Technology Group
-----------------------------------
includes Citation's high technology operations, Product Engineering, and the
quality assurance and technology staffs.
Citation's Aerospace and Technology Group:
Citation Foam Castings - produces gray and ductile iron castings
utilizing the "lost foam" or "evaporative casting process" for the
automotive, heavy truck, marine and other industrial markets.
Citation Precision - aluminum and steel investment castings for the
aerospace industry.
Citation Product Engineering - designs aluminum, steel and iron
castings, including lost foam castings, and steel forgings, and
machined castings and forging for Citation customers utilizing
compatible design hardware and software.
Quality Assurance and Technology - staff experts utilized both
internally and in customer liaison.
In fiscal 1999, the Aerospace and Technology Group had sales of $66.9
million versus sales in fiscal 1998 of $50.5 million. However, Citation
Precision was acquired during fiscal 1998 and Oberdorfer Industries was divested
during fiscal 1999. Adjusted "same store" sales in fiscal 1999 increased by
$6.3 million or approximately 10% over fiscal 1998.
Citation Foam Castings utilizes a unique process by which a replica of the
part to be produced is made in a polystyrene-like material. This "foam" replica
is assembled into a group of
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parts with a downsprue to duct molten metal to the foam parts, called a "tree."
The patterns are then coated in ceramic slurry and dried.
The tree is submerged in a metal flask and dry sand is compacted around it.
Molten metal is poured into the tree, which evaporates as the molten iron
contacts the polystyrene. What remains, after the molten iron cools, is a
precise replica.
The advantage of the process is that it forms a near net shape that
requires little or no machining, a major cost savings to the customer. Further,
there are design capabilities in lost foam that are not practical in
conventional molding methods.
During fiscal 1998, Citation Foam Castings completed the final phase of its
extensive expansion. The finishing and painting operations had been reorganized
and housed in a new facility and the melt operation expanded earlier. In fiscal
1998, in addition to completing those areas, a new foam line at a cost of
approximately $3.0 million was installed and started up.
The new line doubles molding capacity for the facility, which is now
capable of producing nearly $40 million a year of lost foam castings. In
addition, the new line allows the production of larger castings than Citation
Foam was previously capable of accomplishing.
In fiscal 1999, approximately $1.85 million of capital was spent for
processing equipment and robotics for the purpose of automating production for a
new General Motors program awarded to Citation Foam. GM outsourced the castings
from its in-house lost foam production facilities in order to increase capacity
for engine block production. The program ramped up in fiscal 1999 and will
reach full production in fiscal 2000.
Citation Precision produces steel and aluminum castings only for the
aerospace market often replacing fabrications. The Company principally produces
castings for uses in the manufacture of aircraft engines or for the structural
airframe. Directly and indirectly, Boeing, McDonald Douglas, Rolls Royce, and
Pratt & Whitney are major customers.
Citation Precision operated at a high level of capacity during the first
three quarters of fiscal 1999, though temporary cutbacks in Boeing schedules in
the fourth fiscal quarter reduced operating levels. Improvement is expected in
the second fiscal quarter of 2000 beginning in January.
Because of the need for expansion to meet demand, Citation Precision spent
$3.1 million on capital expenditures in fiscal 1999. These included the
purchase of adjacent property for expansion and as well as enlargement of
buildings and added equipment to enable the production of large castings.
Citation's Product Engineering also increased its capacity in fiscal 1999,
including improvements in the communications system, additional simulation
engineering workstation and
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software, as well as new design software and workstation, and software for
structural analysis. Approximately $0.4 million was spent on capital
expenditures in the Product Engineering area.
Raw Materials
The primary raw material used by the Company to manufacture iron and steel
castings is steel scrap. To produce aluminum castings the Company purchases
aluminum ingot to specified alloy grades. The ingot is purchased from primary
aluminum producers and in some cases from secondary smelters. Bohn Aluminum and
Southern Aluminum produce part of their requirements by operating smelters that
melt scrap aluminum.
The Company purchases steel scrap from numerous sources, generally regional
scrap brokers, using a combination of spot market purchases and contract
commitments. The Company has no long-term contractual commitments with any
scrap supplier and does not anticipate, nor has it experienced, any difficulty
in obtaining scrap. This is due to the relatively large number of suppliers and
the Company's position as a major scrap purchaser.
The cost of steel scrap is subject to fluctuations, but the Company has
contractual arrangements with most of its customers allowing it to adjust its
casting prices to reflect fluctuations. In periods of rapidly rising steel scrap
prices, these adjustments will lag the current market price for steel scrap
because they are generally based on average market prices for prior periods.
These periods vary by customer but are generally no longer than one quarter.
This adjustment lag may have an adverse effect on the Company's results of
operations during such periods.
The price of aluminum ingot is also subject to fluctuations and in some
cases the Company has contractual arrangements to adjust its prices to reflect
fluctuations. In other cases, changes in aluminum ingot prices must be
recovered through casting price negotiations with the customer. Recovery of cost
increases in both cases may lag the aluminum ingot price increases by a quarter
or more.
Backlog
The Company's backlog of orders at October 3, 1999 was approximately $187.3
million compared to approximately $196.7 million at September 27, 1998. The
Company's operating divisions normally receive purchase orders from customers
either annually or for the life of the part specified. Purchase orders specify
product requirement, price, and terms, but do not specify quantity, which is
usually ordered by the customer on a monthly basis. The Company's backlogs are
calculated from these monthly orders and, accordingly, are considered by the
Company to be a good indication of product demand.
14
<PAGE>
Competition
The market for the Company's casting products is highly competitive. There
are an estimated 3,000 foundries and forge shops currently producing ductile
iron, gray iron, steel and aluminum castings and steel forgings in the United
States. The companies within the industry compete on the basis of price,
quality, service and engineering. The industry consolidation that has occurred
over the past two decades has resulted in a significant reduction in the number
of smaller foundry companies and a rise in the share of production held by the
larger foundry companies. Major users of castings and forgings own some of the
foundries and forge shops in this industry. For example, the three largest
automobile manufacturers operate foundries. Some of the Company's competitors
have greater financial resources than the Company, may have lower production
costs than the Company, or both.
Employees
As of October 3, 1999, the Company had 6,876 full time employees, of whom
5,783 were hourly employees and 1,093 were salaried employees. Unions represent
approximately 2,602 of the Company's hourly manufacturing employees at 9 of its
18 operating divisions under collective bargaining agreements expiring at
various times through October 2002.
The management of each division and corporate staff participate in a
management bonus pool. Divisional management's bonus compensation is based on
the financial performance of their respective divisions versus budgeted
performance, specific individual objectives, and development of corporate
culture. Corporate management and staff bonus compensation is based on overall
Company financial performance versus budgeted performance, meeting specified
objectives, and development of corporate culture. Hourly incentive plan
programs and participants vary by division.
Environmental Matters
Companies in the foundry and forging industries must comply with numerous
federal, state and local environmental laws and regulations which address the
generation, storage, treatment, transportation and disposal of solid and
hazardous waste, and the release of hazardous substances into the environment.
The Company's operations require compliance with these regulations, as well as
regulations concerning workplace safety and health standards. The Company
believes it is in substantial compliance with these laws and regulations.
The Company has implemented substantial record keeping, management
procedures and practices for the purposes of complying with environmental laws
and regulations. In seeking to comply with these laws and regulations, each
foundry has personnel responsible for environmental issues who work closely with
the Company's corporate director of environmental management. The corporate
director assists in supplying technical advice and guidance in interpreting
regulations, transferring technology, procedures and obtaining permits.
15
<PAGE>
The chief environmental issues for the Company's foundries are air
emissions and solid waste disposal. For foundries, air emissions, primarily
dust particles, are handled by dust collection systems. The solid waste
generated by these foundries is generally sand, which is recycled and reused in
the foundry or disposed of as non-hazardous waste in landfills on Company
property or in permitted off-site landfills. The Company has closed certain of
the landfills on its properties without incurring material expenditures and
expects to close other such landfills in the future without incurring material
expenditures. The Company has also begun beneficially reusing the excess sand
as fill material and as a raw material in other products such as cement and
asphalt. However, there can be no assurance that future regulations will not
require the Company to incur additional and potentially material costs related
to its past or present environmental practices. Because the Company's forge and
machine shops do not melt metal nor utilize sand in their operations,
environmental issues are much more limited than foundry operations.
Certain of the Company's foundries do use solvents or oils. The Company
has in place programs and procedures regarding the proper use, storage and
disposal of such materials.
Although the Company's practices have, in certain instances, resulted in
noncompliance with environmental laws and regulations and in non-material fines
related thereto, the Company currently does not anticipate any environmental
related costs that would have a material adverse effect on its operations.
However, it cannot be assured that the Company's activities will not give rise
to actions by governmental agencies or private parties, which could cause the
Company to incur fines, penalties, operational shutdowns, damages, clean-up
costs or other similar expenses. Also, the Company's existing capacity levels,
or increases thereof, are dependent upon the Company's ability to maintain, or
obtain increases in such levels in its permits for air emissions. However, it
cannot be assured that the Company will be able to maintain its current permits,
or obtain appropriate increases in capacity levels under such permits, so as to
maintain its current level of operations or increase capacity, as it may desire
in the future.
The Company is implementing a source removal and shallow groundwater
remediation project at Castwell Products for purposes of removing excessive
levels of trichloroethylene ("TCE"), which were detected at this facility.
These excessive levels of TCE resulted from previous leakage into the
groundwater from a part washing area located on the premises. The need for the
remediation was identified in connection with the Company's acquisition of
Castwell Products, and the Company assumed an accrued liability in the amount of
$1.2 million related to the estimated cost of the remediation. Of this amount,
approximately $600,000 was paid through fiscal 1999 in connection with soil
removal, groundwater remediation measures and testing expenses. Of that amount,
approximately $450,000 was spent through fiscal 1998. Thereafter, the Company
estimates that it will incur approximately $40,000 annually for an estimated 20
to 30 years for ongoing monitoring and periodic sampling tests. There can be no
assurance, however, that the costs and expenses related to this remediation
project will not be materially greater than currently estimated.
Iroquois Foundry paid over $57,000 in penalties in May 1999 to the USEPA
due to violations detected during an August 1997 inspection. The EPA accepted
the results of a February 1999 cupola
16
<PAGE>
stack test related to corrective action taken by Iroquois as passing. However,
the Wisconsin Department of Natural Resources (WDNR) requested another stack
test in September 1999, which the foundry failed. A Notice of Violation has been
issued by the WDNR and further corrective action taken by the foundry that it
believes was successful. Nevertheless, it is possible that the WDNR or the EPA
could assess additional penalties.
The 1990 amendments to the Clean Air Act may have a major impact on the
compliance costs of many U.S. companies, including foundries. Many of the
regulations that will implement the Clean Air Act amendments have not yet been
promulgated. The MACT Standard affecting iron and steel foundries, which was
due to be issued in draft form in November 1999 and in final form in November
2000, has not yet been issued in draft form. Until such regulations are issued,
it is not possible to estimate the costs the Company may need to incur to comply
with them, but the foundry industry continues to work with the USEPA in
developing these standards.
ITEM 2: PROPERTIES
The following table sets forth certain information concerning the
facilities owned and operated by the Company as of October 3, 1999:
<TABLE>
<CAPTION>
Capacity /(1)/ Floor Space
Facility Location (Tons per Year) (Sq. Ft.)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alabama Ductile Brewton, Alabama 45,000 135,000
Bohn Aluminum Butler, Indiana 15,000 135,000
Castwell Products Skokie, Illinois 32,000 286,000
Citation Camden Camden, Tennessee 25,300 117,000
Citation Dycast Lake Zurich, Illinois (2) 96,000
Citation Foam Columbiana, Alabama 13,000 130,000
Citation Interstate-Midwest Milwaukee, Wisconsin 16,000 200,000
Citation Interstate-Southwest Navasota, Texas 42,000 500,000
Citation Mabry Beaumont, Texas 12,250 118,000
Citation Mansfield Mansfield, Ohio 30,000 242,000
Citation Marion Marion, Alabama 22,000 146,000
Citation Precision Rancho Cucamonga, California (3) 68,000
Citation Wisconsin Castings- Berlin, Wisconsin 30,000 335,000
Berlin
Citation Wisconsin Castings- Browntown, Wisconsin 25,000 131,600
Browntown
Custom Products Menomonee Falls and (4) 250,000
Oconomowoc, Wisconsin
Custom Products-Albion Albion, Indiana (4) 67,000
Foundry Service Biscoe, North Carolina 20,000 160,000
Southern Aluminum Bay Minette, Alabama 22,000 255,000
Southern Ductile Bessemer, Alabama 15,000 108,000
Centreville, Alabama 2,400 32,000
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Capacity /(1)/ Floor Space
Facility Location (Tons per Year) (Sq. Ft.)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Selma, Alabama 5,000 30,000
Texas Foundries Lufkin, Texas 90,000 595,000
Texas Steel Corporation Fort Worth, Texas 23,500 454,000
485,450 4,590,600
</TABLE>
(1) Maximum capacity of each foundry is based on six days of operations per
week with two ten-hour-shifts per day, except for Citation Wisconsin
Castings-Browntown, which is based on one ten-hour-shift per day and Bohn
Aluminum, which is based on five days of operations per week with three
eight-hour-shifts per day.
(2) Citation Dycast is a die casting producer. Castings are measured as
revenue per die cast machine. Estimated Dycast capacity is $1.5 million
per machine, aggregating $36.0 million annually.
(3) Citation Precision sells aluminum and steel products. The value of these
products are the dimensions and metallurgical properties. Capacity is
measured in sales revenue, rather than tons. Estimated capacity of
Citation Precision is approximately $33.0 million in annual sales revenue.
(4) Custom Products performs machining. Capacity is measured in sales revenue,
rather than tons. Estimated capacity of Custom Products in Wisconsin is
approximately $95.0 million in sales revenue, while Custom Products-Albion
(Hi-Tech, Inc.) is approximately $15 million.
The Company believes that its properties have been adequately maintained,
are in generally good condition and are suitable for the Company's business as
presently conducted. The Company believes its existing facilities, together with
the current and proposed internal expansion described elsewhere herein, provide
sufficient production capacity for its present needs and for its anticipated
needs in the foreseeable future.
ITEM 3: LEGAL PROCEEDINGS
From time to time, the Company is named as a defendant in legal actions
arising out of the normal course of business. The Company is not a party to any
pending legal proceedings the resolution of which, either individually or in the
aggregate, is expected by management of the Company to have a material adverse
effect on the Company's cash flow, results of operations or financial condition
or to any other pending legal proceedings other than ordinary, routine
litigation incidental to its business. The Company maintains liability
insurance against risks arising out of the normal course of business.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the Company's fiscal year covered by this
report, no matter has been submitted to a vote of security holders, through the
solicitation of proxies or otherwise.
18
<PAGE>
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
As of the Effective Time of the Merger, there was no longer any established
public market for the Company's common stock. Prior to the Merger, from August
2, 1994 until December 1, 1999, the Company's common stock was listed and traded
on the NASDAQ National Market System under the symbol CAST.
As of December 1,1999, there were 21 holders of the Company's Common Stock.
The Company has never declared or paid a cash dividend, except for
dividends paid to the Company's former S corporation shareholders. It is the
present policy of the Board of Directors to retain all earnings for the
development of the Company's business. Any payment of dividends in the future
will depend upon the Company's earnings, capital requirements, financial
condition and such other factors as the Board of Directors may deem relevant.
Under the terms of the senior credit facility dated as of November 30,
1999, the Company is prohibited from declaring or paying cash dividends with
respect to its capital stock.
Recent Sales of Unregistered Securities
On December 1, 1999, in connection with the Merger, the Company incurred
$135.0 million in bridge financing indebtedness, consisting of (i) senior
subordinated increasing rate Bridge Notes issued to Citation Funding, Inc. and
First Union Investors, Inc. in a private placement in the aggregate principal
amount of $101,250,000 and (ii) a Bridge Loan from The Chase Manhattan Bank in
the principal amount of $33,750,000 (the Bridge Loan and Notes, collectively,
the "Obligations"). See the discussion at note 20 of the Consolidated Financial
Statements. Citation also issued warrants, equal to 5.0% of its fully diluted
common stock, which have been deposited into an escrow account and are to be
used in connection with selling, transferring, assigning or refinancing the
Obligations after the first anniversary of the Effective Time of the Merger.
The warrants will be exercisable at $0.01 per share for a period of seven years
from the date of release from escrow. The warrants have customary anti-dilution
provisions, tag-along rights and demand and "piggy-back" registration rights.
Any warrants issued in connection with any selling, transferring, assigning or
refinancing the Obligations will be released from escrow, pro rata over the next
four quarterly periods, to the holders of the Obligations. The Bridge Notes and
the warrants were issued in reliance on the exemption from registration afforded
by Section 4(2) of the Securities Act of 1933, in a transaction not involving
any public offering.
19
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company and
should be read in conjunction with the consolidated financial statements and
notes related thereto included elsewhere in this report. The selected financial
data as of and for the five years ended October 3, 1999 have been derived from
the Company's consolidated financial statements, which were audited by
PricewaterhouseCoopers LLP, the Company's independent accountants.
<TABLE>
<CAPTION>
Fiscal Year Ended /(1)/
(In thousands, except per share amounts)
October 1, September 29, September 28, September 27, October 3,
1995 1996 1997 1998 1999
------------- ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Sales $307,681 $487,753 $648,961 $724,017 $830,521
Cost of sales 243,493 404,961 538,502 612,035 704,370
-------- -------- -------- -------- --------
Gross profit 64,188 82,792 110,459 111,982 126,151
Selling, general and administrative
expenses 32,697 45,844 58,066 63,603 72,710
FAS 121 impairment charge - - - 10,000 -
-------- -------- -------- -------- --------
Operating income 31,491 36,948 52,393 38,379 53,441
Interest expense, net 3,974 7,866 14,433 15,254 22,359
Other expense (income)/(2)/ (581) 1,178 (14) 2,155 8,130
-------- -------- -------- -------- --------
Income before provision for income taxes 28,098 27,904 37,974 20,970 22,952
Provision for income taxes 11,019 11,162 14,810 8,178 9,940
-------- -------- -------- -------- --------
Net income $ 17,079 $ 16,742 $ 23,164 $ 12,792 $ 13,012
======== ======== ======== ======== ========
Earnings per share - basic $1.27 $0.95 $1.31 $0.72 $0.73
Weighted average number of shares ======== ======== ======== ======== ========
outstanding - basic 13,438 17,694 17,733 17,838 17,885
======== ======== ======== ======== ========
Earnings per share - diluted $1.25 $0.94 $1.29 $0.71 $0.72
Weighted average number of shares ======== ======== ======== ======== ========
outstanding - diluted 13,652 17,866 17,918 18,042 17,968
======== ======== ======== ======== ========
Other data (Unaudited):
Backlog (in dollars) $ 78,262 $ 84,596 $156,880 $196,677 $187,346
Capital expenditures $ 29,844 $ 31,166 $ 40,531 $ 47,679 $ 44,167
Depreciation and amortization $ 10,638 $ 20,151 $ 30,489 $ 36,275 $ 45,286
EBITDA /(3)/ $ 42,129 $ 57,099 $ 82,882 $ 84,654 $ 98,727
Gross margin 20.9% 17.0% 17.0% 15.5% 15.2%
Balance Sheet Data (at end of period):
Current assets $ 94,591 $135,359 $160,503 $183,678 $218,154
Current liabilities 56,015 72,855 93,957 99,056 116,050
Working capital 38,576 62,504 66,546 84,622 102,104
Net property, plant and equipment 143,425 199,367 282,991 307,008 339,966
Total assets 271,871 383,557 493,296 569,265 688,890
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended /(1)/
(In thousands, except per share amounts)
October 1, September 29, September 28, September 27, October 3,
1995 1996 1997 1998 1999
------------- ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Short-term debt, including current
portion of long-term debt $ 6,553 $ 2,654 $ 2,994 $ 6,316 $ 2,331
Long-term debt, excluding current
portion of long-term debt $ 71,254 $ 140,946 $ 181,239 $ 237,525 $ 321,002
Stockholders' equity $ 132,476 $ 149,319 $ 172,639 $ 186,034 $ 199,323
</TABLE>
(1) The Company operates on a 52- or 53-week fiscal year ending on the Sunday
closest to September 30. Fiscal years 1995, 1996, 1997, and 1998 were 52-
week fiscal years while 1999 was a 53-week fiscal year.
(2) The fourth quarter of fiscal 1999 and 1998 included $4,725 and $1,610,
respectively, of expenses related to failed subordinated debt offerings
which were recorded as non-operating expenses. Additionally, fiscal year
1999 included $1,590 of expenses resulting from stock option extensions
related to the Kelso acquisition, as well as a recorded loss of $1,815
related to the sale of Oberdorfer, which was completed during the year.
(3) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represent operating income plus depreciation and amortization. For fiscal
1998, the SFAS 121 impairment charge of $10.0 million is also added to
operating income. EBITDA should not be considered as an alternative
measure of net income or cash provided by operating activities (both as
determined in accordance with generally accepted accounting principles),
but it is presented to provide additional information related to the
Company's debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of financial performance or
liquidity.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and notes thereto, included
elsewhere in this annual report.
The Company operates on a 52- or 53- week year, ending on the Sunday
closest to September 30. Fiscal years 1994, 1995, 1996, 1997 and 1998 consisted
of 52 weeks. The fiscal year ending October 3, 1999 was a 53 week year.
Forward Looking Statements. The statements in this Form 10-K that are not
historical fact are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Those statements appear in a
number of places in this report and include statements regarding the intent,
belief or expectations of the Company and its management with respect to, among
other things: (i) the Company's operating performance; (ii) the Company's
expectations concerning sales growth and earnings per share growth; (iii) the
intent, belief or expectations of the Company and its directors and officers
with respect to anticipated acquisitions and acquisition strategies; (iv) trends
in the industries served by the Company; and (v) trends which may affect the
Company's financial condition or results of operations. Such statements are
subject to numerous risks and uncertainties which could cause actual results to
differ materially from anticipated results.
21
<PAGE>
The following are some of such factors, risks and uncertainties: (i) competitive
product and pricing pressures; (ii) fluctuations in the cost and availability of
raw materials; (iii) general economic and business conditions, as well as
conditions affecting the industries served by the Company; (iv) the ability to
generate sufficient cash flows to support acquisition strategies, capital
expansion plans and general operating activities; (v) recent management changes;
and (vi) the Company's ability to penetrate new markets. Readers are cautioned
not to place undue reliance on these forward looking statements which speak only
as of the date hereof. Readers are also urged to carefully review and consider
the various disclosures made by the Company which attempt to advise interested
parties of the factors which affect the Company's business, including the
disclosures made in other periodic reports on Forms 10-K, 10-Q and 8-K filed
with the Securities and Exchange Commission.
Overview
The Company manufactures cast, forged and machined components made
primarily from iron, steel and aluminum. The Company's products are used
primarily in the automotive, heavy truck, construction and mining equipment,
aerospace and agricultural and other capital and durable goods industries in a
wide range of applications, including braking, steering, engine and drive train
parts for passenger cars, SUVs and light trucks; suspension and transmission
parts for medium and heavy trucks; wheels, differential housings and ground
engaging tools for construction and mining equipment; parts for aircraft
engines, landing gear and structural airframes; and various other critical parts
for agricultural, capital and durable goods. The Company distributes its
products principally to manufacturers, including OEMs and Tier 1 suppliers.
The Company's sales and earnings are dependent upon automotive, medium and
heavy truck, construction equipment and agricultural, durable and other capital
goods production and consumer spending, and are significantly affected by the
strength of the general economy. Since 1995, the Company has experienced strong
demand in the automotive and medium and heavy-truck markets, and since it
acquired Citation Precision in March 1998, the Company has experienced strong
demand in the aerospace market. Since the fourth fiscal quarter of 1998, the
Company has experienced a decrease in demand in the construction equipment and
agricultural, durable and other capital goods markets. Recent economic weakness
in Asia has caused a reduction in demand for heavy construction equipment.
Historically low commodity prices have reduced sales to the agricultural
equipment industry. Also, low oil prices in the end of 1998 and the beginning
of 1999 led to lower capital spending by the petrochemical and natural gas
industry, reducing orders for the Company's products in these markets. In
addition, the fourth quarter of fiscal 1998 was negatively affected by a strike
at GM which reduced direct and indirect sales to GM during the quarter.
Most of the purchase orders the Company enters into with its customers
provide that the Company will supply the part or parts covered by the order for
the entire life of the product or platform. The life of a part exists for at
least as long as the model into which it is integrated. The life of any
particular model varies by industry, with the shortest being 3 to 5 year average
production runs in the automotive industry and the longest being up to 10 to 15
year average production runs in the construction industry. In addition, most of
the purchase orders the Company enters into:
22
<PAGE>
(1) are on a sole-source basis, where the Company is the only supplier to the
customer for the part covered by the order, (2) do not require the purchase by
the customer of a minimum number of units, and (3) provide for price adjustments
related to changes in the cost of the Company's raw materials, including scrap,
steel, aluminum, or forge billet or bar stock. Also, consistent with industry
practices, certain of the Company's contracts with automotive customers provide
for annual price reductions.
The principal components of the cost of sales of the Company's products are
labor (including benefits) and materials, which constituted approximately 65% of
the total cost of sales for the year ended October 3, 1999. The remaining 35% of
the total cost is comprised of supplies and maintenance, utilities,
depreciation, outside services and other costs.
Results of Operations
The following table sets forth operating results expressed as a percentage
of sales for the periods indicated and the percentage change in such operating
results between periods.
<TABLE>
<CAPTION>
Period-to-Period
Percentage
Percentage of Sales Increase
Fiscal Year Ended (Decrease)
--------------------------------- ---------------------------
1998 1999
Sept.28, Sept. 27, Oct. 3, compared to compared to
1997 1998 1999 1997 1998
------------ ---------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Sales 100.0 100.0 100.0 11.6 14.7
Cost of sales 83.0 84.5 84.8 13.7 15.1
-------- -------- --------
Gross profit 17.0 15.5 15.2 1.4 12.7
Selling, general and
administrative expenses 8.9 8.8 8.8 9.5 14.3
Impairment charge 0.0 1.4 0.0 100.0 100.0
-------- -------- --------
Operating income 8.0 5.3 6.4 (26.7) 39.2
Interest expense, net 2.2 2.1 2.7 5.7 46.6
Other expense (income) 0.0 0.3 1.0 15492.9 280.5
-------- -------- --------
Income before income taxes 5.9 2.9 2.8 (44.8) 9.5
======== ======== ========
</TABLE>
___________
Fiscal Year Ended October 3, 1999 Compared to Fiscal Year Ended September 27,
1998
Sales. Sales increased 14.7%, or $106.5 million, to $830.5 million in
1999 from $724.0 million in 1998. The increase includes $123.8 million
attributable to the incremental sales at Custom, Marion, Precision, Dycast, and
Camden (collectively, the "acquisitions"), a decrease of $3.7 million related to
the divestiture of Oberdorfer, a former division located in Syracuse, New York,
and a 1.9% decrease
23
<PAGE>
or $13.6 million in reduced revenues from Citation's existing operations.
Citation's Industrial Group had reduced sales of 17.8% or $70.5 million from
existing units due to a reduction in orders, principally from customers in the
construction equipment, mining equipment, farm implement, and/or oil tool
industries. Sales by existing units in its Automotive Group increased 17.2% or
$50.0 million, principally due to new business.
Gross Profit. Gross profit increased 12.7%, or $14.2 million, to $126.2
million in 1999 from $112.0 million in 1998. The gross profit margin declined
slightly to 15.2% for 1999 from 15.5% in 1998. The gross margin on a same store
basis decreased slightly to 15.2% in 1999, down from 15.7% in 1998. The
principal reason for this decrease was that the Company could not reduce the
fixed portion of cost of sales, which represents approximately 30% of total cost
of sales, as quickly as the variable portion of cost of sales in conjunction
with the recent volume declines at the Industrial Group. This was partially
offset by better margins in the Automotive Group due to the increased volumes.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses increased 14.3%, or $9.1 million, to $72.7
million in 1999 from $63.6 million in 1998. SG&A costs as a percentage of sales
held constant at 8.8% in 1999 compared to 1998. SG&A costs attributable to the
acquisitions were $11.2 million in 1999. SG&A costs on a same store basis were
$61.6 million in 1999 versus $63.0 million in 1998. The principal reasons for
this decrease were reduced selling expenses due to the elimination of outside
sales representatives and agents at the industrial groups and reduced management
bonus payments due to lower profitability.
Operating Income. Operating income increased 39.2%, or $15.0 million, to
$53.4 million in 1999 from $38.4 million in 1998. Operating margin also
increased to 6.4% in 1999 from 5.3% in 1998. This increase is primarily
attributable to the absence in 1999 of a $10 million asset impairment charge at
the Company's Oberdorfer division which adversely affected operating income in
1998. Operating income attributable to the acquisitions was $7.7 million, while
same store operating income decreased by $4.5 million in 1999.
Interest Expense. Interest expense, net of interest income, increased
46.6%, or $7.1 million, to $22.4 million in 1999 from $15.3 million in 1998. The
increase primarily reflects the cost of financing the acquisitions.
Other Expenses. Other expenses includes the loss on sale related to the
sale of Oberdorfer, which is described in Note 18 of the consolidated financial
statements, as well as $4.7 million of expenses related to a failed debt
offering during fiscal year 1999, and $1.6 million of expenses resulting from
stock option term extensions related to the Kelso acquisition. The 1998 amount
includes $1.6 million of expenses related to a failed debt offering and $0.6
million of consulting, legal and due diligence costs for acquisitions that were
not completed.
Net Income. Net income increased 1.7%, or $0.2 million, to $13.0 million
in 1999 from net income of $12.8 million in 1998. Net income for 1999 was 1.5%
of sales, as compared to 1.8% of sales in 1998.
24
<PAGE>
Fiscal Year Ended September 27, 1998 Compared to Fiscal Year Ended September 28,
1997
Sales. Sales increased 11.6%, or $75.1 million, to $724.0 million in 1998
from $649.0 million in 1997. Of this increase, $62.5 million was related to
sales from Citation's 1998 acquisitions and a full year of operations at
Citation's Interstate Forging division as compared to eleven months in 1997.
During fiscal year 1998, Citation acquired Camden Casting, Dycast and Citation
Precision. If Citation's operations were compared on a "same store" basis,
i.e., excluding the sales increase resulting from the acquisitions, sales
revenue increased approximately $12.6 million or 1.9%. Management believes this
increase was primarily attributable to the strength of the underlying economy
and its positive impact on Citation's customers, as well as capacity expansions
at selected Citation facilities. The sales increase was partially offset by the
General Motors strike in the fiscal 1998 fourth quarter. Additionally, Citation
experienced reduced orders for oil tool, construction equipment, mining
equipment, and farm implement parts during the 1998 fourth quarter.
Gross Profit. Gross profit increased 1.4%, or $1.5 million, to $112.0
million in 1998 from $110.5 million in 1997. Gross margin decreased to 15.5% in
1998 from 17.0% in 1997. Excluding the 1998 acquisitions and the one month
effect of the 1997 Interstate Forging acquisition, gross profit on a same store
basis decreased $8.0 million to $102.5 million. Gross margin on a same store
basis decreased to 15.5% in 1998 from 17.0% in 1997. The decreases in gross
profit on a same store basis and the decreases in gross margin are primarily
attributable to operating losses at Citation's Oberdorfer division, the impact
of the General Motors strike in the fiscal fourth quarter, costs associated with
new product launches, and the slow down in several capital goods sectors
discussed in the preceding paragraph.
Selling, General and Administrative Expenses. SG&A expenses increased
9.5%, or $5.5 million, to $63.6 million in 1998 from $58.1 million in 1997.
Approximately $6.2 million of this increase is related to the 1998 acquisitions.
On a same store basis, SG&A costs decreased by $658 thousand. The decrease is
primarily attributable to cost cutting programs implemented by Citation in
fiscal 1998.
Operating Income. Operating income decreased 26.7%, or $14.0 million, to
$38.4 million in 1998 from $52.4 million in 1997. Operating margin decreased to
5.3% in 1998 from 8.1% in 1997. The decrease in operating income and operating
margins was related to several factors. The most significant contributor to the
decreases was the $10 million asset impairment charge at Citation's Oberdorfer
division. Additionally, Citation was negatively affected by the General Motors
strike, a slow down in several capital goods sectors, start-up costs of a number
of product and process launches, and an additional $5.6 million in operating
losses at the Oberdorfer division as compared to the prior year. Net operating
income attributable to the 1998 acquisitions was $3.3 million, while same store
operating income decreased by $17.3 million in 1998.
25
<PAGE>
Interest Expense. Interest expense, net of interest income, increased
5.7%, or $0.8 million, to $15.2 million in 1998 from $14.4 million in 1997.
This increase is primarily attributable to significantly higher average debt
balances related to an "earn out" contingent payment during the second quarter
of 1998 relating to the acquisition of Interstate, and the acquisitions of
Camden Casting, Dycast, and Citation Precision during the first nine months of
fiscal 1998. The purchase price plus assumed debt from the above acquisitions
was approximately $58.6 million. However, increased interest expense in fiscal
1998 from Citation's overall higher debt balances was offset by an interest rate
reduction of approximately 0.5% when its credit facility was amended during July
1997. Citation capitalized $1.1 million of interest costs in 1998 as compared
to $0.4 million in 1997 due to increased capital expansion activity.
Net Income. Net income decreased 44.8%, or $10.4 million, to $12.8 million
in 1998 from net income of $23.2 million in 1997. Net income for 1998 was 1.8%
of sales, as compared to 3.6% of sales in 1997. The 1998 acquisitions
(including the one additional month of Interstate in 1998) generated positive
net income of $323 thousand in fiscal 1998.
Supplemental Quarterly Information
The following table presents selected unaudited quarterly results for
fiscal years 1998 and 1999. The Company's sales are generally lower in its
first fiscal quarter due to plant closings by major customers for vacations,
holidays, and model changeovers. In addition, the Company's operations usually
take normal one-week shutdowns during July. The units lose production for the
week (or weeks) they are down and also incur heavier than normal maintenance
expenses during this period. These events negatively affect gross margins at
operating units in both the first and fourth fiscal quarters.
<TABLE>
<CAPTION>
Fiscal Quarters Ended
Dec. 28, Mar. 29, June 28, Sept. 27, Dec. 27, Mar. 28, June 27, Oct. 3,
1997 1998 1998 1998 1998 1999 1999 1999
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
(Unaudited)
Sales $170,223 $193,091 $196,466 $164,237 $184,860 $213,383 $214,715 $217,563
Gross profit 26,998 34,090 35,965 14,929 26,668 35,293 33,374 30,816
SG&A expenses 15,381 16,613 15,944 15,665 16,035 18,749 18,190 19,736
Impairment charge -- -- -- 10,000 -- -- -- --
Operating income (loss) 11,617 17,477 20,021 (10,736) 10,633 16,544 15,184 11,080
Income (loss) before taxes 8,392 13,777 15,906 (17,105) 5,990 10,930 7,874 (1,842)
Net income (loss) 5,119 8,404 9,703 (10,434) 3,594 6,558 4,724 (1,864)
Net income (loss) per $ 0.29 $ 0.47 $ 0.54 ($0.58) $ 0.20 $ 0.37 $ 0.26 ($0.10)
share-basic
Net income (loss) per $ 0.28 $ 0.47 $ 0.54 ($0.58) $ 0.20 $ 0.37 $ 0.26 ($0.10)
share-diluted
As a Percentage of Sales % % % % % % % %
Gross profit 15.9 17.7 18.3 9.1 14.4 16.5 15.5 14.2
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Fiscal Quarters Ended
Dec. 28, Mar. 29, June 28, Sept. 27, Dec. 27, Mar. 28, June 27, Oct. 3,
1997 1998 1998 1998 1998 1999 1999 1999
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
(Unaudited)
SG&A expenses 9.1 8.6 8.1 9.4 8.7 8.8 8.5 9.1
Operating income (loss) 6.7 9.0 10.2 (6.4) 5.8 7.8 7.1 5.1
Income (loss) before taxes 4.9 7.1 8.1 (10.4) 3.2 5.1 3.7 (0.8)
</TABLE>
Note: The fourth quarter of fiscal 1999 and 1998 included $4,725 and $1,610,
respectively, of expenses related to failed subordinated debt offerings which
were recorded as non-operating expenses. Additionally, the fourth quarter of
fiscal year 1999 included $1,590 of expenses resulting from the stock option
extensions related to the kelso acquisition.
Liquidity and Capital Resources
Historically, Citation's principal capital requirements have been to fund
capital expenditures, working capital and acquisitions. Citation has used cash
generated from operations, borrowings under its existing credit agreement and
proceeds from public equity offerings to fund its capital requirements.
Net cash provided by operating activities primarily represents net income
plus non-cash charges for depreciation, amortization and deferred income taxes
and changes in working capital positions. Because of the capital intensive
nature of the Company's business, non-cash charges for depreciation and
amortization are substantial. Net cash provided by operating activities was
$68.4 million, $45.9 million and $66.6 million in fiscal 1997, 1998 and 1999,
respectively.
Net cash used in investing activities in fiscal 1997, 1998 and 1999 was
$82.0 million, $104.6 million and $114.1 million, respectively. Substantially
all of the above investment activities were for capital expenditures and
acquisitions.
Citation had net cash provided by financing activities of $13.9 million,
$58.4 million and $47.3 million for fiscal 1997, 1998 and 1999, respectively.
For fiscal 1997, 1998, and 1999 net cash of $18.0 million, $57.0 million and
$54.5 million, respectively, was provided from Citation's credit facility,
capital lease obligations, and other financing arrangements. Citation has no
current plans to pay dividends, as future earnings of Citation are expected to
be retained for use in the business.
As part of the merger and the transactions contemplated by the merger,
following the close of the 1999 fiscal year, Citation entered into new senior
credit facilities. Under the senior credit
27
<PAGE>
facilities, Citation will be required to make scheduled principal payments of
the $50 million Tranche A Term Loan over its 6 year term, and the $210 million
Tranche B over its 8 year term.
Also, in connection with the merger, Citation entered into a $135 million
subordinated debt agreement with a one-year term and an initial interest rate of
13.25%. This rate increases by a minimum of 0.5% each quarter, with a maximum
rate of 17.5%. The Company plans to refinance this loan with longer term fixed
rate debt during fiscal year 2000.
This transaction and the outstanding debt balances at September 27, 1998
and October 3, 1999 are described more fully in notes 6 and 20, respectively, of
the consolidated financial statements included elsewhere in this annual report
on Form 10-K.
Following the merger and the transactions contemplated by the merger, the
Company's principal source of liquidity will be cash flow generated from
operations and borrowings under its $100 million revolving credit facility.
Principal capital requirements will be to fund debt service requirements,
capital expenditures and working capital. The Company expects that cash flow
generated from operations and amounts available for borrowing under the
revolving credit facility will be adequate to fund its capital requirements for
the foreseeable future.
Citation's ability to service indebtedness will depend on its future
performance, and will be affected by prevailing economic conditions and
financial, business, regulatory and other factors. Certain of these factors are
beyond the Company's control. Management believes that, based on the current
levels of operations, the Company will be able to meet its debt service
obligations when due. If the Company cannot generate sufficient cash flow from
operations to service indebtedness and to meet other obligations and
commitments, it may be required to refinance existing debt or to dispose of
assets. The senior credit facilities impose restrictions on the Company's
ability to make capital expenditures and both the senior credit facilities and
the indenture governing the notes will limit the Company's ability to incur
additional indebtedness.
Capital Expenditures
In addition to keeping current facilities properly equipped and maintained,
the Company makes substantial commitments to replacing, enhancing and upgrading
its facilities in order to meet or exceed customer expectations, reduce
production costs, increase flexibility for quick response to market
fluctuations, meet environmental requirements and enhance safety. The Company
spent approximately $40.5 million, $47.7 million and $44.2 million during fiscal
1997, 1998 and 1999, for the purpose of improving production efficiency,
expanding capacity and technological capability, reducing costs and complying
with regulatory requirements. The Company believes that generally expenditures
of amounts at least equal to its annual depreciation charge are necessary in
order to maintain its facilities in competitive working order and, in years when
substantial new capacity is added, capital expenditures may significantly exceed
the Company's depreciation charge.
At October 3, 1999, the Company had invested approximately $11.6 million in
its joint venture with Caterpillar, Aceros Fundidos Internacionales, for the
construction of a steel casting facility in Mexico. The Company's estimated
capital budget for fiscal year 2000 is $50 million. Based on historical trends,
approximately half of all capital expenditures are for maintenance,
environmental and regulatory compliance with the balance comprised of expansion
and new product related capital expenditures.
28
<PAGE>
Seasonality
Citation's sales are generally lower in its first and fourth fiscal
quarters due to plant closings by major customers for vacations, holidays and
model changeovers. The Company's foundries incur heavier than normal
maintenance expenses during shutdowns. These events negatively affect gross
margins at operating units in both the first and fourth quarters. As a result,
the inherent seasonality of these industries may affect Citation's future sales
and earnings, particularly during periods of slow economic growth or recession.
Inflation
Management does not believe that inflation has been a material factor in
any of the periods presented. Citation is generally able to pass raw materials
cost increases through to its customers. However, in periods of rapidly rising
steel scrap prices, Citation may lag behind the market on the amount it can pass
through to customers, and its results of operations may be adversely affected
during these periods.
Recently Issued Accounting Standards
Note 2 of the Notes to Consolidated Financial Statements included elsewhere
in this report describe certain recently issued accounting standards.
Year 2000 (Y2K) Readiness Disclosure
General. Many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year, and as a result they may
be unable to process accurately certain data before, during or after the year
2000. The Company has addressed the "Year 2000" issue through a company-wide
Y2K project.
The project involved reviewing current software as well as embedded systems
in certain manufacturing equipment and surveying each of the divisional
operations to assess the impact of the Y2K issue. The project was coordinated
by a twenty-five member team. This team included five personnel from corporate
headquarters, including the overall coordinator, and a coordinator at each
division. The Company believes the project was 100% completed at October 3,
1999. The Company has also developed a contingency plan that involves manual
processing, system backups, increased inventory from critical suppliers and the
selection of alternative suppliers of critical materials.
Project. The project was divided into five major sections: infrastructure,
applications software, manufacturing software, process control and
instrumentation (referred to herein as PC&I) and third party
suppliers/customers. At each of the locations a Y2K team leader was designated
who helped direct the phases of the project. These phases, which are common to
the five major sections, were as follows: (1) inventorying Y2K items; (2)
assessing compliance to Y2K for the items
29
<PAGE>
identified; (3) developing a strategy for remediation of noncompliant items; (4)
implementing the remediation strategy; and (5) obtaining independent validation
from external resources as to compliance.
The infrastructure and applications software sections consisted of an
analysis of hardware and systems software. The applications software included
both the conversion of applications that were not Y2K compliant and, where
available from the supplier, the replacement of such software. The Company
believes the inventory, assessment, implementation and validation for the
infrastructure, applications software and manufacturing software were 100%
complete at October 3, 1999. With respect to the manufacturing software, the
Company believes that 100% of its divisions are compliant, with approximately
70% using B&L Information Systems, which the Company believes is Y2K compliant,
and another 30% using other manufacturing software that the Company also
believes is Y2K compliant. The Company believes these three sections of the
Project were 100% complete at October 3, 1999.
The PC&I section of the Project included the hardware, software and
associated embedded computer chips that are used in the operation of all
facilities operated by Citation. The Company believes that 100% of the PC&I Y2K
were inventoried and identified and deemed to be Y2K compliant. The Company
believes all of the PC&I equipment was Y2K compliant at October 3, 1999.
The third party suppliers/customers section of the Project involved sending
a Y2K compliance questionnaire to all key suppliers as well as addressing any
independent review of Citation's compliance by certain of its customers. The
Company obtained evidence from key suppliers documenting their compliance with
the Y2K standards and monitored vendors that were noncompliant for contingency
planning purposes. The Company's contingency plan in the event of the
noncompliance by key suppliers is to contact alternative suppliers and to
increase critical inventory prior to 2000. The Company believes that this
section was fully implemented at October 3, 1999.
Once the strategy of the Project was implemented, the Company had
independent validation of its Y2K compliance. Major customers along with
external entities hired by Citation continued to review certain of the
divisions' computer systems for compliance. This external review was completed
in the Fall of 1999. The costs associated with the Project were expensed as
incurred. Citation did not separately track internal costs incurred for the
Project; these costs however, consisted principally of the related payroll costs
of information systems group.
Risks. The failure to correct a material Y2K problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could significantly harm results of operations,
liquidity and financial condition. Due to the general uncertainty inherent in
the Y2K issue, resulting in part from the uncertainty of the Y2K readiness of
third-party suppliers and customers, the Company is unable to determine at this
time whether the consequences of Y2K failures will have a material impact on
results of operations, liquidity or financial condition. The Project is
expected to significantly reduce the Company's level of uncertainty about the
Y2K issue
30
<PAGE>
and, in particular, about the Y2K compliance and readiness of external parties.
The Company believes that, with the implementation and completion of the Project
as scheduled, the possibility of significant interruptions of normal operations
should be reduced, and the Company does not believe it has any material exposure
to contingencies related to the Y2K issue for products already sold.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Like all companies, the Company is exposed to market risks relating to
fluctuations in interest rates. The Company's objective of financial risk
management is to minimize the negative impact of interest rate fluctuations on
the Company's earnings and cash flows. To manage this risk, the Company has
entered into interest rate swap agreements with BankOne, a major financial
institution, to minimize the risk of credit loss. The Company uses these swap
agreements to reduce risk by essentially creating offsetting market exposures.
The swap agreements are not held for trading purposes. As of October 3, 1999,
the Company's fixed interest rates, including margins, ranged from 8.60% to
8.84% on the interest rate swap agreements. As discussed in note 20 to the
Company's consolidated financial statements, the swap agreements were terminated
subsequent to October 3, 1999 in connection with the acquisition of the Company
by Kelso. For more information on the swap agreements, see notes 1 and 6 to the
Company's consolidated financial statements.
<TABLE>
<CAPTION>
ITEM 8: FINANCIAL STATEMENTS
<S> <C> <C>
The following financial statements are contained in this report.
Page
----
Report of Independent Accountants.......................................................................... 32
Consolidated Financial Statements for Years Ended October 3, 1999, September 27, 1998,
and September 28, 1997
Consolidated Balance Sheets...................................................................... 33
Consolidated Statements of Income................................................................ 34
Consolidated Statements of Comprehensive Income.................................................. 35
Consolidated Statements of Stockholders' Equity.................................................. 36
Consolidated Statements of Cash Flows............................................................ 37
Notes to Consolidated Financial Statements....................................................... 38
Report of Independent Accountants on Financial Statement Schedules......................................... 236
Schedule II - Valuation and Qualifying Accounts............................................................ 237
</TABLE>
31
<PAGE>
Report of Independent Accountants
To the Stockholders
Citation Corporation and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, stockholders' equity,
and cash flows present fairly, in all material respects, the consolidated
financial position of Citation Corporation and subsidiaries (the Company) at
October 3, 1999 and September 27, 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
October 3, 1999, in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Birmingham, Alabama
December 1, 1999
32
<PAGE>
Citation Corporation and Subsidiaries
Consolidated Balance Sheets
September 27, 1998 and October 3, 1999
(In Thousands, Except Share and Per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 27, October 3,
1998 1999
------------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,322 $ 2,035
Accounts receivable - trade, less allowance for doubtful accounts
of $2,860 and $3,543 in 1998 and 1999, respectively 103,152 128,471
Inventories 56,353 56,585
Income tax receivable 3,882 3,516
Deferred income taxes 9,751 14,986
Prepaid expenses and other current assets 8,218 12,561
--------- ---------
Total current assets 183,678 218,154
Property, plant, and equipment, net of accumulated depreciation 307,008 339,966
Intangible assets, net of accumulated amortization 74,595 111,614
Other assets 3,984 19,156
--------- ---------
Total assets $ 569,265 $ 688,890
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 5,304 $ 1,751
Current portion of long-term debt 6,316 2,331
Accounts payable 46,802 60,131
Accrued wages and benefits 8,942 12,052
Accrued benefit plan contributions 3,664 3,862
Accrued vacation 5,542 7,021
Accrued insurance reserves 6,997 7,856
Accrued interest 1,556 2,132
Other accrued expenses 13,933 18,914
--------- ---------
Total current liabilities 99,056 116,050
Credit facility 232,993 316,891
Other long-term debt, less current portion above 4,532 4,111
Deferred income taxes 39,382 45,787
Other liabilities 7,268 6,728
--------- ---------
Total liabilities 383,231 489,567
--------- ---------
Commitments and contingencies (Notes 14 and 17)
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized, none issued and outstanding (Note 8)
Common stock, par value $0.01 per share; 30,000,000 shares
authorized, 17,932,402 and 17,944,402 shares issued and
17,889,113 and 17,884,739 shares outstanding in 1998 and
1999, respectively 179 179
Additional paid-in capital 107,844 108,402
Retained earnings 78,011 91,023
Accumulated other comprehensive income (loss), net of tax (281)
--------- ---------
Total stockholders' equity 186,034 199,323
--------- ---------
Total liabilities and stockholders' equity $ 569,265 $688,890
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
Citation Corporation and Subsidiaries
Consolidated Statements of Income
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------
September 28, September 27, October 3,
1997 1998 1999
--------------- -------------- ------------
<S> <C> <C> <C>
Sales $ 648,961 $ 724,017 $ 830,521
Cost of sales 538,502 612,035 704,370
--------------- -------------- ------------
Gross profit 110,459 111,982 126,151
Selling, general, and administrative expenses 58,066 63,603 72,710
Impairment charge (Note 18) 10,000
--------------- -------------- ------------
Operating Income 52,393 38,379 53,441
--------------- -------------- ------------
Other expenses (income)
Interest expense, net of amounts capitalized of $388,
$1,148, and $680 in 1997, 1998 and 1999 respectively 14,433 15,254 22,359
Other, net (Notes 6, 7 and 18) (14) 2,155 8,130
--------------- -------------- ------------
14,419 17,409 30,489
--------------- -------------- ------------
Income before provision for income taxes 37,974 20,970 22,952
Provision for income taxes 14,810 8,178 9,940
--------------- -------------- ------------
Net income $ 23,164 $ 12,792 $ 13,012
=============== ============== ============
Earnings per share - basic $ 1.31 $ .72 $ .73
=============== ============== ============
Weighted average shares outstanding - basic 17,733,157 17,838,354 17,884,702
=============== ============== ============
Earnings per share - diluted $ 1.29 $ .71 $ .72
=============== ============== ============
Weighted average shares outstanding - diluted 17,917,609 18,042,346 17,968,128
=============== ============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
34
<PAGE>
Citation Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------
September 28, September 27, October 3,
1997 1998 1999
------------- ------------- -----------
<S> <C> <C> <C>
Net income $ 23,164 $ 12,792 $ 13,012
------------- ------------- -----------
Other comprehensive income (loss), before tax:
Minimum pension liability adjustment (469)
Income tax benefit related to other
comprehensive income (loss) 188
------------- ------------- -----------
Other comprehensive income (loss), net of tax - - (281)
------------- ------------- -----------
Comprehensive income, net of tax $ 23,164 $ 12,792 $ 12,731
============= ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
Citation Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(in Thousands, Except Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Additional
of Par Paid-In Retained
Shares Value Capital Earnings
-------------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, September 29, 1996 17,715,540 $ 177 $ 107,087 $ 42,055
Issuance of common stock
under Incentive Award Plan 59,310 1 498
Purchase of common shares
for constructive retirement (15,250) (255)
Subscriptions under employee
stock purchase plan (88)
Net income 23,164
-------------- -------- ---------- ---------
Balance, September 28, 1997 17,759,600 178 107,242 65,219
Issuance of common stock
under Incentive Award Plan 157,552 1 1,418
Purchase of common shares
for constructive retirement (28,039) (568)
Subscriptions under employee
stock purchase plan (248)
Net income 12,792
-------------- -------- ---------- ---------
Balance, September 27, 1998 17,889,113 179 107,844 78,011
Issuance of common stock
under Incentive Award Plan 12,000 96
Purchase of common shares
for constructive retirement (16,374) (206)
Subscriptions under employee
stock purchase plan (456)
Distributions to former S corporation
stockholders (466)
Change in comprehensive income
(loss), net of taxes
Compensation expense related to extension of
stock option terms (Note ) 1,590
Net income 13,012
-------------- -------- ---------- ---------
Balance, October 3, 1999 17,884,739 $ 179 $ 108,402 $ 91,023
============== ======== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Comprehensive
Income (Loss)
Net of Tax Total
----------------- ----------
<S> <C> <C>
Balance, September 29, 1996 $ $ 149,319
Issuance of common stock
under Incentive Award Plan 499
Purchase of common shares
for constructive retirement (255)
Subscriptions under employee
stock purchase plan (88)
Net income 23,164
-------------- ---------
Balance, September 28, 1997 0 172,639
Issuance of common stock
under Incentive Award Plan 1,419
Purchase of common shares
for constructive retirement (568)
Subscriptions under employee
stock purchase plan (248)
Net income 12,792
-------------- ---------
Balance, September 27, 1998 0 186,034
Issuance of common stock
under Incentive Award Plan 96
Purchase of common shares
for constructive retirement (206)
Subscriptions under employee
stock purchase plan (456)
Distributions to former S corporation
stockholders (466)
Change in comprehensive income
(loss), net of taxes (281) (281)
Compensation expense related to extension of
stock option terms (Note 7) 1,590
Net income 13,012
-------------- ----------
Balance, October 3, 1999 $ (281) $ 199,323
============== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Citation Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
September 28, September 27, October 3,
1997 1998 1999
------------- ------------- ----------
Cash flows from operating activities:
Net income $ 23,164 $ 12,792 $ 13,012
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on receivables 64 1,249 1,910
Provision for loss on sale of Oberdorfer 1,815
Impairment charge 10,000
Non-cash compensation expense 1,590
Depreciation expense 26,539 31,649 38,670
Amortization expense 3,950 4,626 6,616
Deferred income taxes, net 3,045 1,422 7,917
Loss (gain) on sale of property, plant, and equipment (116) 114 (117)
Changes in operating assets and liabilities, net:
Accounts receivable - trade (3,729) (1,605) (14,174)
Inventories (1,175) (1,377) 5,346
Prepaid expenses and other assets 1,519 (842) (690)
Income tax receivable 3,655 (3,836) (703)
Income tax payable 3,520 (2,745) 0
Accounts payable 3,828 (1,126) 4,492
Accrued expenses and other liabilities 4,159 (4,424) 913
---------- ---------- ----------
Net cash provided by operating activities 68,423 45,897 66,597
---------- ---------- ----------
Cash flows from investing activities:
Property, plant, and equipment expenditures (40,531) (47,679) (44,167)
Proceeds from sale of property, plant, and equipment 371 463 976
Cash paid for acquisitions (51,089) (55,943) (61,787)
Investment in joint venture (1,441) (10,158)
Proceeds from sale of subsidiaries 9,006 1,000
Other nonoperating assets, net 250 (12)
---------- ---------- ----------
Net cash used in investing activities (81,993) (104,612) (114,136)
---------- ---------- ----------
Cash flows from financing activities:
Cash overdraft (3,890) 1,093 (5,942)
Issuance of common stock 499 1,419 96
Purchase of common stock for constructive retirement (255) (568) (206)
Subscriptions under employee stock purchase plan (88) (248) (456)
Other long-term debt, net (3,029) (2,992) (16,737)
Debt financing costs (287) (291) (318)
Repayment of acquired debt (16,340) (2,621) (12,617)
Distributions to former S corporation stockholders (466)
Credit facility, net change 37,338 62,600 83,898
---------- ---------- ----------
Net cash provided by financing activities 13,948 58,392 47,252
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 378 (323) (287)
Cash and cash equivalents, beginning of year 2,267 2,645 2,322
---------- ---------- ----------
Cash and cash equivalents, end of year $ 2,645 $ 2,322 $ 2,035
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 13,932 $ 16,672 $ 21,782
========== ========== ==========
Income taxes, net of refunds received $ 3,431 $ 13,233 $ 2,698
========== ========== ==========
See Notes 7, 17 and 18 for additional disclosures of cash flow information
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
1. Organization and Operations
Citation Corporation and subsidiaries (the Company) is a manufacturer of
cast, forged, and machined components for the capital and durable goods
industries. At its operating divisions, the Company produces aluminum, iron
and steel castings, steel forgings, and machined and assembled components for
automobiles, light, medium and heavy trucks, off-highway construction
equipment, agricultural equipment, pumps, compressors and industrial valves,
and other durable goods. The Company owns and operates businesses in Alabama,
California, Illinois, Indiana, New York, North Carolina, Ohio, Tennessee,
Texas, and Wisconsin, which function as separate divisions or subsidiaries.
References herein to Alabama Ductile Casting Company (ADCC), Berlin Foundry
Corporation (Berlin), Bohn Aluminum Corporation (Bohn), Camden Casting Center
(Camden), Castwell Products (Castwell), Citation Foam Casting Company (CFCC),
Citation Marion (Marion), Citation Precision, Inc. (Citation Precision),
Custom Products Corporation (Custom), Dycast, Inc. (Dycast), Foundry Service
Company (FSC), Hi-Tech Corporation (Hi-Tech), Interstate Forging Industries,
Inc. (Interstate), Iroquois Foundry Corporation (Iroquois), Mabry Foundry
(Mabry), Mansfield Foundry Corporation (Mansfield), Oberdorfer Industries
(Oberdorfer), Southern Ductile Casting Company (SDCC), Southern Aluminum
Castings Company (SACC), Texas Foundries, and Texas Steel Company (Texas
Steel) refer to operations of these divisions or subsidiaries. The Company
also has a wholly owned subsidiary, Citation Automotive Sales Corp. (CAS),
which operates a sales and engineering office in Detroit, Michigan. As
discussed in Note 18, Oberdorfer was sold by the Company on June 16, 1999.
Also, as discussed in Note 20, the Company was merged on December 1, 1999.
The consolidated financial statements and notes thereto include the accounts
of Citation Corporation and its divisions and wholly-owned subsidiaries, as
well as its 50% interest in a Mexican joint venture discussed in Note 14. All
significant intercompany balances and transactions have been eliminated.
The Company sells castings and forgings to customers in various industries
and geographic regions of the United States. To reduce credit risk, the
Company performs ongoing credit evaluations of its customers' financial
condition and does not generally require collateral. Significant volumes of
sales to customers in specific industries during fiscal years 1997, 1998, and
1999 were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Automotive/light truck 35% 40% 51%
Medium/heavy truck 15% 12% 10%
Construction equipment 11% 12% 7%
------ ------ ------
61% 64% 68%
====== ====== ======
</TABLE>
38
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies
Fiscal Year - The Company operates on a fifty-two/fifty-three week fiscal
year which ends on the Sunday nearest to September 30. Fiscal years 1997 and
1998 each consisted of fifty-two weeks while fiscal year 1999 consisted of
fifty-three weeks.
Revenue Recognition - The Company records sales upon shipment of the related
products, net of any discounts.
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less at the date of
purchase to be cash equivalents.
Cash Overdraft - In conjunction with the credit facility discussed in Note 6,
the Company entered into a consolidated cash management system with the
administrative agent and lead bank of the credit facility. As a result of
maintaining this consolidated cash management system, the Company maintains a
zero balance at the lead bank, resulting in book cash overdrafts. Such
overdrafts are included in current liabilities.
Inventories - Raw materials inventories are stated at the lower of cost
(principally first-in, first-out basis) or market. Supplies and containers
inventories are stated primarily at the lower of cost (principally average
cost) or market. Castings and forgings inventories are stated primarily at
the lower of cost (determined principally at standard cost or under the
retail method) or market.
Property, Plant, and Equipment - Property, plant, and equipment are carried
at cost, less accumulated depreciation, and include expenditures that
substantially increase the useful lives of existing assets. Maintenance,
repairs, and minor renovations are charged to expense as incurred. Upon sale,
retirement, or other disposition of these assets, the cost and related
accumulated depreciation are removed from the respective accounts, and any
gain or loss on the disposition is included in income.
39
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
The Company provides for depreciation of property, plant, and equipment using
primarily the straight-line method designed to depreciate costs over
estimated useful lives as shown below:
<TABLE>
<CAPTION>
Estimated Useful Life
---------------------
<S> <C>
Buildings 10 - 50 years
Plant equipment 3 - 20 years
Office equipment 2 - 12 years
Transportation equipment 3 - 7 years
</TABLE>
Property, plant, and equipment acquired under capital lease agreements are
carried at cost less accumulated depreciation. These assets are depreciated
in a manner consistent with the Company's depreciation policy for purchased
assets.
Intangible Assets - Goodwill, the excess of purchase price over the fair
value of net assets acquired in purchase transactions, is being amortized on
a straight-line basis primarily over 20 years but with various amortization
periods ranging from 18 to 36 years. The Company assesses the recoverability
and the amortization period of the goodwill by determining whether the amount
can be recovered through undiscounted net cash flows of the businesses
acquired over the remaining amortization period. Amounts paid or accrued for
noncompetition and consulting agreements are amortized using the straight-
line method over the term of the agreements. Debt financing costs, which are
included in other assets, are amortized to interest expense using the
straight-line method, which approximates the effective interest method, over
the term of the related debt issues.
Long-Lived Assets - In accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, the Company recognizes
impairment losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amounts. During
fiscal year 1998, the Company recognized such a loss related to the write
down of certain assets of its Oberdorfer division in Syracuse, New York (see
Note 18). There were no such losses recognized during fiscal years 1997 or
1999.
Derivative Financial Instruments - The Company enters into interest rate swap
agreements to limit the effect of changes in the interest rates on floating
debt. The differential is accrued as interest rates change and is recognized
over the lives of the swap agreements as adjustments to interest expense.
40
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
Investment in Joint Venture - The Company's investment in joint venture
discussed in Note 14 is accounted for under the equity method and is included
in other assets in the consolidated balance sheets.
Accounting for Income Taxes - The Company accounts for income taxes in
accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No.
109, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year end. The amounts recognized
are based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax
assets and liabilities.
Earnings Per Share - Earnings per common share and earnings per common share
assuming dilution are computed in compliance with SFAS No. 128, Earnings Per
Share. Generally, SFAS No. 128 requires a calculation of basic and diluted
earnings per share. The calculation of basic earnings per share only takes
into consideration income (loss) available to common shareholders and the
weighted average of shares outstanding during the period while diluted
earnings per share takes into effect the impact of all additional common
shares that would have been outstanding if all potential common shares
related to options, warrants, and convertible securities had been issued, as
long as their effect is dilutive. SFAS No. 128 requires dual presentation of
basic and diluted earnings per share on the face of the statement of income
as well as a reconciliation of the numerator and denominator of the basic
calculation to the diluted calculation (see Note 10).
Comprehensive Income - Comprehensive income is computed in accordance with
SFAS No. 130, Reporting Comprehensive Income, which the Company adopted
during fiscal year 1998. During fiscal years 1997 and 1998, there were no
differences between net income and comprehensive income. During fiscal year
1999, comprehensive income consists of the Company's minimum pension
liability adjustment, net of tax effects.
Segments - In fiscal year 1999, the Company adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. SFAS No. 131's
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the Company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS No. 131 did not affect the Company's
consolidated financial position or results of operations.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets
41
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Recently Issued Accounting Standards - In June 1998, the Financial Accounting
Standards Board (the FASB) issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires all derivatives to
be measured at fair value and recognized as either assets or liabilities on
the balance sheet. Changes in such fair value are required to be recognized
immediately in net income (loss) to the extent the derivatives are not
effective as hedges. SFAS No. 133, as amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of SFAS No. 133, is effective for fiscal years beginning after June 15,
2000, and is effective for interim periods in the initial year of adoption.
The impact of the adoption of SFAS No. 133 and SFAS No. 137 on the Company is
not expected to be material.
3. Inventories
A summary of inventories is as follows:
<TABLE>
<CAPTION>
September 27, October 3,
1998 1999
------------- ------------
<S> <C> <C>
Raw materials $ 10,210 $ 9,187
Supplies and containers 14,052 15,585
Castings and forgings 32,091 31,813
-------- --------
$ 56,353 $ 56,585
======== ========
</TABLE>
42
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
4. Property, Plant, and Equipment
Balances of major classes of assets and accumulated depreciation are as
follows:
<TABLE>
<CAPTION>
September 27, October 3,
1998 1999
------------- ------------
<S> <C> <C>
Land and improvements $ 12,454 $ 14,793
Buildings 59,509 69,727
Plant equipment 319,092 367,806
Office equipment 14,258 19,762
Transportation equipment 12,753 12,961
Construction in progress 9,923 9,686
---------- ----------
427,989 494,735
Less accumulated depreciation (120,981) (154,769)
---------- ----------
$ 307,008 $ 339,966
========== =========
</TABLE>
5. Intangible Assets
The Company's intangible assets, net of accumulated amortization, consist of
the following:
<TABLE>
<CAPTION>
September 27, October 3,
1998 1999
------------- ------------
<S> <C> <C>
Goodwill $ 73,973 $ 111,304
Consulting and noncompetition agreements 579 269
Other 43 41
---------- ----------
$ 74,595 $ 111,614
========== ==========
</TABLE>
43
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
The future annual amount of amortization expense related to the Company's
intangible assets as of October 3, 1999 is as follows for fiscal years:
<TABLE>
<S> <C>
2000 $ 6,366
2001 6,188
2002 6,129
2003 6,129
2004 6,129
Thereafter 80,673
---------
$ 111,614
=========
</TABLE>
6. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 27, October 3,
1998 1999
------------- ------------
<S> <C> <C>
Credit facility $ 232,993 $ 316,891
Other long-term debt 10,848 6,442
---------- ----------
243,841 323,333
Less current portion of long-term debt (6,316) (2,331)
---------- ----------
$ 237,525 $ 321,002
========== ==========
</TABLE>
The Company has a $400,000 revolving credit facility, increased from $300,000
in fiscal year 1999, with a consortium of banks, led by the First National
Bank of Chicago, to be used for working capital purposes and to fund future
acquisitions. The facility consists of a swing line of credit of up to
$15,000 bearing interest at prime, a $40,000 revolving loan bearing interest
at prime, and revolving credit borrowings which bear interest at LIBOR plus
.625% to LIBOR plus 1.75% based upon the Company's ratio of debt to its cash
flows, measured by earnings before interest, taxes, depreciation and
amortization (EBITDA). At September 27, 1998 and October 3, 1999, the Company
was able to borrow at LIBOR plus 1% and 1.75%, respectively. The facility
calls for an unused commitment fee payable quarterly, in arrears, at a rate
of .20% and .375% based upon the Company's ratio of debt to EBITDA. At
September 27, 1998 and October 3, 1999, the Company's unused commitment fee
rate was .25% and .375%, respectively. The facility is collateralized by the
stock of the Company's subsidiaries and expires on October 15, 2001. At
September 27, 1998 and October 3, 1999, the total outstanding balance under
this credit facility was $232,993 and
44
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
$316,891, respectively, and $67,007 and $83,109, respectively, were available
for borrowing.
As of September 27, 1998, the Company had $2,993 outstanding under the swing
line of credit at the prime rate of 8.5%. The remaining $230,000 outstanding
under this facility related to four revolving loans. At September 27, 1998,
the Company had one loan of $150,000 at an interest rate of 6.60%, which
repriced during fiscal year 1999 at interest rates ranging from 6.13% to
6.88%. The remaining $80,000 outstanding under this credit facility at
September 27, 1998 consists of one $40,000 and two $20,000 five-year interest
rate swap agreements that were entered into during fiscal year 1996. These
agreements have fixed interest rates plus a margin of .625% to 1.50%, based
on the Company's leverage ratio on the date the agreements are repriced. The
Company's fixed interest rates, including margins, were 7.91% and 8.09% on
the two $20,000 swap agreements and 7.85% on the $40,000 swap agreement at
September 27, 1998.
As of October 3, 1999, the Company had $1,891 outstanding under the swing
line of credit at the prime rate of 8.25%. The remaining $315,000 outstanding
under this facility related to ten revolving loans. At October 3, 1999, the
Company had four loans totaling $185,000 at an interest rate of 7.13%, one
loan of $10,000 at an interest rate of 7.11% and one loan of $40,000 bearing
interest at prime. The remaining $80,000 outstanding under this facility at
October 3, 1999 consists of one $40,000 and two $20,000 five-year interest
rate swap agreements that were entered into during fiscal year 1996. These
agreements have fixed interest rates plus a margin of .625% to 1.50%, based
on the Company's leverage ratio on the date the agreements are repriced. The
Company's fixed interest rates, including margins, were 8.66% and 8.84% on
the two $20,000 swap agreements and 8.60% on the $40,000 swap agreement at
October 3, 1999. The Company is exposed to credit risk in the event of
nonperformance by the counterparty to the interest rate swap agreements. The
Company mitigates credit risk by dealing only with financially sound banks.
Accordingly, the Company does not anticipate loss for nonperformance by these
counterparties.
The Company's credit facility contains certain restrictive covenants that
require maintenance of a funded debt to EBITDA ratio; a specified fixed
charge coverage ratio; and a minimum level of stockholders' equity; plus
places limitations on capital expenditures, and places limitations on
dividends and other borrowings. The credit facility also has a covenant
prohibiting a change in control in excess of 30% of the Company's outstanding
stock other than by the Company's current majority shareholder.
As discussed in Note 20, subsequent to fiscal year 1999, all amounts
outstanding under the Company's credit facility were paid in full with the
proceeds received in connection with the merger of the Company. In addition,
the Company terminated its outstanding interest rate swap agreements. As a
result, the Company recorded an extraordinary loss on the early
45
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
extinguishment of debt of approximately $690, net of income tax benefit of
$276 subsequent to fiscal year 1999.
Other long-term debt is as follows:
<TABLE>
<CAPTION>
September 27, October 3,
1998 1999
------------- -----------
<S> <C> <C>
Notes payable for the purchase of Mabry, guaranteed by the
Company's majority stockholder, requiring quarterly payments
of $18 each, including principal and interest.The interest rate
changes each April 15th to the published prime rate (8% and
7.75% at September 27, 1998 and October 3, 1999, respectively),
until final payment in May 2003 $ 573 $ 471
Note payable for the purchase of Castwell requiring quarterly
payments of approximately $273 through October 1, 2001 3,271 1,910
Bank note bearing interest at 7.63%, payable in quarterly
installments of $200, plus interest, with a final installment due
March 31, 1999 4,743
Note payable to the Small Business Administration, bearing interest
at 9.23%, paid off in June 1999 in connection with the sale
of Oberdorfer discussed in Note 18 610
Note payable to the Small Business Administration, bearing interest
at 6.625%, payable in monthly payments of interest and principal
through September 2006, and collateralized by equipment with no
remaining net book value 213 197
Miscellaneous capital lease obligations for equipment, requiring
monthly payments ranging from $1 to $8, including principal and
interest at rates ranging from 4.9% to 12.1% and maturing at
dates ranging from 2000 through 2005 389 2,666
Various industrial development bonds, bearing interest at fixed
rates of 5.75% and 8.25% and a variable rate of 80% of prime
(6.76% and 6.60% at September 27, 1998 and October 3, 1999,
respectively), requiring monthly payments of principal and interest
ranging from $5 to $12 through 2003, and collateralized by
property, plant, and equipment having a net book value of $4,888
and $1,279 at September 27, 1998 and October 3, 1999,
respectively 724 572
Various other notes, requiring monthly and annual payments of
principal and interest at rates ranging from 10.00% to 10.25%
and maturing at dates ranging from 2000 to 2001 325 626
---------- --------
$ 10,848 $ 6,442
========== ========
</TABLE>
46
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
Aggregate maturities of long-term debt at October 3, 1999 are as follows
for fiscal years:
<TABLE>
<S> <C>
2000 $ 2,331
2001 318,993
2002 852
2003 511
2004 153
Thereafter 493
---------
$ 323,333
=========
</TABLE>
During fiscal years 1998 and 1999, the Company incurred $1,610 and $4,725 in
costs associated with two separate terminated subordinated debt offerings,
including a loss of approximately $1,030 on a treasury lock transaction
during fiscal year 1998 that was intended to hedge against interest rate
exposure on the 1998 offering. Such costs have been included in "Other, net"
in the consolidated statements of income. The Company withdrew both offerings
due to market conditions. The fiscal year 1999 subordinated debt offering
related to the merger of the Company discussed in Note 20.
7. Common Stock Plans
The Company's Incentive Award Plan (the Award Plan) provides for the grant of
incentive stock options, non-qualified stock options, stock appreciation
rights, and restricted stock, or a combination thereof, as determined by the
Compensation Committee of the Board of Directors at the time of grant, to
officers and certain employees. Under the Award Plan, 1,750,000 shares of the
Company's common stock have been reserved for issuance. Options granted under
the Award Plan provide for the purchase of the Company's common stock at not
less than the fair market value on the date the option is granted. In
conjunction with the Company's initial public offering, options for 538,000
shares of common stock were granted at prices ranging from $8.00 to $8.80 per
share. The options granted became exercisable six months from the date of
grant and originally expired on August 2, 1999; however, expiration was
extended by two years until August 2, 2001 by action of the Board of
Directors due to the pending merger of the Company discussed in Note 20,
resulting in compensation expense of $1,590. Options subsequently granted
generally become exercisable over periods ranging from six months to four
years and have terms of five to ten years. The Company also issued 43,500
restricted shares under the Award Plan during fiscal year 1997 in connection
with the acquisition of Interstate.
On February 23, 1995, the shareholders approved the Non-Qualified Stock
Option Plan for Non-Employee Directors (Non-Employee Directors Stock Option
Plan) which provides for the grant of stock options to the non-employee
directors of the Company. Under this plan,
47
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
100,000 shares of the Company's common stock have been reserved for issuance.
Options granted under this plan provide for the purchase of the Company's
common stock at not less than the fair market value on the date the option is
granted. The options issued under this plan are exercisable six months after
the date of grant and expire five years after the date of grant. As of
October 3, 1999, options for 50,000 shares of the Company's stock had been
issued under this plan of which 40,000 were granted at $15.25 per share,
became exercisable in January 1996, and expire in June 2000 and 10,000 were
granted at $10.97 per share, became exercisable in August 1999, and expire in
February 2004. None of these options has been exercised as of October 3,
1999.
Transactions under both plans are summarized as follows:
<TABLE>
<CAPTION>
Weighted-
Number Range of Average
of Options Exercise Prices Exercise Price
------------ ------------------- -----------------
<S> <C> <C> <C>
Options outstanding, September 29, 1996 665,500 $8.00 - $16.06 $ 10.49
Granted 34,000 $14.44 - $14.88 $ 14.57
Exercised (59,310) $8.00 - $16.06 $ 8.41
Canceled (20,000) $16.06 $ 16.06
------------ ------------------- -----------------
Options outstanding, September 28, 1997 620,190 $8.00 - $16.06 $ 11.00
Granted 252,000 $16.13 - $19.44 $ 17.66
Exercised (157,552) $8.00 - $16.06 $ 9.01
------------ ------------------- -----------------
Options outstanding, September 27, 1998 714,638 $8.00 - $19.44 $ 13.56
Granted 10,000 $10.97 $ 10.97
Exercised (12,000) $8.00 $ 8.00
Canceled (17,500) $15.25 - $17.33 $ 16.14
------------ ------------------- -----------------
Options outstanding, October 3, 1999 695,138 $8.00 - $19.44 $ 13.55
============ =================== =================
</TABLE>
The following table summarizes information about options exercisable as of
the end of the following years:
<TABLE>
<CAPTION>
September 28, September 27, October 3,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Options exercisable 610,190 462,638 511,763
Weighted-average exercise
price of options exercisable $10.67 $11.33 $12.08
</TABLE>
48
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
The following table summarizes information about options outstanding at
October 3, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------- ------------------------------
Weighted
Average
Remaining
Exercise Number Contractual Number Exercise
Price Outstanding Life Exercisable Price
- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
$ 8.00 150,638 1.86 150,638 $ 8.00
$ 8.80 50,000 1.86 50,000 $ 8.80
$ 13.38 10,000 1.95 10,000 $ 13.38
$ 15.25 40,000 .74 40,000 $ 15.25
$ 16.06 57,000 .79 57,000 $ 16.06
$ 12.06 100,000 1.89 100,000 $ 12.06
$ 14.44 23,000 2.51 23,000 $ 14.44
$ 14.88 10,000 2.67 10,000 $ 14.88
$ 17.33 192,500 8.31 48,125 $ 17.33
$ 16.13 2,000 8.34 500 $ 16.13
$ 19.44 25,000 8.50 6,250 $ 19.44
$ 18.66 25,000 8.79 6,250 $ 18.66
$ 10.97 10,000 4.44 10,000 $ 10.97
----------- -----------
695,138 511,763
=========== ===========
</TABLE>
49
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized for its stock option plans. Had
compensation expense for the Company's stock option plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
September 28, September 27, October 3,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported $ 23,164 $ 12,792 $ 13,012
Pro forma $ 23,039 $ 11,631 $ 12,675
Net income per share - basic:
As reported $ 1.31 $ .72 $ .73
Pro forma $ 1.30 $ .65 $ .71
Net income per share - diluted:
As reported $ 1.29 $ .71 $ .72
Pro forma $ 1.28 $ .65 $ .71
</TABLE>
The pro forma amounts reflected above are not representative of the effects
on reported net income in future years because, in general, the options
granted have different vesting periods and additional awards are made each
year.
The Company elected to use the Black-Scholes pricing model to calculate the
fair values of the options awarded, which are included in the pro forma
results above. The following weighted average assumptions were used to derive
the fair values:
<TABLE>
<CAPTION>
September 28, September 27, October 3,
1997 1998 1999
-------------- -------------- ----------------
<S> <C> <C> <C>
Dividend yield 0 % 0 % 0 %
Expected life (years) 3 5 5
Expected volatility 41.90 % 39.40 % 46.12 %
Risk-free interest rate (range) 6.27% - 6.56 % 5.67% - 6.56 % 4.11% - 6.05 %
</TABLE>
50
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
The Company also has an Employee Stock Purchase Plan (Stock Purchase Plan)
that allows eligible employees to purchase, through payroll deductions,
shares of the Company's common stock at specified dates at not less than 85%
of the fair market value of the stock as of the offering date. All active
employees are eligible to participate. Shares of common stock under the Stock
Purchase Plan are to be purchased in the open market or issued from treasury
stock. The maximum number of shares currently available under the Stock
Purchase Plan is 250,000 shares. Subscriptions were outstanding for
approximately 160,000 shares of common stock at $9.97 per share at September
27, 1998 and 44,600 shares of common stock at $8.80 per share at October 3,
1999.
On December 15, 1994, the Board of Directors approved the Stock Plan for Non-
Employee Directors (Directors Stock Plan) to enable its non-employee
directors to have all or part of their directors' fees used to purchase
shares of the Company's common stock. As of September 27, 1998 and October 3,
1999, approximately 22,800 shares have been purchased under this plan.
Subsequent to fiscal year 1999, each of the Plans discussed above was
terminated in connection with the merger of the Company discussed in Note 20.
Additionally, all options outstanding at the date of the merger were
converted into the right to receive cash and canceled.
8. Preferred Stock and Shareholder Rights Plan
The Company has 5,000,000 shares of preferred stock authorized for issuance.
The preferences, powers, and rights of the preferred stock are to be
determined by the Company's Board of Directors. None of these shares had been
issued or were outstanding as of September 27, 1998 or October 3, 1999.
On November 25, 1998, the Company adopted a shareholder rights plan (the
Shareholder Rights Plan) and designated 300,000 shares of its 5,000,000
authorized shares of preferred stock as Series A Junior Participating
Preferred Stock (the Preferred Stock). In connection with the adoption of the
Shareholder Rights Plan, the Company declared a dividend of one preferred
share purchase right (a Right) for each outstanding share of the Company's
common stock to all stockholders of record as of December 7, 1998. The Rights
will not become exercisable, and will continue to trade with the underlying
common stock, unless a person or group acquires 15% or more of the Company's
common stock or announces a tender offer, the consummation of which would
result in ownership by a person or group of 15% or more of the Company's
common stock. Each Right entitles the holder to purchase one one-hundredth of
a share of the Company's newly created Preferred Stock at an exercise price
of $45 per one one-hundredths of a share. The Rights will expire on November
25, 2008.
51
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
On June 24, 1999, in connection with the Company's merger discussed in Note
20, the Company amended the Shareholder Rights Plan to provide for its
termination upon the close of the Company's merger, which occurred on
December 1, 1999.
9. Income Taxes
The components of the provision for income taxes consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
September 28, September 27, October 3,
1997 1998 1999
---------- -------- ----------
Current income tax expense:
Federal $10,355 $6,424 $1,181
State 1,410 1,180 1,435
------- ------ ------
11,765 7,604 2,616
------- ------ ------
Deferred income tax expense (benefit):
Federal 2,511 1,155 7,475
State (384) (2,718) (1,955)
------- ------ ------
2,127 (1,563) 5,520
------- ------ ------
Valuation allowance 918 2,137 1,804
------- ------ ------
Total provision for income taxes $14,810 $8,178 $9,940
======= ====== ======
</TABLE>
52
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
September 27, October 3,
1998 1999
------------- -----------
<S> <C> <C>
Current:
Allowance for doubtful accounts and returns $ 1,487 $ 1,417
Accrued insurance liabilities 4,450 4,230
Other accrued liabilities 3,814 9,339
-------- --------
Net current deferred tax asset $ 9,751 $ 14,986
======== ========
Long-term:
Basis differences of property, plant, and equipment 39,492 51,523
Other, net (3,165) (10,595)
Valuation allowance 3,055 4,859
-------- --------
Net long-term deferred tax liability $ 39,382 $ 45,787
======== ========
</TABLE>
Realization of deferred tax assets associated with certain state net
operating loss (NOL) carryforwards is dependent upon the related subsidiary
generating sufficient income prior to their expiration. Management believes
that there is a risk that certain of the NOL carryforwards may expire unused
and, accordingly, has established a valuation allowance against them of
$3,055 and $4,859 as of September 27, 1998 and October 3, 1999, respectively.
The Company has NOLs for state income tax reporting purposes of $58,420
available for years beginning after October 3, 1999. These NOLs have
expiration dates through fiscal year 2014.
53
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
Total provision for income taxes differs from the amount which would be
provided by applying the statutory federal income tax rate to pretax earnings
as indicated below:
<TABLE>
<CAPTION>
September 28, September 27, October 3,
1997 1998 1999
------------- ------------- ----------
<S> <C> <C> <C>
Provision for income taxes at statutory federal
income tax rate $ 13,291 $ 7,340 $ 8,033
Increase (decrease) resulting from:
Officers' life insurance 157 612 36
Nondeductible meals and entertainment
expenses 190 213 209
State income taxes 677 (1,796) (1,246)
Valuation allowance 918 2,137 1,804
Goodwill amortization 1,454
Other, net (423) (328) (350)
--------- --------- ---------
Total provision for income taxes $ 14,810 $ 8,178 $ 9,940
========= ========= =========
</TABLE>
54
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
10. Earnings Per Share
A summary of the calculation of basic and diluted earnings per share (EPS)
for fiscal years 1997, 1998, and 1999 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
For fiscal year 1997:
EPS - basic $ 23,164 17,733,157 $ 1.31
==========
Effect of dilutive common shares:
Weighted average stock options outstanding 650,549
Less:
Weighted average stock options - assumed buyback (310,600)
Weighted average stock options - antidilutive (155,497)
----------- -------------
EPS - diluted $ 23,164 17,917,609 $ 1.29
=========== ============= ==========
For fiscal year 1998:
EPS - basic $ 12,792 17,838,354 $ .72
==========
Effect of dilutive common shares:
Weighted average stock options outstanding 710,187
Less:
Weighted average stock options - assumed buyback (482,912)
Weighted average stock options - antidilutive (23,283)
----------- --------------
EPS - diluted $ 12,792 18,042,346 $ .71
=========== ============= ==========
For fiscal year 1999:
EPS - basic $ 13,012 17,884,702 $ .73
==========
Effect of dilutive common shares:
Weighted average stock options outstanding 709,633
Less:
Weighted average stock options - assumed buyback (231,460)
Weighted average stock options - antidilutive (394,747)
----------- ------------
EPS - diluted $ 13,012 17,968,128 $ .72
=========== ============ ===========
</TABLE>
The number of stock options assumed to have been bought back by the Company
for computational purposes has been calculated by dividing gross proceeds
from all weighted average stock options outstanding during the period, as
if exercised, by the average common share market price during the period.
The average common share market prices used in the above calculations were
$14.36, $17.85, and $12.87 for fiscal years ended 1997, 1998, and 1999,
respectively.
55
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
Stock options to purchase shares of common stock at prices greater than the
average market price of the common shares during that period are considered
antidilutive. The following options were outstanding during the respective
fiscal year, but were not included in the computation of that year's
diluted EPS because the options' exercise price was greater than the
average market price of the common shares in the respective fiscal year.
<TABLE>
<CAPTION>
1997 1998 1999
- ----------------------------------- ------------------------------------ -------------------------------------
Exercise Exercise Exercise
Options Price Expiration Options Price Expiration Options Price Expiration
- -------- ------ ---------- ------- ----- ---------- -------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
24,000 $14.44 3/23/02 25,000 $18.66 6/01/08 10,000 $13.38 3/13/05
10,000 $14.88 5/21/02 25,000 $19.44 2/16/08 24,000 $14.44 3/23/02
50,000 $15.25 6/25/00 10,000 $14.88 5/21/02
76,000 $16.06 7/11/00 50,000 $15.25 6/25/00
57,000 $16.06 7/11/00
2,000 $16.13 12/21/07
200,000 $17.33 12/10/07
25,000 $18.66 6/01/08
25,000 $19.44 2/16/08
</TABLE>
11. Stockholder Distributions
On October 23, 1998, the Company made distributions of $466 to the
Company's former S corporation stockholders as a result of an Internal
Revenue Service audit of the 1993 and 1994 tax years (prior to the
Company's 1994 initial public offering), which resulted in an increase to
the Company's taxable income for those years. This distribution was made in
accordance with the terms of the 1994 Tax Indemnification Agreement between
the Company and its former S corporation stockholders, by which the Company
and the former S corporation stockholders agreed to indemnify each other
for subsequent determinations of income tax liability or increased
earnings, respectively, attributable to fiscal periods prior to termination
of the S corporation status.
12. Retirement Plans
The Company maintains several noncontributory defined benefit pension plans
for certain of its employees covered by collective bargaining agreements.
The benefits are based on years of service. The Company's policy is to fund
amounts as required under applicable laws and regulations.
The following disclosures are provided in accordance with SFAS No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits,
which became effective during fiscal year 1999:
56
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 15,452 $ 16,905
Service cost 537 665
Interest cost 1,110 1,195
Actuarial (gain)/loss 856 (547)
Benefits paid (1,050) (1,164)
Other 346
--------- ---------
Benefit obligation at end of year $ 16,905 $ 17,400
========= =========
Change in plan assets
Fair value of plan assets at beginning of year $ 13,986 $ 16,246
Actual return on plan assets 1,479 922
Employer contribution 1,831 1,413
Benefits paid (1,050) (1,164)
--------- ---------
Fair value of plan assets at end of year $ 16,246 $ 17,417
========= =========
Reconciliation of funded status
Funded status $ (659) $ 17
Unrecognized net actuarial gain 1,166 453
Unrecognized transition asset (83) (42)
Unrecognized prior service cost 1,057 1,397
--------- ---------
Prepaid benefit cost $ 1,481 $ 1,825
========= =========
Amounts recognized in consolidated balance sheets
Prepaid benefit cost $ 1,481 $ 1,825
Additional minimum liability (1,742) (1,626)
Intangible asset 1,742 1,157
Accumulated other comprehensive income (pretax) 469
--------- ---------
Net amount recognized $ 1,481 $ 1,825
========= =========
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 335 $ 613 $ 665
Interest cost 891 1,380 1,195
Expected return on plan assets (1,227) (1,729) (1,388)
Net amortization and deferral 329 235 83
------- -------- --------
Net periodic benefit cost $ 328 $ 499 $ 555
======= ======== ========
</TABLE>
The measurement dates for the plans' assets and liabilities for fiscal years
1998 and 1999 are September 30, 1998 and 1999, respectively. The discount
rates used to measure the
57
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
actuarial present value of the benefit obligations ranged from 5.75% to 8%
for 1998 and 6.50% to 8% for 1999. The expected long-term rates of return on
assets used in determining net pension expense ranged from 7% to 9% for 1998
and 7% to 9% for 1999.
Because the Company aggregates the disclosures of its pension plans with
plans with accumulated benefit obligations in excess of plan assets
(underfunded plans), the following additional disclosures are applicable to
the Company's pension plans with accumulated benefit obligations in excess of
plan assets as of October 3, 1999:
Benefit obligation $ 8,843
Fair value of plan assets $ 6,203
During fiscal year 1999, the Company merged the two pension plans at
Interstate and elected to terminate the merged plan. The Company applied for
and received approval for the termination of the merged plan from the
Internal Revenue Service and is awaiting approval from the Pension Benefit
Guaranty Corporation. At that time, the plan assets will be distributed
according to the provisions of the merged plan document.
ADCC's union employees are covered by a multi-employer defined benefit
pension plan sponsored by the union which represents the employees. The
Company makes contributions to the plan in accordance with the collective
bargaining agreement between the Company and the union. The Company
contributed $59, $69, and $101 to this plan in fiscal years 1997, 1998, and
1999, respectively. The actuarial present value of accumulated plan benefits
at January 1, 1999 (the most recent valuation date) for the multi-employer
union plan as a whole determined through an actuarial valuation performed as
of that date was $128,149. The market value of the union plan's net assets
available for benefits on that date was $191,819.
Interstate's union employees are covered by two multi-employer defined
benefit pension plans sponsored by two labor unions which represent the
employees. The Company makes contributions to the plans in accordance with
the collective bargaining agreements between Interstate and the unions. The
Company contributed $133, $155 and $148 to these plans in fiscal years 1997,
1998 and 1999, respectively. The actuarial present values of accumulated plan
benefits at January 1, 1999 (the most recent valuation date) for the multi-
employer union plans in the aggregate determined through actuarial valuations
performed as of that date were $3,000,284 and $4,098,203. The market values
of the union plans' net assets available for benefits on that date were
$4,952,306, and $5,592,308.
The Company maintains several defined contribution plans for certain hourly
and salaried employees. Company contributions to these plans vary based on
certain service and contribution requirements and on other applicable
discretionary factors.
58
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
Contribution expense recognized by the Company under the defined
contribution plans totaled $3,237, $3,383, and $3,987 in fiscal years 1997,
1998 and 1999, respectively.
On August 17, 1995, the Company's Board of Directors approved the
nonqualified deferred compensation plan, which allows certain members of
management and highly compensated employees to defer a portion of their
compensation. The deferred compensation together with the Company
matching amounts and accumulated interest is distributable in cash after
retirement or termination of employment. The Company recognized expense
related to this plan of $110, $133 and $33 in fiscal years 1997, 1998 and
1999, respectively. All amounts outstanding under the deferred compensation
plan were paid out subsequent to fiscal year 1999 in connection with the
Company's merger discussed in Note 20.
13. Postretirement Benefits Other Than Pensions
Interstate provides postretirement benefits other than pensions, including
health care and life insurance, to certain employee groups. Interstate
currently funds the cost of providing these benefits as incurred.
Employees governed by collective bargaining agreements receive health
insurance coverage to age 65 if they retire after age 62 and life insurance
coverage, in varying amounts, for the remainder of their lives.
Previously, certain salaried employees were eligible to receive health care
and life insurance benefits for the remainder of their lives if they
retired after age 60. This benefit was terminated in fiscal year 1999 and
the related obligation due to these employees of approximately $1,300 was
disbursed prior to the end of fiscal year 1999.
The following disclosures are provided in accordance with SFAS No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits,
which became effective during fiscal year 1999:
59
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1999
Change in benefit obligation
Benefit obligation at beginning of year $ 2,182 $ 2,316
Service cost 91 60
Interest cost 169 144
Actuarial gain (128)
Benefits paid (90)
Other (126)
Settlement (1,300)
---------- ----------
Benefit obligation at end of year $ 2,316 $ 1,002
=========== ==========
Change in plan assets
Fair value of plan assets at beginning of year $ 0 $ 0
---------- ----------
Fair value of plan assets at end of year $ 0 $ 0
---------- ----------
Reconciliation of funded status
Funded status $ (2,316) $ (1,002)
Unrecognized net actuarial gain (505) (535)
Unrecognized prior service cost (116)
Other (68) (87)
---------- ----------
Accrued benefit cost $ (2,889) $ (1,740)
========== ==========
Amounts recognized in consolidated balance sheets
Accrued benefit cost $ (2,889) $ (1,740)
========= =========
1997 1998 1999
Components of net periodic postretirement benefit cost
Service cost $ 90 $ 82 $ 60
Interest cost 158 169 143
Net amortization and deferral (8) (25) (23)
---------- ---------- ---------
Net periodic postretirement benefit cost $ 240 $ 226 $ 180
========== ========== =========
</TABLE>
60
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
The measurement dates for the plan's assets and obligations for fiscal
years 1998 and 1999 are July 1, 1998 and 1999, respectively. Health care
cost trend rate assumptions have a significant effect on the amounts
reported. For example, increasing and (decreasing) the health care cost
trend rate by one percentage point in each year would increase and
(decrease) the accumulated postretirement benefit obligation as of
September 27, 1998 and October 3, 1999 by $282 and ($207), and $289 and
($213), respectively, and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost by $51 and ($50),
and $44 and ($32) during fiscal years 1998 and 1999, respectively.
Assumptions affecting the calculation of the accumulated obligation are as
follows:
<TABLE>
<CAPTION>
September 27, October 3,
1998 1999
-------- --------
<S> <C> <C>
Discount rate 8.0% 8.0%
Health care cost trend rate 7.2% 6.8%
Ultimate trend rate 6.0% 6.0%
Ultimate trend rate to be reached in year 2001 2001
</TABLE>
14. Commitments and Contingent Liabilities
The Company leases offices and equipment under operating lease agreements
expiring in various years through 2005. Rent expense under operating
leases was $1,954, $2,459, and $3,214 in fiscal years 1997, 1998, and 1999,
respectively. Minimum future rental payments under operating leases having
remaining terms in excess of one year are as follows for fiscal years:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 1,349
2001 1,193
2002 955
2003 830
2004 804
Thereafter 723
-------
$ 5,854
=======
</TABLE>
In December 1997, the Company and Caterpillar, Inc. (Caterpillar) entered
into a joint venture agreement to build a steel casting foundry for the
manufacture of ground engaging tools near Saltillo, Mexico. Both companies
are investing capital to build a foundry, which the Company will operate
and from which Caterpillar will purchase the entire production. The Company
owns a 50% interest in the joint venture and, as of September 27, 1998 and
October 3, 1999, has
61
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
invested $1,441 and $11,599, respectively, in the joint venture. The facility
is expected upon completion to have a capacity of approximately $20,000
annually. A contract to purchase land in Mexico for the facility has been
executed and engineering design and construction have been completed. The
Company anticipates no significant additional costs in order to begin
production.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect
the consolidated financial position, results of operations, or cash flows of
the Company.
On June 25, 1999 and June 28, 1999, shareholder suits were filed against the
Company, certain directors of the Company, as well as Kelso & Company and RSJ
Acquisition Co., in connection with the merger of the Company discussed in
Note 20. Both complaints purport to be class actions brought on behalf of the
stockholders of the Company and both seek to enjoin the Company's merger or,
in the alternative, rescind the merger transaction, and also seek unspecified
damages and attorneys' fees. The complaints allege that the price offered in
the Company's merger to the public stockholders was inadequate and that the
defendants have breached their fiduciary duties to the Company and its
stockholders by approving the merger, or have aided and abetted a breach. On
October 18, 1999, the defendants answered one of the complaints, denying all
material allegations of wrongdoing. The second complaint has not been served
on the defendants. Although the Company believes the lawsuits are without
merit, the outcome cannot be predicted at this time. Additionally, there can
be no assurance that additional lawsuits will not be filed against the
Company or its subsidiaries, or that the resolution of those lawsuits will
not have a material adverse effect on the consolidated financial position,
results of operations, or cash flows of the Company.
The Company is subject to numerous federal, state, and local environmental
laws and regulations. Management believes that the Company is in material
compliance with such laws and regulations and that potential environmental
liabilities, if any, are not material to the consolidated financial position,
results of operations, or cash flows of the Company.
The divisions and subsidiaries are primarily self insured for workman's
compensation claims and health plans. Stop loss insurance agreements are
utilized to limit the Company's liability on both a specific and aggregate
basis for the period of coverage. The liability for unpaid claims included in
accrued insurance reserves in the consolidated balance sheets includes an
accrual for an estimate of claims incurred but not reported.
62
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
15. Related Party Transactions
The Company made payments totaling $254, $378, and $415 in fiscal years
1997, 1998, and 1999, respectively, to a law firm in which one of the
Company's stockholders is a partner.
16. Financial Instruments
Financial instruments consist of the following:
<TABLE>
<CAPTION>
September 27, 1998 October 3, 1999
------------------------------ ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 2,322 $ 2,322 $ 2,035 $ 2,035
Accounts receivable - trade, net $ 103,152 $ 103,152 $ 128,471 $ 128,471
Accounts payable $ 46,802 $ 46,802 $ 60,131 $ 60,131
Credit facility $ 232,993 $ 236,038 $ 316,891 $ 318,260
Interest rate swaps $ (4,789) $ (1,310)
Other long-term debt, including current portion $ 10,848 $ 10,370 $ 6,442 $ 5,628
</TABLE>
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, and accounts payable approximate
fair value because of the immediate or short-term maturity of these
financial instruments. The carrying amounts reported for a portion of the
credit facility and certain of the other long-term debt approximate fair
value because the underlying instruments are at variable interest rates
which reprice frequently. Fair value for fixed rate long-term debt was
estimated using either quoted market prices for the same or similar issues
or the current rates offered to the Company for debt with similar
maturities.
As discussed in Note 6, the Company is party to three interest rate swap
agreements with durations of five years to hedge against interest rate
exposures on $80,000 of long-term debt. The fair value of the interest rate
swaps is estimated based on valuations from the Company's lead bank. As
further discussed in Note 6, the interest rate swap agreements were
terminated subsequent to fiscal year 1999 in connection with the Company's
merger.
17. Acquisitions
Effective October 29, 1996, the Company completed the purchase of the
outstanding stock of Interstate for $69,656 in cash. In addition, the
purchase agreement requires contingent payments equal to five times the
amount by which the average annual net earnings of Interstate before all
interest, income taxes, and franchise taxes during the three-year period
63
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
from January 1, 1996 through December 31, 1998 exceeds $10,000, computed in
accordance with generally accepted accounting principles on a pre-acquisition
basis. During fiscal years 1997 and 1998, the Company distributed $2,542 and
$7,227, respectively, to the previous stockholders of Interstate representing
the Company's contingent payments for calendar years 1996 and 1997 as
required by the purchase agreement. During fiscal year 1999, the Company
distributed $11,111 to the previous stockholders of Interstate representing
the preliminary contingent payment for calendar year 1998. The final portion
of the calendar year 1998 contingent payment of $2,329 was paid subsequent to
fiscal year 1999 and has been accrued as additional purchase price in the
Company's consolidated financial statements. The payment made in fiscal year
1999 has been recorded in the Company's consolidated financial statements as
additional purchase price and included in the calculation of the cash paid
for the Interstate acquisition of $69,656. The acquisition has been accounted
for under the purchase method of accounting and, accordingly, the purchase
price has been allocated to the assets and liabilities of Interstate based on
their estimated fair values at the date of acquisition. Operating results of
Interstate since October 29, 1996 are included in the Company's consolidated
financial statements.
Effective December 1, 1997, the Company completed the purchase of the
outstanding stock of Camden for $2,100 in cash. The acquisition has been
accounted for under the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets and liabilities of Camden
based on their estimated fair values at the date of acquisition. Operating
results of Camden since December 1, 1997 are included in the Company's
consolidated financial statements.
Effective January 8, 1998, the Company completed the purchase of the
outstanding stock of Dycast for $21,069 in cash. The acquisition has been
accounted for using the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets and liabilities of Dycast
based on their estimated fair values at the date of acquisition. Operating
results of Dycast since January 8, 1998 are included in the Company's
consolidated financial statements.
Effective March 30, 1998, Citation Precision, a newly formed subsidiary of
the Company, acquired the net assets of Amcast Precision Products, Inc. for
$25,431 in cash. The acquisition has been accounted for under the purchase
method of accounting and, accordingly, the purchase price has been allocated
to the assets and liabilities of Citation Precision based on the estimated
fair values at the date of acquisition. Operating results of Citation
Precision since March 30, 1998 are included in the Company's consolidated
financial statements.
64
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
The estimated fair values of assets acquired and liabilities assumed in each
of the fiscal year 1997 and 1998 acquisitions are summarized as follows:
<TABLE>
<CAPTION>
Citation
Interstate Camden Dycast Precision
---------- ------ ------ ---------
<S> <C> <C> <C> <C>
Accounts receivable, net $ 15,161 $ 2,367 $ 3,276 $ 3,611
Inventories 12,946 735 992 4,296
Other current assets 3,014 537 408
Property, plant, and equipment 78,353 399 12,302 7,051
Deferred income tax assets (liability) (17,046) 2,572 (1,076)
Intangible assets and other 20,896 11,774 11,684
Accounts payable and accrued
expenses (21,004) (3,973) (4,115) (1,619)
Long-term debt (22,664) (2,621)
-------- ------- -------- --------
Purchase price $ 69,656 $ 2,100 $ 21,069 $ 25,431
======== ======= ======== ========
</TABLE>
Effective November 17, 1998, the Company completed the purchase of the
outstanding stock of Custom for $35,719 in cash. In addition, the agreement
provides for contingent payments equal to five times the amount by which the
average annual net earnings of Custom before all interest, income taxes, and
franchise taxes during the three year period from October 1, 1998 through
September 29, 2001 exceeds $9,500. Earnings shall be computed in accordance
with generally accepted accounting principles on a pre-acquisition basis, and
the aggregate amount of contingent payments shall not exceed $16,500. No
amounts were paid under this agreement in fiscal year 1999. The acquisition
has been accounted for using the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets and
liabilities of Custom based on their estimated fair values at the date of
acquisition. Operating results of Custom since November 17, 1998 are included
in the Company's consolidated financial statements.
Effective December 28, 1998, the Company completed the purchase of the
outstanding stock of CT-South for $14,844 in cash. Following the acquisition,
CT-South was merged into Citation Castings, Inc. and is now doing business
under the name Citation Marion (Marion). The acquisition has been accounted
for under the purchase method of accounting and, accordingly, the purchase
price has been allocated to the assets and liabilities of Marion based on
their estimated fair values at the date of acquisition. Operating results of
Marion since December 28, 1998 are included in the Company's consolidated
financial statements.
65
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
The estimated fair values of assets acquired and liabilities assumed in the
fiscal year 1999 acquisitions are summarized as follows:
<TABLE>
<CAPTION>
Custom Marion
---------- ----------
<S> <C> <C>
Accounts receivable, net $ 11,127 $ 3,724
Inventories 3,800 3,501
Other assets 6,233 18
Property, plant and equipment 27,942 4,326
Deferred income tax asset (liability) (943) 7,023
Intangible assets and other 30,302
Accounts payable and accrued expenses (17,839) (3,527)
Long-term debt (24,903) (221)
---------- ----------
Purchase price $ 35,719 $ 14,844
========== ==========
</TABLE>
The following unaudited pro forma summary for the year ended September 27,
1998 combines the results of operations of the Company as if the acquisitions
of Camden, Dycast, Citation Precision, Custom and Marion and the sale of
Oberdorfer (see Note 18) had occurred at the beginning of the 1998 fiscal
year. For the year ended October 3, 1999, the pro forma summary presents the
results of operations of the Company as if the acquisitions of Custom and
Marion and the sale of Oberdorfer had occurred at the beginning of the 1999
fiscal year. Certain adjustments, including additional depreciation expense,
interest expense on the acquisition debt, amortization of intangible assets
and income tax effects, have been made to reflect the impact of the purchase
and sale transactions. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would
have occurred had the acquisitions and the sale been made at the beginning of
the respective fiscal years, or of results which may occur in the future.
<TABLE>
<CAPTION>
September 27, October 3,
1998 1999
------------- ------------
<S> <C> <C>
Sales $ 838,859 $ 838,737
Operating income $ 58,927 $ 55,252
Income before provision for income taxes $ 33,136 $ 25,342
Net income $ 20,214 $ 10,896
Net income per common share - basic $ 1.13 $ .61
Net income per common share - diluted $ 1.12 $ .61
</TABLE>
66
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
Pro forma earnings per share - basic for the years ended September 27, 1998
and October 3, 1999 is calculated by dividing pro forma net income by the
basic weighted average shares outstanding of 17,838,354 and 17,884,702,
respectively. Pro forma earnings per share - diluted for the years ended
September 27, 1998 and October 3, 1999 is calculated by dividing pro forma
net income by the diluted weighted average shares outstanding of 18,042,346
and 17,968,128, respectively.
18. Impairment Charge and Sale of Subsidiaries
During fiscal year 1998, the Company recognized an impairment loss, in
accordance with SFAS No. 121, on the long-lived assets of Oberdorfer, a
former division located in Syracuse, New York. The trends at Oberdorfer
indicated that the undiscounted future cash flows from this division would
be substantially less than the carrying value of the long-lived assets
related to that division. Accordingly, the Company recognized a non-cash
pre-tax charge of $10,000 in fiscal year 1998 to write the assets down to
their estimated fair value based on management's estimate of the expected
net proceeds to be received upon the sale of Oberdorfer. The fiscal year
1998 charge consisted of $9,116 related to property, plant and equipment,
$780 related to goodwill, and $104 related to other long-lived assets.
On June 16, 1999, the Company completed the sale of Oberdorfer and recorded
a pre-tax loss of $1,815 in the consolidated statement of income for the
year ended October 3, 1999. The Company received proceeds of $3,453, which
included $1,000 in cash, a note receivable of $953 (discounted at an
interest rate of 9% and payable in twenty quarterly installments commencing
on October 1, 2001), and membership interests in the purchaser (a limited
liability company) of $1,500. The note receivable and LLC membership
interests are included in other assets at October 3, 1999.
On October 31, 1996, the Company completed the sale of Pennsylvania Steel
Foundry and Machine Company, Inc. for cash proceeds of $9,006. The related
pre-tax loss on this sale of $1,807 was included in the Company's
consolidated statement of income for the year ended September 29, 1996.
19. Segment and Geographic Information
The Company operates three reportable segments - (1) Automotive, (2)
Industrial and (3) Aerospace and Technology.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies" to the extent that such
policies affect the reported segment information. Segment data includes a
charge allocating all corporate-headquarters costs to each of its operating
segments. The Company evaluates the performance of its
67
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
segments based on operating income; therefore, interest income/expense and
provision for income taxes are reported on an entity wide basis only.
The tables below present information about the Company's reported sales and
operating income for each of the three years in the period ended October 3,
1999 and identifiable assets as of September 27, 1998 and October 3, 1999:
<TABLE>
<CAPTION>
1999
--------------------------------------------------
Operating Identifiable
Sales Income Assets
---------- ---------- ------------
<S> <C> <C> <C>
Automotive $ 378,442 $ 40,077 $ 244,328
Industrial 388,529 11,418 377,717
Aerospace and Technology 63,550 1,946 66,845
---------- ---------- ----------
$ 830,521 $ 53,441 $ 688,890
========== ========== ==========
1998
--------------------------------------------------
Operating Identifiable
Sales Income (Loss) Assets
---------- ------------- ------------
Automotive $ 286,497 $ 28,140 $ 201,826
Industrial 389,829 26,895 307,954
Aerospace and Technology 47,691 (16,656) 59,485
---------- ----------- ----------
$ 724,017 $ 38,379 $ 569,265
========== =========== ============
1997
-------------------------------
Operating
Sales Income (Loss)
---------- -------------
Automotive $ 226,359 $ 21,877
Industrial 391,740 31,356
Aerospace and Technology 30,862 (840)
---------- -------------
$ 648,961 $ 52,393
========== =============
</TABLE>
Substantially all of the Company's operations are located in the United
States. Thus, substantially all of the Company's assets are located
domestically. Foreign revenues are not significant to the Company's
consolidated operations. Sales to the Company's three largest customers
amounted to 18%, 23% and 24% of total sales during fiscal years 1997, 1998
and 1999, respectively.
68
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
20. Subsequent Event
On December 1, 1999, RSJ Acquisition Co., a Delaware corporation (Merger
Co.), and an affiliate of Kelso & Company (Kelso), was merged (the
Merger) with and into the Company, pursuant to an Agreement and Plan of
Merger and Recapitalization dated as of June 24, 1999, as amended (the
Merger Agreement), by and between Merger Co. and the Company. The Company
was the surviving corporation in the Merger. In connection with the
consummation of the Merger, certain investment partnerships and other
persons affiliated with Kelso invested $240,000 in Merger Co., as a result
of which such stockholders own approximately 93% of the outstanding common
stock of the Company as of December 1, 1999. Pursuant to the Merger
Agreement, certain existing holders of the Company's common stock at the
effective time of the Merger (the Effective Time) elected to retain an
aggregate of 1,062,619 shares of the Company's common stock in the Merger,
constituting approximately 7% of the outstanding common stock of the
Company. All remaining shares of the Company's common stock issued and
outstanding at the Effective Time, other than treasury shares, were
converted into the right to receive cash in the amount of $17.00 per share.
The Merger was effected through a leveraged recapitalization.
In connection with the Merger, the Company entered into a senior credit
facility in the aggregate amount of $360,000 (the Senior Credit Facility)
with The Chase Manhattan Bank, First Union National Bank and certain other
lenders, providing for (i) Tranche A term loans in the amount of $50,000;
(ii) Tranche B term loans in the amount of $210,000; and (iii) a revolving
credit facility in the amount of $100,000. The obligations under the Senior
Credit Facility are guaranteed by each of the Company's domestic
subsidiaries. In addition, the Senior Credit Facility and the guarantees
are collateralized by substantially all of the assets of the Company and
its subsidiaries. The Tranche A term loans will be repayable in quarterly
principal payments, with the balance payable six years after the closing
date. The Tranche A term loans bear interest at a rate per annum equal to
(at the option of the Company): (i) an adjusted London interbank offered
rate (Adjusted LIBOR) plus 3% or (ii) a rate equal to the greater of The
Chase Manhattan Bank's prime rate, a certificate of deposit rate plus 1%
and the Federal Funds effective rate plus 1% (the Alternate Base Rate)
plus 2%, in each case subject to certain reductions based on financial
performance. The Tranche B term loans will be repayable in nominal
quarterly principal payments over six years and, commencing on the sixth
anniversary of the closing date, in quarterly principal payments beginning
at $20,000 and increasing over two years, with the balance of the Tranche B
term loans payable eight years after the closing date. The Tranche B term
loans bear interest at a rate per annum equal to (at the option of the
Company): (i) Adjusted LIBOR plus 3.75% or (ii) the Alternate Base Rate
plus 2.75%. The revolving credit facility is a six-year facility and
outstanding balances thereunder bear interest at a rate per annum equal (at
the option of the Company) to (i) Adjusted LIBOR plus 3% or (ii) the
Alternate Base Rate plus 2%, in each case subject to certain reductions
69
<PAGE>
Citation Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended September 28, 1997, September 27, 1998
and October 3, 1999
(In Thousands, Except Share and Per Share Amounts)
- --------------------------------------------------------------------------------
based on financial performance. In addition to the borrowings under the
Senior Credit Facility, the Company incurred $135,000 in bridge financing
indebtedness, consisting of (i) senior subordinated increasing rate bridge
notes (the Bridge Notes) issued in a private placement in the aggregate
principal amount of $101,250 and (ii) a loan from The Chase Manhattan Bank
in the principal amount of $33,750 (the Bridge Loan and, collectively, with
the Notes, the Obligations). The Obligations are general unsecured
obligations of the Company, junior to all existing and future permitted
senior indebtedness of the Company and equal in right of payment to all
other existing and future senior subordinated indebtedness of the Company.
The interest rate on the Obligations for the first three months following
the issuance of the Notes will be 13.25% per annum. The interest rate for
each three-month period following the first three-month period will be the
greatest of (x) (i) 13%, (ii) the prime rate as announced from time to time
by The Bank of New York, plus 4.75%, (iii) the 10- year Treasury rate plus
6.95% and (iv) the DLJ High Yield Index Rate plus .98%, plus an additional
.5% at the end of each three-month period and (y) an amount equal to the
initial interest rate plus the product of .5% and the number of complete
three-month periods since the closing. Interest, which is to be paid
quarterly, may not exceed 17% per annum. The Obligations will mature on
December 1, 2000, but may be extended under certain conditions until the
date which is six months after the date of the original final stated
maturity of the Senior Credit Facility. In connection with the issuance of
the Obligations, the Company also issued warrants, equal to 5% of its fully
diluted common stock, which have been deposited into an escrow account and
are to be used in connection with selling, transferring, assigning or
refinancing the Obligations after the first anniversary of the Effective
Time. The warrants will be exercisable at $0.01 per share for a period of
seven years from the date of release from escrow. Any warrants issued in
connection with any selling, transferring, assigning or refinancing the
Obligations will be released from escrow, pro rata over the next four
quarterly periods, to the holders of the Obligations.
The sources of funds for the Merger were the proceeds from (i) the $240,000
equity contribution described above, (ii) borrowings of $260,000 under the
Senior Credit Facility, (iii) the $135,000 in Bridge Financing and (iv)
available cash of the Company. The proceeds from the Merger were used to
repay the Company's existing Credit Facility, related accrued interest, and
payment of accrued benefits under the Company's nonqualified deferred
compensation plan.
70
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the fiscal years 1998 and 1999 and through the date of this report,
there has been no change in the Company's independent accountants, nor have any
disagreements with such accountants or reportable events occurred.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS
As of December 1, 1999, the directors and executive officers of the Company
were as follows:
Frederick F. Sommer Director, President and Chief Executive Officer
Thomas R. Wall, IV Director
Frank K. Bynum, Jr. Director
R. Conner Warren Executive Vice President and Chief Administrative Officer
Timothy L. Roberts Vice President, Aerospace and Technology Group
John W. Lawson Vice President, Automotive Group
Edwin L. Yoder Vice President, Industrial Group
C.J. Peterson Vice President, Industrial Steel Group
Thomas W. Burleson Vice President-Finance, Chief Financial Officer and
Assistant Secretary
Stanley B. Atkins Vice President-Strategic Planning Development and Secretary
Frederick F. Sommer, age 56, joined Citation as its President and Chief
Operating Officer in July 1996. In 1998, Mr. Sommer became Chief Executive
Officer of Citation. Prior to joining Citation, Mr. Sommer served as President
and Chief Operating Officer of Automotive Industries Holdings, Inc., which had
been purchased by Hidden Creek Industries, Inc. in a leveraged transaction, from
1991 until his appointment as President and Chief Executive Officer in 1994. He
remained in that position after Automotive Industries Holdings, Inc. was
acquired by Lear Corporation in 1995, and also served as a Senior Vice President
of Lear Corporation. He has been a director of Citation since 1996.
Thomas R. Wall, IV, age 41, is a Managing Director of Kelso & Company and
has held various positions of increasing responsibility with Kelso & Company
since 1983. Mr. Wall also serves as a director of AMF Bowling, Inc.,
Consolidated Vision Group, Inc., Cygnus Publishing, Inc., iXL Enterprises, Inc.,
Mitchell Supreme Fuel Company, Mosler, Inc., Peebles, Inc. and 21st Century
Newspapers, Inc.
71
<PAGE>
Frank K. Bynum, Jr., age 36, is a Managing Director of Kelso & Company and
has held various positions of increasing responsibility with Kelso & Company
since 1987. Mr. Bynum also serves as a director of Cygnus Publishing, Inc., CDT
Holdings, plc, HCI Direct, Inc., iXL Enterprises, Inc., MJD Communications, Inc.
and 21st Century Newspapers, Inc.
R. Conner Warren joined the Company in 1975, shortly after its founding.
Since that time, Mr. Warren has served the Company in various capacities and is
currently its Executive Vice President and Chief Administrative Officer. He
served on the Board of Directors from 1975 until the merger. Prior to joining
the Company, Mr. Warren was an employee of Hackney Corporation. He is a past
president of the American Foundryman's Society and of the American Cast Metals
Association and is currently the U.S. representative to the International
Association of Foundry Technical Associations and a member of its executive
board.
Timothy L. Roberts joined the Company in May 1995 as Group Vice President,
Special Foundry Group, and is currently Vice President, Aerospace and Technology
Group. He served as Director of Manufacturing Operations at Intermet
Corporation, an iron castings company, from 1994 to 1995, and previously served
ten years at Wheland Foundry where he advanced to the position of Director of
Operations and General Manager.
John W. Lawson joined the Company in February 1998 as Vice President, High
Volume Foundry Group and was named Vice President, Automotive Group in August
1998. Mr. Lawson has more than 20 years of operations experience, most recently
with Lear Corporation as its Vice President of European operations from 1996 to
February 1998, and Vice President of North American operations from 1992 to
1996.
Edwin L. Yoder was named Vice President, Medium Volume Foundry Group, when
he joined the Company in June 1998 and Vice President, Industrial Group in
August 1998. Mr. Yoder was formerly with Allied Signal Corporation as Vice
President and General Manager of its Environmental Catalysts Division from 1994
through June 1998, and he was with Garrett Automotive from 1992 to 1994.
C.J. Peterson joined the Company in October 1999 as Vice President,
Industrial Steel Group. He was previously employed by Intermet Corporation as a
Group Vice President, where he was also named Vice President - Foundry
Operations in February 1995, Director of Manufacturing from 1993 to 1995, and
was a General Manager from 1985 to 1993.
Thomas W. Burleson joined the Company in 1992 as its Corporate Controller
and became Vice President-Controller in August 1994. He became Vice President-
Finance and Chief Financial Officer in March 1998. Prior to joining the
Company, Mr. Burleson was Corporate Controller of Marvin's, a regional building
products chain, from 1990 to 1992, and was an accountant with Coopers & Lybrand
from 1980 to 1990. Mr. Burleson is a certified public accountant.
72
<PAGE>
Stanley B. Atkins is the Company's Vice President-Strategic Planning and
Development and Corporate Secretary. He joined the Company in 1991 as Vice
President-Marketing. He was named Vice President-Sales Administration in 1992
and Vice President, Investor Relations, and Corporate Secretary in 1994, before
appointment to his present position in December 1999. Prior to joining
Citation, he was with Intermet Corporation and its predecessor organizations for
19 years as Vice President of Marketing.
Compliance with Section 16(a) of the Securities Exchange Act
The information set forth in the following paragraph is based solely upon a
review of Forms 3 and 4 and amendments thereto furnished to the Company pursuant
to Rule 16a-3(e) during the fiscal year ended September 27, 1998, and Form 5 and
amendments thereto furnished to the Company with respect to that fiscal year, if
any, and written representations received by the Company.
Of those persons who, at any time during the fiscal year ended October 3,
1999, were directors, executive officers, or beneficial owners of more than 10
percent of the Company's outstanding stock, two of such persons failed to file,
on a timely basis, as disclosed in the above forms, reports required by Section
16(a) of the Securities Exchange Act of 1934 during the most recent fiscal year.
Mr. Esenberg, a director of the Company until February, 1999, filed one late
report of an option grant, and Mr. Sekerka, an executive officer during a
portion of the 1999 fiscal year, filed one late report of one sale transaction.
73
<PAGE>
ITEM 11: EXECUTIVE COMPENSATION
The following tables and charts set forth information with respect to
benefits made available, and compensation paid or accrued, by the Company during
the last three fiscal years for services by each of the persons who served as
chief executive officer of the Company during the fiscal year ended October 3,
1999 and the other four highest paid executive officers of the Company who were
serving as such at the end of such fiscal year whose total salary and bonus
exceeded $100,000 during such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation All Other
Annual Compensation Awards Compensation/(2)/
------------------------------------------------------------------------------
Securities
Name and Fiscal Underlying
Principal Position Year Salary Bonus Options/(1)/
- -------------------------------- ------ -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Frederick F. Sommer 1999 $380,770 $302,753 -0- $ 23,973
President and Chief Executive 1998 253,000 427,951 16,500 15,550
Officer /(3)/ 1997 234,000 415,160 -0- -0-
T. Morris Hackney 1999 $371,000 $ -0- -0- $ 23,150
Chairman of the Board /(3)/ 1998 322,000 427,951 -0- 125,465
1997 208,000 439,160 -0- 132,201
Edwin L. Yoder 1999 $184,158 $151,388 -0- $ 28,315
Vice President, Industrial 1998 n/a n/a n/a n/a
Iron Group 1997 n/a n/a n/a n/a
R. Conner Warren 1999 $212,000 $127,426 -0- $ 15,100
Executive Vice President 1998 194,000 285,301 10,000 15,550
and Chief Administrative 1997 156,000 298,298 -0- 23,884
Officer
John W. Lawson 1999 $183,559 $134,290 -0- $ 23,500
Vice President, Automotive 1998 86,490 78,448 25,000 7,474
Group 1997 n/a n/a n/a n/a
</TABLE>
(1) The Company's Incentive Award Plan provides for grants of restricted stock
and stock appreciation rights, but no such awards have been made.
(2) The amounts shown in this column consist of Company contributions to the
Company's 401(k) Retirement Plan and Company contributions to the Company's
Deferred Compensation Plan. For Messrs. Yoder and Lawson, this amount also
includes for the last fiscal year $13,239 and $10,000, respectively, in
moving expenses paid or reimbursed by the Company. The aggregate dollar
amount of perquisites and other personal benefits provided to each officer
is less than $50,000 or 10% of the total annual salary and bonus of such
officer.
74
<PAGE>
(3) Mr. Hackney served as Chief Executive Officer of the Company until August
1998, when Mr. Sommer was named to that position.
OPTION GRANTS IN LAST FISCAL YEAR
There were no option grants during fiscal 1999 to the named executive
officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
The following table provides information on option exercises and the
aggregate value of unexercised stock options held by the named executive
officers as of October 3, 1999. No stock appreciation rights are held by any
such officer.
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of In-the-Money
Acquired Unexercised Options/SARs Options/SARs
on Value at Fiscal Year End at Fiscal Year End /(1)/
Name Exercise Realized ------------------------------ ---------------------------
- ---------------------- -------- -------- Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frederick F. Sommer -0- -0- 104,125 12,375 $456,500 -0-
T. Morris Hackney -0- -0- 50,000 -0- 391,250 n/a
Edwin L. Yoder -0- -0- 6,250 18,750 -0- -0-
R. Conner Warren -0- -0- 52,500 7,500 431,250 -0-
John W. Lawson -0- -0- 6,250 18,750 -0- -0-
</TABLE>
(1) Based on $16.625 per share, the closing price reported by NASDAQ on October
1, 1999, the last business day of fiscal 1999.
Compensation of Directors
Standard Arrangements for fiscal 1999. The Company's outside directors
received an annual retainer of $7,000 and receive $2,000 for each Board of
Directors meeting attended, in addition to reimbursement of travel and other
expenses related to their duties. Each director who was a member of a committee
received $1,000 for each committee meeting attended, unless the committee
meeting occurred in conjunction with a Board of Directors meeting, in which case
no additional compensation was paid. The directors who were also employees of
the Company, Mr. Hackney, Mr. Sommer, and Mr. Warren, were not compensated for
meetings they attended.
Upon initial appointment or election to the Board of Directors, non-
employee directors were eligible to receive a one-time grant of options for the
purchase of 10,000 shares of Common Stock of the Company under the Company's
Non-Qualified Stock Option Plan for Non-Employee Directors. No directors were
initially appointed or elected during fiscal 1999.
75
<PAGE>
Employment Contracts, Termination of Employment and Change of Control
Arrangements
Immediately prior to the Company's initial public offering in 1994, the
Company entered into employment agreements with T. Morris Hackney and R. Conner
Warren pursuant to which Mr. Hackney served as Chairman and Chief Executive
Officer, and Mr. Warren serves as Executive Vice President. The agreements
provided for an initial term of three years commencing on July 1, 1994, with
automatic successive one year extensions at the end of each anniversary of the
date of the contract unless either the Company or the executive elects, on 180
days' notice, for the agreement not to be so extended. Mr. Hackney notified the
Company during fiscal 1997 of his election not to extend his employment
agreement, and resigned his position as of the Effective Time of the Merger. In
December 1998, Mr. Warren notified the Company of his election not to extend his
employment agreement, which will terminate July 1, 2001. Mr. Warren's base
annual salary rate under the contract for fiscal 1999 was $212,000 per year.
The base salary may be raised periodically at the discretion of the Compensation
Committee. Mr. Warren is also entitled to cash bonuses pursuant to the
Company's management bonus plan. In the event employment is terminated by the
executive because of a material breach by the Company, or by the Company,
without cause, including in connection with a change in control of the Company,
the executive will be entitled to receive his current compensation for the
remainder of the agreement.
Effective December 1, 1998, the Company entered into change of control
severance agreements (the "Agreements") with Messrs. Sommer, Roberts, Lawson,
and Yoder, as well as three other senior officers who are not among the named
executives.
The Agreements are effective for a term of three years, and will be
automatically extended for one year at the end of each year thereafter unless
terminated by either party. However, the term of the Agreements will not expire
prior to the expiration of two years following a "Change in Control" (as
described below). If the employment of the officer is involuntarily terminated,
or in certain instances constructively terminated, within 24 months following a
Change in Control by the Company or the officer other than for Cause,
Disability, Retirement (as each of those terms is defined in the Agreements) or
death, the officer will be entitled to receive (a) a pro rata bonus for the year
of termination, (b) a lump sum cash payment equal to two times (and in Mr.
Sommer's case, 2.99 times) his annual base salary at the highest rate in effect
during the previous twelve months, plus the average annual bonus received by him
during the preceding three years, subject to certain adjustments, and (c)
continuation of life insurance, medical, health and accident, and disability
benefits for up to two years (three years for Mr. Sommer).
Additionally, in the event of a Change in Control, all restrictions on any
outstanding incentive awards will lapse and become fully vested, all outstanding
stock options will become fully vested and immediately exercisable, and the
officer will receive a lump sum cash payment of the entire balance of his
account under the Company's Nonqualified Deferred Compensation Plan. Each
Agreement also provides that the Company will pay all legal fees and related
expenses incurred by the officer in connection with any dispute arising under or
relating to the Agreement or any action or proceeding to enforce his rights
under the Agreement.
76
<PAGE>
The Merger constituted a Change in Control under the Agreements, though
Citation does not anticipate that any officer's employment will be terminated
following the Merger. However, under the Agreements, Messrs. Sommer, Roberts,
Roberts, Lawson and Yoder would be entitled to receive approximately $570,000,
$126,000, $26,000 and $24,000, respectively, in accelerated benefits as of the
Effective Time of the Merger.
A "Change in Control" includes the occurrence of any of the following: (a)
any person, entity or "group" (within the meaning of Rules 13d through 13d-6 of
the Exchange Act) (other than any subsidiary or affiliate as of December 1, 1998
of the Company or any employee benefit plan of the Company) has acquired or
agreed to acquire beneficial ownership of fifty percent or more of the voting
and/or economic interest in the capital stock of the Company; (b) a majority of
the board of directors of the Company shall consist at such time of individuals
other than (i) members of the board of directors on December 1, 1998, and (ii)
other members of the Board approved to become a director by a majority of such
members referred to in clause (i) or by members so approved; or (c) the approval
by the stockholders of the Company and completion of (i) a merger or
consolidation of the Company, statutory share exchange, or other similar
transaction with another corporation, partnership, or other entity or enterprise
in which either the Company is not the surviving or continuing corporation, (ii)
a sale or disposition of all or substantially all of the assets of the Company,
or (iii) the dissolution of the Company.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of December 15, 1999, the number and
percentage of outstanding shares of Citation common stock beneficially owned by
each person known by Citation to be a beneficial owner of more than five percent
of its issued and outstanding common stock. Beneficial ownership reflects sole
voting and investment power unless otherwise noted.
<TABLE>
<CAPTION>
Shares Percentage
Beneficially of Common
Beneficial Owner Owned Stock/(1)/
--------------- ----- ----------
<S> <C> <C>
Kelso Investment Associates VI, L.P., 13,184,118 86.85%
Kelso GP VI, LLC,
KEP VI, LLC /(1)/
Frank T. Nickell 13,184,118 86.85%
Thomas R. Wall, IV 13,184,118 86.85%
George E. Matelich 13,184,118 86.85%
Michael B. Goldberg 13,184,118 86.85%
David I. Wahrhaftig 13,184,118 86.85%
Frank K. Bynum, Jr. 13,184,118 86.85%
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage
Beneficially of Common
Beneficial Owner Owned Stock/(1)/
--------------- ----- ----------
<S> <C> <C>
Philip E. Berney 13,184,118 86.85%
c/o Kelso & Company 13,184,118 86.85%
320 Park Avenue
24/th/ Floor
New York, NY 10022
</TABLE>
(1) Messrs. Nickell, Wall, Matelich, Goldberg, Wahrhaftig, Bynum and Berney may
be deemed to share beneficial ownership of shares of common stock owned of
record by Kelso Investment Associates VI, L.P. by virtue of their status as
managing members of its general partner Kelso GP VI, LLC and of shares of
common stock owned of record by KEP VI, LLC by virtue of their status as
managing members of KEP VI, LLC. Messrs. Nickell, Wall, Matelich,
Goldberg, Wahrhaftig, Bynum and Berney share investment and voting power
with respect to securities owned by Kelso Investment Associates VI, L.P.
and KEP VI, LLC, but disclaim beneficial ownership.
Information for Kelso Investment Associates VI, L.P., Kelso GP VI,
LLC and KEP VI, LLC includes 11,350,000 shares held by Kelso Investment
Associates VI, L.P. and 1,834,118 held by KEP VI, LLC. Kelso Investment
Associates VI, L.P., Kelso GP VI, LLC and KEP VI, L.P., due to their common
control, could be deemed to beneficially own each of the other's shares,
but disclaim such beneficial ownership.
Security Ownership of Management
The following table sets forth, as of December 15, 1999, the number and
percentage of outstanding shares of Citation common stock beneficially owned by
each director, each executive officer named in the Summary Compensation Table
serving in such capacity as of December 15, 1999, and all executive officers and
directors as a group. Beneficial ownership reflects sole voting and investment
power unless otherwise noted.
<TABLE>
<CAPTION>
Shares Percentage
Beneficially of Common
Beneficial Owner Owned Stock/(1)/
- ---------------- ----- -----------
<S> <C> <C>
Frank K. Bynum, Jr. /(1)/ 13,184,118 86.85%
Director
John W. Lawson 24,500 *
Vice President , Automotive Group
Frederick F. Sommer 31,250 *
President, Chief Executive Officer and Director
Thomas R. Wall, IV /(1)/ 13,184,118 86.85%
Director
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage
Beneficially of Common
Beneficial Owner Owned Stock/(1)/
- ---------------- ----- -----------
<S> <C> <C>
R. Conner Warren 165,000 1.1%
Executive Vice President and Chief
Administrative Officer
Edwin L. Yoder -0- *
Vice president, Industrial Iron Group
Current officers and directors as a group
</TABLE>
______________
* less than 1%
(1) Consists of Messrs. Wall and Bynum may be deemed to share beneficial
ownership of shares of common stock owned of record by Kelso Investment
Associates VI, L.P. by virtue of their status as managing members of its
general partner Kelso GP VI, LLC and of shares of common stock owned of
record by KEP VI, LLC by virtue of their status as managing members of KEP
VI, LLC. Messrs. Wall and Bynum share investment and voting power with
respect to securities owned by Kelso Investment Associates VI, L.P. and KEP
VI, LLC, but disclaim beneficial ownership. See the note to the previous
table.
Consists of 11,350,000 shares held by Kelso Investment Associates VI,
L.P. and 1,834,118 held by KEP VI, LLC.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Kelso & Company Services Agreement
Pursuant to a letter services agreement, dated December 1, 1999, Citation
agreed to retain Kelso & Company to provide consulting and advisory services to
Citation. The services agreement will continue in full force and effect for so
long as Kelso & Company or any of its affiliates, including Kelso Investment
Associates VI, L.P. and KEP VI, LLC, continue to own any shares of common stock
of Citation. Such services may include (i) assisting in the raising of
additional debt and equity capital from time to time for Citation, if deemed
advisable by its Board of Directors, (ii) assisting Citation in its long-term
strategic planning generally and (iii) providing such other consulting and
advisory services as Citation may reasonably request.
In consideration of Kelso & Company providing such services, Citation will
pay Kelso & Company an annual advisory fee of $840,000, payable quarterly in
advance. The services agreement provides that Citation will indemnify Kelso &
Company, Kelso Investment Associates VI, L.P., KEP VI, LLC and certain related
parties, subject to certain limitations, against all claims and liabilities
arising out of or in connection with applicable securities laws or other laws in
connection with the merger and related transactions, the provision by Kelso &
Company of advisory services and the operation of the business following the
merger. In addition, upon completion of the merger, Kelso & Company caused
Citation to pay to it a cash fee of approximately $8.4 million.
79
<PAGE>
Stockholders Agreement
The Stockholders Agreement provides, among other things, that shares of
Citation common stock that were retained in connection with the merger may be
freely transferred, subject only to a right of first refusal in favor of
Citation and certain of its designees. The agreement restricts the transfer of
any other shares of common stock owned by officers and employees of Citation who
are or who become parties to the Stockholders Agreement. In addition,
stockholders have "tag-along" rights to sell their shares on a pro rata basis
with the affiliates of Kelso & Company whenever those stockholders are selling
their shares to third parties. Affiliates of Kelso & Company have "drag-along"
rights to cause each executive, officer, employee or other stockholder who is or
who becomes a party to sell his shares of Citation on a pro rata basis with the
Kelso-affiliated stockholders to a third party that has made an offer to
purchase the shares of Citation owned by the Kelso-affiliated stockholders.
Registration Rights Agreement
The Registration Rights Agreement provides, among other things, that Kelso
& Company has the right, at any time, to make up to five separate requests that
Citation effect the registration under the Securities Act of all or a portion of
the registrable securities owned by Kelso & Company. Any such request shall
specify the intended method or methods of disposition thereof. In the event
that Citation registers its shares under the Securities Act (except for
registrations related to exchange offers or benefit plans) and any Kelso-
affiliated stockholder is selling its shares in connection with this
registration, the executive officers, employees and other parties to the
agreement who are not affiliated with Kelso & Company will have the right to
have their shares concurrently registered and sold, in most cases, on a pro rata
basis with those of the Kelso-affiliated stockholders.
Other
Information regarding economic benefits received in connection with the
merger by Citation's former board of directors and certain members of its former
management, including Messrs. Sommer, Yoder, Warren, and Lawson, who are named
executive officers included in the Summary Compensation Table in this report and
who presently continue as members of management, is incorporated by reference to
the discussion beginning at page 70 under the caption "Interests of Certain
Persons in the Merger and Recapitalization" in the Company's Proxy
Statement/Prospectus dated October 29, 1999 filed in connection with Citation
Corporation's Registration Statement on Form S-4 (Registration No. 333-894310).
80
<PAGE>
PART IV
<TABLE>
<CAPTION>
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
<S> <C> <C>
Exhibits
The exhibits set forth in the following index of exhibits are filed as a
part of this report:
Exhibit
- ------- Page
Number ----
- ------
2.1(a) Agreement and Plan of Merger and Recapitalization, dated as of June 24, 1999, *
between RSJ Acquisition Co. and Citation Corporation (incorporated by
reference to Exhibit 2.1(a) of the Company's Registration Statement on Form
S-4 (Commission File No. 333-86763) filed September 8, 1999).
2.1(b) Amendment No. 1 to Agreement and Plan of Merger dated as of September 3, *
1999 (incorporated by reference to Exhibit 2.1(b) of the Company's
Registration Statement on Form S-4 (Commission File No. 333-86763) filed
September 8, 1999).
2.1(c) Amendment No. 2 to Agreement and Plan of Merger and Recapitalization dated *
as of October 12, 1999 (incorporated by reference to Exhibit 2.1(c) of the
Company's Registration Statement on Form S-4 (Commission File No. 333-
86763) filed September 8, 1999).
3.1 Certificate of Incorporation of the Company, as amended (incorporated by *
reference to Exhibit 3.1 of the Company's Registration Statement on Form S-1
under the Securities Act of 1933 (Registration No. 33-79804) as filed August
2, 1994).
3.1(a) Certificate of Designations of Series A Junior Participating Preferred Stock *
of Citation Corporation dated November 30, 1998 (incorporated by reference to
Exhibit 3.1(a) of the Company's Annual Report on Form 10-K for the year
ended September 27, 1998).
3.1(b) Certificate of Merger of RSJ Acquisition Co. with and into Citation 90
Corporation as effective December 1, 1999
3.2(a) Bylaws of the Company as amended November 25, 1998 (incorporated by *
reference to Exhibit 3.2(a) of the Company's Annual Report on Form 10-K for
the year ended September 27, 1998).
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.1(a) Rights Agreement dated as of November 25, 1998 between Citation *
Corporation and the Bank of New York as Rights Agent (incorporated
by reference to the Company's Registration Statement on Form 8-A under
the Securities Exchange Act of 1934 (Commission File No. 0-24492) as
filed December 1, 1998).
4.1(b) Amendment, dated as of December 10, 1998, to Rights Agreement, dated as of *
November 25, 1998, between the Company and the Bank of New York, as
Rights Agent (incorporated by reference to the Company's Amendment to
Registration Statement on Form 8-A/A under the Securities Exchange Act of
1934 (Commission File No. 0-24492) as filed December 16, 1998).
4.1(c) Amendment, dated as of May 20, 1999, to Rights Agreement, dated as of *
November 25, 1998, between the Company and the Bank of New York, as
Rights Agent (incorporated by reference to the Company's Registration
Statement on Form S-4 (Commission File No. 333-86763) as filed September
8, 1999).
4.1(d) Amendment, dated as of June 24, 1999, to Rights Agreement, dated as of *
November 25, 1998, between the Company and the Bank of New York, as
Rights Agent (incorporated by reference to the Company's Registration
Statement on Form S-4 (Commission File No.333-86763) as filed September
8, 1999).
4.2 Voting Agreement dated as of June 24, 1999, by and between RSJ Acquisition *
Co. and certain stockholders of Citation Corporation (incorporated by reference
to the Company's Registration Statement on Form S-4 (Commission File No.
333-86763) as filed September 8, 1999).
4.3 Stock Election Agreement dated as of September 8, 1999, between RSJ *
Acquisition Co. and Hackney One Investments L.L.C. (incorporated by
reference to the Company's Registration Statement on Form S-4 (Commission
File No. 333-86763) as filed September 8, 1999).
4.4 Stock Election Agreement dated as of September 8, 1999, between RSJ *
Acquisition Co. and Frederick F. Sommer (incorporated by reference to the
Company's Registration Statement on Form S-4 (Commission File No. 333-
86763) as filed September 8, 1999).
4.5 Stock Election Agreement dated as of September 8, 1999, between RSJ *
Acquisition Co. and R. Conner Warren (incorporated by reference to the
Company's Registration Statement on Form S-4 (Commission File No. 333-
86763) as filed September 8, 1999).
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.6 Stock Election Agreement dated as of September 8, 1999, between RSJ *
Acquisition Co. and Timothy L. Roberts (incorporated by reference to the
Company's Registration Statement on Form S-4 (Commission File No. 333-
86763) as filed September 8, 1999).
4.7 Stock Election Agreement dated as of September 8, 1999, between RSJ *
Acquisition Co. and Edwin L. Yoder (incorporated by reference to the
Company's Registration Statement on Form S-4 (Commission File No. 333-
86763) as filed September 8, 1999).
4.8 Stock Election Agreement dated as of September 8, 1999, between RSJ *
Acquisition Co. and John W. Lawson (incorporated by reference to the
Company's Registration Statement on Form S-4 (Commission File No. 333-
86763) as filed September 8, 1999).
4.11 Amended Stock Election Agreement dated as of October 12, 1999, between *
RSJ Acquisition Co. and Hackney One Investments, L.L.C. (incorporated by
reference to Exhibit 4.11 of the Company's Registration Statement on Form S-
4 (Commission File No. 333-86763) filed September 8, 1999).
4.12 Credit Agreement dated as of November 30, 1999 between the Company, the 92
Lenders Party Thereto and The Chase Manhattan Bank, as Administrative
Agent.
4.13 Bridge Financing Agreement dated as of December 1, 1999 between the 158
Company, Citation Funding, Inc., The Chase Manhattan Bank and First Union
Investors, Inc.
4.14 Form of Note, included as Exhibit A to the Bridge Financing Agreement dated 190
as of December 1, 1999 between the Company, Citation Funding, Inc., The
Chase Manhattan Bank and First Union Investors, Inc.
4.15 Registration Rights Agreement (Senior Subordinated Increasing Rate Notes), 193
included as Exhibit B-1 to the Bridge Financing Agreement dated as of
December 1, 1999 between the Company, Citation Funding, Inc., The Chase
Manhattan Bank and First Union Investors, Inc.
4.16 Registration Rights Agreement (Warrants), included as Exhibit B-2 to the 202
Bridge Financing Agreement dated as of December 1, 1999 between the
Company, Citation Funding, Inc., The Chase Manhattan Bank and First Union
Investors, Inc.
4.17 Form of Warrant Escrow Agreement, included as Exhibit C to the Bridge 211
Financing Agreement dated as of December 1, 1999 between the Company,
Citation Funding, Inc., The Chase Manhattan Bank and First Union Investors,
Inc.
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.18 Form of Warrants, included as Exhibit F to the Bridge Financing Agreement 222
dated as of December 1, 1999 between the Company, Citation Funding, Inc.,
The Chase Manhattan Bank and First Union Investors, Inc.
10.2(w) Agreement and Plan of Merger dated May 16, 1996 among Interstate Forging *
Industries, Inc., Citation Forging Corporation, and Citation Corporation, as
amended (incorporated by reference to Exhibit 2.2 of the Company's Report
on Form 8-K dated March 1, 1996).
10.2(x) Second Amended and Restated Credit Agreement, dated as of August 3, 1998, *
among the Company and certain of its subsidiaries, certain banks and other
lenders party thereto from time to time, The First National Bank of Chicago,
and SouthTrust Bank, National Association (incorporated by reference to
Exhibit 10.2(x) of the Company's Annual Report on Form 10-K for the year
ended September 27, 1998).
10.2(y) First Amendment to Second Amended and Restated Credit Agreement, dated *
as of November 3, 1998 (incorporated by reference to Exhibit 10.2(y) of the
Company's Annual Report on Form 10-K for the year ended September 27,
1998).
10.2(z) Second Amendment to Second Amended and Restated Credit Agreement, dated *
as of November 25, 1998 (incorporated by reference to Exhibit 10.2(z) of the
Company's Annual Report on Form 10-K for the year ended September 27,
1998).
10.3(b) Employment Agreement commencing on August 9, 1994 between Citation *
Corporation and R. Conner Warren (incorporated by reference to Exhibit
10.3(b) of the Company's Registration Statement on Form S-1 under the
Securities Act of 1933 (Registration No. 33-79804) as filed August 2, 1994).
10.3(c) Change in Control Retention and Severance Agreement dated December 1, *
1998 between the Company and Frederick F. Sommer (incorporated by
reference to Exhibit 10.3(c) of the Company's Annual Report on Form 10-K
for the year ended September 27, 1998).
10.3(d) Change in Control Retention and Severance Agreement dated December 1, *
1998 between the Company and John W. Lawson (incorporated by reference
to Exhibit 10.3(d) of the Company's Annual Report on Form 10-K for the year
ended September 27, 1998).
10.3(e) Change in Control Retention and Severance Agreement dated December 1, *
1998 between the Company and Edwin L. Yoder (incorporated by reference to
Exhibit 10.3(e) of the Company's Annual Report on Form 10-K for the year
ended September 27, 1998).
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.3(f) Change in Control Retention and Severance Agreement dated December 1, *
1998 between the Company and Stanley B. Atkins (incorporated by reference
to Exhibit 10.3(f) of the Company's Annual Report on Form 10-K for the year
ended September 27, 1998).
10.3(g) Change in Control Retention and Severance Agreement dated December 1, *
1998 between the Company and Thomas W. Burleson (incorporated by
reference to Exhibit 10.3(g) of the Company's Annual Report on Form 10-K
for the year ended September 27, 1998).
10.3(h) Change in Control Retention and Severance Agreement dated December 1, *
1998 between the Company and G. Thomas Surtees (incorporated by reference
to Exhibit 10.3(h) of the Company's Annual Report on Form 10-K for the year
ended September 27, 1998).
10.3(j) Change in Control Retention and Severance Agreement dated December 1, *
1998 between the Company and Timothy L. Roberts (incorporated by reference
to Exhibit 10.3(j) of the Company's Annual Report on Form 10-K for the year
ended September 27, 1998).
10.4 Citation Corporation Incentive Award Plan (incorporated by reference to *
Exhibit 10.4 of the Company's Registration Statement on Form S-1 under the
Securities Act of 1933 (Registration No. 33-79804) as filed August 2, 1994).
10.4(a) Citation Corporation Stock Plan for Non Employee Directors (incorporated by *
reference to Exhibit 10.4(a) of the Company's Annual Report on Form 10-K
for the year ended October 1, 1995).
10.4(b) Citation Non-Qualified Stock Option Plan for Non-Employee Directors *
(incorporated by reference to Exhibit 10.4(b) of the Company's Annual Report
on Form 10-K for the year ended September 29, 1996).
10.6 Tax Indemnification Agreement between Shareholders existing prior to August *
9, 1994 and Citation Corporation (incorporated by reference to Exhibit 10.6 of
the Company's Registration Statement on Form S-1 under the Securities Act
of 1933 (Registration No. 33-79804) as filed August 2, 1994).
21 Subsidiaries of the Registrant 234
23 Consent of PricewaterhouseCoopers LLP 235
27 Financial Data Schedules, submitted to the Securities and Exchange
Commission in electronic format
99.1 Report of Independent Accountants on Financial Statement Schedules 236
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
99.2 Schedule II - Valuation and Qualifying Accounts 237
</TABLE>
Financial Statement Schedules
The Index to financial statements filed as a part of this Report is
contained at page 31.
The following schedule is filed as an exhibit to this report:
Report of Independent Accountants on Financial Statement Schedules,
page 236
Schedule II - Valuation and Qualifying Accounts, page 237
Reports on Form 8-K
The following reports on Form 8-K were filed for the quarter ended October
3, 1999:
1. Form 8-K filed July 1, 1999, in which the Company reported the
execution on June 24, 1999 of a definitive merger agreement with RSJ
Acquisition Co.
2. Form 8-K dated September 3, 1999, reported the execution of Amendment
No. 1 to the merger agreement with RSJ Acquisition Co., and the filing
and mailing of the Company's definitive proxy statement/prospectus
regarding its proposed merger with RSJ Acquisition Co. In connection
with its offering of Senior Subordinated Notes as part of the then-
proposed financing for the merger and recapitalization transactions,
the Company also announced certain pro forma unaudited financial
information for the twelve-month period ended August 29, 1999.
86
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CITATION CORPORATION
/s/ Frederick F. Sommer
-------------------------------------------
By: FREDERICK F. SOMMER
President and Chief Executive Officer
December 29, 1999
Pursuant to the requirements of the Securities and 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.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Frederick F. Sommer President and Chief Executive Officer December 29, 1999
- ------------------------ (Principal Executive Officer)
FREDERICK F. SOMMER
/s/ Thomas R. Wall IV Director December 29, 1999
- ----------------------
THOMAS R. WALL, IV
/s/ Frank K. Bynum, Jr. Director December 29, 1999
- -------------------------
FRANK K. BYNUM, JR.
/s/ Thomas W. Burleson Vice President-Finance, Chief December 29, 1999
- ---------------------- Financial Officer and Assistant
THOMAS W. BURLESON Secretary
(Principal Financial Officer)
</TABLE>
87
<PAGE>
Exhibit 3.1(b)
CERTIFICATE OF MERGER OF RSJ ACQUISITION CO.
WITH AND INTO CITATION CORPORATION
AS EFFECTIVE DECEMBER 1, 1999
90
<PAGE>
EXHIBIT 3.1(b)
CERTIFICATE OF MERGER
OF
RSJ ACQUISITION CO.
WITH AND INTO
CITATION CORPORATION
(Under Section 251 of the General
Corporation Law of the State of Delaware)
Citation Corporation, a Delaware corporation, hereby certifies that:
1. The name and state of incorporation of each of the constituent
corporations is as follows:
(a) RSJ Acquisition Co., a Delaware corporation ("Merger Co."); and
(b) Citation Corporation, a Delaware corporation (the "Company").
2. The Agreement and Plan of Merger and Recapitalization, dated as of
June 24, 1999, by and between Merger Co. and the Company, as amended by
Amendment No. 1 to the Agreement and Plan of Merger and Recapitalization, dated
as of September 3, 1999, by and between Merger Co. and the Company, and
Amendment No. 2 to the Agreement and Plan of Merger and Recapitalization, dated
as of October 12, 1999, by and between Merger Co. and the Company (the
"Agreement and Plan of Merger") has been approved, adopted, certified, executed
and acknowledged by each of the constituent corporations in accordance with
Section 251 (and, with respect to Merger Co., by the written consent of its sole
stockholder in accordance with Section 228) of the General Corporation Law of
the State of Delaware.
3. The name of the surviving corporation is Citation Corporation (the
"Surviving Corporation").
4. The Certificate of Incorporation of the Company as in effect
immediately prior to the merger shall be the Certificate of Incorporation of the
Surviving Corporation.
5. The executed Agreement and Plan of Merger is on file at the principal
place of business of the Surviving Corporation at 2 Office Park Circle, Suite
204, Birmingham, Alabama 35223.
6. A copy of the Agreement and Plan of Merger will be furnished by the
Surviving Corporation, on request and without cost, to any stockholder of any
constituent corporation.
IN WITNESS WHEREOF, the Company has caused this certificate to be signed as
of the 30th day of November, 1999.
CITATION CORPORATION
By: /s/ Frederick F. Sommer
------------------------------------------------
Name: Frederick F. Sommer
Office: President and Chief Executive Officer
91
<PAGE>
Exhibit 4.12
CREDIT AGREEMENT
DATED AS OF NOVEMBER 30, 1999
92
<PAGE>
CONFORMED COPY
================================================================================
CREDIT AGREEMENT
dated as of
November 30, 1999
among
CITATION CORPORATION,
The Lenders Party Hereto,
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
___________________________
FIRST UNION NATIONAL BANK,
as Syndication Agent,
DLJ CAPITAL FUNDING, INC.,
as Documentation Agent,
CHASE SECURITIES INC. and FIRST UNION
SECURITIES, INC., as Arrangers,
CHASE SECURITIES INC.,
as Book Manager
================================================================================
[Ref. No. 6700-866]
93
<PAGE>
CREDIT AGREEMENT dated as of November 30, 1999, among CITATION CORPORATION, the
LENDERS party hereto and THE CHASE MANHATTAN BANK, as Administrative Agent.
Pursuant to the Recapitalization Agreement (such term and the other
capitalized terms used in this preamble and not defined herein, having the
meanings specified in Article I of this Agreement), (a) Kelso and certain other
investors, including the Management Investors, will make the Equity
Contribution, (b) the Merger will be consummated and (c) pursuant to the Merger,
unless Kelso elects to replace the public holders with a third party investor
(in which case each of the Equity Contribution and the Cash Consideration will
be increased by approximately $18,100,000) (i) the pre-Merger common
stockholders of the Borrower (other than the holders of the Retained Equity and
the Management Investors) and holders of outstanding options to purchase common
stock of the Borrower will receive the Cash Consideration, (ii) certain pre-
Merger common stockholders of the Borrower will retain the Retained Equity, and
(iii) Kelso, the Management Investors and other investors will acquire
approximately 93% of the outstanding post-Merger common stock of the Borrower
(the foregoing transactions, including the Equity Contribution and the Merger,
are collectively referred to herein as the "Recapitalization"). In connection
----------------
with the Recapitalization, (a) the Borrower will obtain the credit facilities
provided for hereunder, (b) the Borrower will borrow not less than $135,000,000
in Subordinated Loans from one or more lenders and note purchasers under a
senior subordinated financing facility, (c) the Existing Indebtedness will be
repaid, although certain indebtedness may remain outstanding on terms reasonably
acceptable to the Agents and (d) the Transaction Costs will be paid.
The Borrower has requested the Lenders to extend credit hereunder in
the form of (a) Tranche A Term Loans on the Effective Date in an aggregate
principal amount of $50,000,000, (b) Tranche B Term Loans on the Effective Date
in an aggregate principal amount of $210,000,000 and (c) Revolving Loans,
Letters of Credit and Swingline Loans at any time and from time to time prior to
the Revolving Maturity Date in an aggregate principal amount of $100,000,000
(subject to the limitations set forth herein).
The Lenders are willing to extend such credit and the Issuing Bank is
willing to issue Letters of Credit on the terms and subject to the conditions
set forth herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement, the following
-------------
terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
---
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Acquired EBITDA" shall mean, with respect to any Acquired Entity or
Business or any Sold Entity or Business for any period, the Consolidated EBITDA
of such Entity or Business.
"Acquired Entity or Business" has the meaning assigned to such term in
the definition of the term Adjusted EBITDA.
"Acquisition Equity Financing" means the issuance of Equity Interests
----------------------------
by the Borrower to any one or more of the Permitted Holders pursuant to a
private placement provided that the Net Proceeds thereof are to be applied to
make a Permitted Acquisition within 30 days after such Net Proceeds are
received.
"Adjusted EBITDA" shall mean, for any Person for any period,
---------------
Consolidated EBITDA of such Person for such period, calculated by (a) including
in the determination thereof the Acquired EBITDA of any Person, property,
business or asset acquired, other than those acquired in the ordinary course of
business, during such period (and, solely for purposes of determining whether
such acquisition is a Permitted Acquisition pursuant to clauses (d) and (e) of
the definition of the term "Permitted Acquisitions", any that, at the time of
calculation of Adjusted EBITDA, is proposed to be consummated) pursuant to a
transaction permitted under clause (g) of Section 6.04 and not subsequently
sold, transferred or otherwise disposed of during such period to the extent
94
<PAGE>
acquired by the Borrower or any Subsidiary during such period (each such Person,
property, business or asset acquired and not subsequently so disposed of, an
"Acquired Entity or Business"), based on (i) the actual Acquired EBITDA of such
---------------------------
Acquired Entity or Business for such period (including the portion thereof
occurring prior to such acquisitions) and (ii) for purposes of (A) determining
whether such acquisition is a Permitted Acquisition pursuant to clauses (d) and
(e) of the definition of the term "Permitted Acquisitions", giving pro forma
effect to identified cost savings from such Permitted Acquisition (or
acquisitions) to the extent that the Borrower shall demonstrate, in a
certificate of the chief financial officer, in detail and reasonably
satisfactory to the Administrative Agent such cost savings to be realizable
within one year of the consummation of such Permitted Acquisition (or
acquisitions) or (B) the Adjusted Leverage Ratio, giving pro forma effect in the
portion of such period occurring prior to such Permitted Acquisition to
identified cost savings from such Permitted Acquisition (or acquisitions), to
the extent that the Borrower shall demonstrate in a certificate of the chief
financial officer, in detail and reasonably satisfactory to the Administrative
Agent such cost savings to be realizable within one year of the consummation of
such Permitted Acquisition (or acquisitions), but only to the extent that
actions have previously been taken prior to the date of such certificate to
effectuate such cost savings within such year and (b) excluding in the
determination thereof the Acquired EBITDA of any Person, property, business or
asset sold, transferred or otherwise disposed of by the Borrower or any
Subsidiary, other than those disposed of in the ordinary course of business,
during such period (each such Person, property, business or asset so sold or
disposed of, a "Sold Entity or Business") based on the actual Acquired EBITDA of
-----------------------
such Sold Entity or Business for such period (including the portion thereof
occurring prior to such sale, transfer or disposition).
"Adjusted Leverage Ratio" shall mean, on any date, the ratio of (a)
-----------------------
Total Indebtedness as of such date to (b) Adjusted EBITDA for the period of four
consecutive fiscal quarters of the Borrower most recently ended as of such date,
all determined on a consolidated basis in accordance with GAAP.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing
------------------
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its capacity
--------------------
as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire
----------------------------
in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person
---------
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Agents" means the Administrative Agent, the Syndication Agent and the
------
Documentation Agent.
"Alternate Base Rate" means, for any day, a rate per annum equal to
-------------------
the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect
on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a
change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Revolving Lender,
---------------------
the percentage of the total Revolving Commitments represented by such Lender's
Revolving Commitment. If the Revolving Commitments have terminated or expired,
the Applicable Percentages shall be determined based upon the Revolving
Commitments most recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day (a) with respect to any ABR Loan
---------------
or Eurodollar Loan that is a Tranche B Term Loan, the applicable rate per annum
set forth below under the caption "Tranche B ABR Spread" or "Tranche B
Eurodollar Spread", as the case may be, based upon the Adjusted Leverage Ratio
as of the most recent determination date, and (b) with respect to any ABR Loan
or Eurodollar Loan that is a Revolving Loan or a Tranche A Term Loan, or with
respect to the commitment fees payable hereunder, as the case may be, the
applicable rate per annum set forth below under the caption "ABR Spread",
"Eurodollar Spread" or "Commitment Fee Rate", as the case may be, based upon the
Adjusted Leverage Ratio as of the most recent determination date; provided that
--------
until the delivery to the Administrative Agent, pursuant to Section 5.01(a), of
the Borrower's
95
<PAGE>
consolidated financial statements for the period of the Borrower ending on or
about March 31, 2000, the "Applicable Rate" for purposes of clauses (a) and (b)
shall be the applicable rate per annum set forth below in Category 1:
<TABLE>
<CAPTION>
===================================================================================================
Tranche B
---------
Adjusted Eurodollar Tranche B Eurodollar Commitment
-------- ---------- --------- ---------- ----------
Leverage Ratio: ABR Spread Spread ABR Spread Spread Fee Rate
--------------- ---------- ------ ---------- ------ --------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Category 1
----------
Greater than or equal to 4.00 to
1.00 2.00% 3.00% 2.75% 3.75% 0.50%
- ----------------------------------------------------------------------------------------------------
Category 2
----------
Greater than or equal to 3.50 to
1.00 but less than 4.00 to 1.00 1.75% 2.75% 2.75% 3.75% 0.50%
- ----------------------------------------------------------------------------------------------------
Category 3
----------
Greater than or equal to 3.00 to
1.00 but less than 3.50 to 1.00 1.50% 2.50% 2.50% 3.50% 0.50%
- ----------------------------------------------------------------------------------------------------
Category 4
----------
Greater than or equal to 2.50 to
1.00 but less than 3.00 to 1.00 1.25% 2.25% 2.50% 3.50% 0.375%
- ----------------------------------------------------------------------------------------------------
Category 5
----------
Less than 2.50 to 1.00 1.00% 2.00% 2.50% 3.50% 0.375%
====================================================================================================
</TABLE>
For purposes of the foregoing, (i) the Adjusted Leverage Ratio shall
be determined as of the end of each fiscal quarter of the Borrower's fiscal year
based upon the Borrower's consolidated financial statements delivered pursuant
to Section 5.01(a) or (b) and (ii) each change in the Applicable Rate resulting
from a change in the Adjusted Leverage Ratio shall be effective during the
period commencing on and including the third day after date of delivery to the
Administrative Agent of such consolidated financial statements indicating such
change and ending on the date immediately preceding the effective date of the
next such change; provided that the Adjusted Leverage Ratio shall be deemed to
--------
be in Category 1 (A) at any time that an Event of Default has occurred and is
continuing or (B) if the Borrower fails to deliver the consolidated financial
statements required to be delivered by it pursuant to Section 5.01(a) or (b),
during the period from the expiration of the time for delivery thereof until
such consolidated financial statements are delivered.
"Assessment Rate" means, for any day, the annual assessment rate in
---------------
effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; provided that if, as a result of
--------
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual
rate as shall be reasonably determined by the Administrative Agent to be
representative of the cost of such insurance to the Lenders.
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate
------------
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve System of
-----
the United States of America.
"Borrower" means Citation Corporation, a Delaware corporation.
--------
96
<PAGE>
"Borrowing" means (a) Loans of the same Class and Type, made,
---------
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect, or (b) a Swingline Loan.
"Borrowing Request" means a request by the Borrower for a Borrowing in
-----------------
accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other
------------
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided that, when used in connection with a Eurodollar Loan,
--------
the term "Business Day" shall also exclude any day on which banks are not open
------------
for dealings in dollar deposits in the London interbank market.
"Capital Expenditures" means, for any period, (a) the additions to
--------------------
property, plant and equipment and other capital expenditures of the Borrower and
its consolidated Subsidiaries that are (or would be) set forth in a consolidated
statement of cash flows of the Borrower for such period prepared in accordance
with GAAP, excluding any Permitted Acquisition permitted by Section 6.04 and (b)
Capital Lease Obligations incurred by the Borrower and its consolidated
Subsidiaries during such period.
"Capital Lease Obligations" of any Person means the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Cash Consideration" means the aggregate cash consideration to be paid
------------------
to the holders of capital stock of the Borrower and options, warrants and other
rights in respect of such capital stock (other than the Retained Equity and any
such capital stock held by the Management Investors that is to remain
outstanding after the Merger) as consideration for the cancelation thereof
pursuant to the Merger.
"Change in Control" means (a) prior to the Borrower's IPO (it being
-----------------
understood that the term "IPO" shall not include any registration of the
Borrower's Common Stock under Form S-4 or Form S-8 in connection with a
transaction otherwise permitted by this Agreement), the Permitted Holders cease
to be the "beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as presently in
effect), directly or indirectly, of a majority in the aggregate of the total
ordinary voting power of the capital stock of the Borrower, whether as a result
of the issuance of securities of the Borrower, any merger, consolidation,
liquidation or dissolution of the Borrower, any direct or indirect transfer of
securities or otherwise, (b) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders,
is or becomes the beneficial owner (as defined in clause (a) above), directly or
indirectly, of more than 30% of the total ordinary voting power of the capital
stock of the Borrower, unless the Permitted Holders "beneficially own" (as
defined in clause (a) above), directly or indirectly, in the aggregate a greater
percentage of the total ordinary voting power of the capital stock of the
Borrower than such other person, (c) occupation of a majority of the seats on
the board of directors of the Borrower by persons whose nomination for election
by the stockholders of the Borrower was not approved by either (i) a majority of
the Permitted Holders or (ii) a vote of a majority of the directors of the
Borrower whose election or nomination for election was previously so approved or
(d)the occurrence of a "Change of Control" as defined in the Subordinated Debt
Documents. For purposes of clause (a) and clause (b) of the immediately
preceding sentence, the Permitted Holders shall be deemed to beneficially own
any voting stock of a corporation (the "specified corporation") held by any
other corporation (the "parent corporation") so long as the Permitted Holders
beneficially own, directly or indirectly, in the aggregate a majority of the
voting power of the voting stock of the parent corporation.
"Change in Law" means (a) the adoption of any law, rule or regulation
-------------
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender or the Issuing
Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender
or by such Lender's or the Issuing Bank's holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Class", when used in reference to any Loan or Borrowing, refers to
-----
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans,
Tranche A Term Loans, Tranche B Term Loans or
97
<PAGE>
Swingline Loans and, when used in reference to any Commitment, refers to whether
such Commitment is a Revolving Commitment, Tranche A Commitment or Tranche B
Commitment.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral" means any and all "Collateral", as defined in any
----------
applicable Security Document.
"Commitment" means a Revolving Commitment, Tranche A Commitment or
----------
Tranche B Commitment, or any combination thereof (as the context requires).
"Consolidated EBITDA" means, for any period, Consolidated Net Income
-------------------
for such period plus, without duplication and to the extent deducted from
revenues in determining Consolidated Net Income for such period, the sum of (i)
the aggregate amount of consolidated interest expense of the Borrower and its
Subsidiaries for such period, (ii) the aggregate amount of letter of credit fees
paid during such period, (iii) the aggregate amount of consolidated income tax
expense for such period, (iv) all amounts attributable to depreciation and
amortization for such period, (v) compensation expense resulting from the
issuance of capital stock, stock options or stock appreciation rights issued to
employees, including officers of the Borrower or any of the Subsidiaries, or the
exercise of such options or rights, in each case to the extent the obligation
(if any) associated therewith is not paid in cash by the Borrower or any
Affiliate of the Borrower and compensation expense resulting from the repurchase
of any such capital stock, options and rights, (vi) all adjustments resulting
from foreign currency translations, (vii) all extraordinary or non-recurring
charges (including Transaction Costs) during such period, (viii) all other
non-cash charges during such period and minus (b) without duplication and to the
extent added to revenues in determining Consolidated Net Income for such period,
the sum of (i) all extraordinary or non-recurring gains during such period and
(ii) all other non-cash gains during such period, all as determined on a
consolidated basis with respect to the Borrower and the Subsidiaries in
accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the interest
-----------------------------
expense, both expended and capitalized (including the interest component in
respect of Capital Lease Obligations), accrued or paid by the Borrower and the
Subsidiaries during such period (excluding any amortization or write-off of
financing costs otherwise included therein), net of interest income, determined
on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income or
-----------------------
loss of the Borrower and the Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP; provided that there shall be
--------
excluded from such net income or loss (a) the Borrower's equity in the income of
any Person (other than the Borrower) in which any other Person (other than the
Borrower or any Subsidiary or any director holding qualifying shares in
compliance with applicable law) owns an Equity Interest to the extent dividends
or other distributions by such Person of such income are prohibited during such
period, (b) the income or loss of any Person accrued prior to the date it
becomes a Subsidiary or is merged into or consolidated with the Borrower or any
Subsidiary or the date that such Person's assets are acquired by the Borrower or
any Subsidiary and (c) the income or loss of any Person (other than the Borrower
or a Subsidiary) in which the Borrower or a Subsidiary holds an Equity Interest
that is accounted for by the equity method of accounting, except that the
Borrower's equity in the net income (but not loss) of any such Person for such
period shall be included up to the aggregate amount actually distributed by such
Person during such period to the Borrower or a Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
Subsidiary, to any applicable limitations under clause (a) above).
"Control" means the possession, directly or indirectly, of the power
-------
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
----------- ----------
"Default" means any event or condition which constitutes an Event of
-------
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and the
-----------------
environmental matters disclosed in Schedule 3.06.
"Documentation Agent" means DLJ Capital Funding, Inc., in its capacity
-------------------
as documentation agent for the Lenders hereunder.
"dollars" or "$" refers to lawful money of the United States of
------- -
America.
98
<PAGE>
"Effective Date" means the date on which the conditions specified in
--------------
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Environmental Laws" means all applicable laws, rules, regulations,
------------------
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
-----------------------
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Borrower or any Subsidiary resulting from or
based upon (a) violation of any Environmental Law, (b) the generation, use,
handling, transportation, storage, treatment or disposal of any Hazardous
Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any
contract, agreement or other consensual arrangement pursuant to which
environmental liability is assumed or imposed with respect to any of the
foregoing.
"Equity Contribution" means a contribution of an aggregate amount of
-------------------
not less than $240,000,000 in cash to Mergerco as common equity.
"Equity Interests" means shares of capital stock, partnership
----------------
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section
-----------
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by
any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers
----------
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article
----------------
VII.
"Excess Cash Flow" means, for any fiscal year, the sum (without
----------------
duplication) of:
(a) the Consolidated Net Income for such fiscal year, adjusted to
exclude any gains or losses attributable to Prepayment Events; plus
----
(b) depreciation, amortization and other non-cash charges or losses
deducted in determining such Consolidated Net Income for such fiscal year;
plus
----
(c) the sum of (i) the amount, if any, by which Net Working Capital
decreased during such fiscal year plus (ii) the aggregate principal amount
of Capital Lease Obligations and other Indebtedness incurred
99
<PAGE>
during such fiscal year to finance Capital Expenditures, to the extent that
mandatory principal payments in respect of such Indebtedness would not be
excluded from clause (f) below when made; minus
-----
(d) the sum of (i) any non-cash gains included in determining such
Consolidated Net Income for such fiscal year plus (ii) the amount, if any,
by which Net Working Capital increased during such fiscal year; minus
-----
(e) Capital Expenditures for such fiscal year; minus
-----
(f) the aggregate principal amount of Indebtedness repaid or prepaid
by the Borrower and its consolidated Subsidiaries during such fiscal year,
excluding (i) Indebtedness in respect of Revolving Loans and Letters of
Credit, (ii) Term Loans prepaid pursuant to Section 2.11(c) or (d), and
(iii) repayments or prepayments of Indebtedness financed by incurring other
Indebtedness to the extent that mandatory principal payments in respect of
such other Indebtedness would, pursuant to this clause (f), be deducted in
determining Excess Cash Flow when made and (iv) Indebtedness referred to in
clauses (v) and (vi) of Section 6.01(a) and Indebtedness (other than term
Indebtedness) referred to in clause (ix) of Section 6.01(a).
"Exchange Act" has the meaning specified in the definition of "Change
------------
of Control" contained in this Section 1.01.
"Excluded Taxes" means, with respect to the Administrative Agent, any
--------------
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America (or its political subdivision or taxing authority therein or thereof),
or by the jurisdiction under the laws of which the applicable recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America (or its political
subdivision or taxing authority therein or thereof) or any similar tax imposed
by any other jurisdiction described in clause (a) above; (c) in the case of a
Foreign Lender (other than an assignee pursuant to a request by the Borrower
under Section 2.19(b)), any withholding tax that (i) is in effect and would
apply to amounts payable to such Foreign Lender at the time such Foreign Lender
becomes a party to this Agreement (or designates a new lending office), except
to the extent (and only to such extent) that such Foreign Lender (or its
assignor, if any) was entitled, at the time of designation of a new lending
office (or assignment), to receive additional amounts from the Borrower with
respect to any withholding tax pursuant to Section 2.17(a), or (ii) is
attributable to such Foreign Lender's failure to comply with Section 2.17(e) and
(d) any other taxes imposed as a result of the applicable recipient's present or
former connection with the jurisdiction imposing such taxes (other than a
connection arising solely from the transactions contemplated hereby).
"Existing Indebtedness" means the Indebtedness of the Borrower and the
---------------------
Subsidiaries outstanding immediately prior to the Merger in an aggregate amount
equal to approximately $323,350,000 and listed on Schedule 6.01.
"Federal Funds Effective Rate" means, for any day, the weighted
----------------------------
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, principal
-----------------
accounting officer, treasurer or controller of the Borrower.
"Financing Transactions" means (a) the execution, delivery and
----------------------
performance by each Loan Party of the Loan Documents to which it is to be a
party, the borrowing of Loans, the use of the proceeds thereof and the issuance
of Letters of Credit hereunder, (b) the execution, delivery and performance by
each Loan Party of the Subordinated Debt Documents to which it is to be a party,
the issuance of the Subordinated Debt and the use of the proceeds thereof and
(c) the Equity Contribution.
100
<PAGE>
"Foreign Lender" means any Lender that is not a "United States person"
--------------
within the meaning of Section 7701(a)(30) of the Code.
"Foreign Subsidiary" means any Subsidiary that is organized under the
------------------
laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United
----
States of America.
"Governmental Authority" means the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any
--------- ---------
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
---------------
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
--------
endorsements for collection or deposit in the ordinary course of business.
"Guarantee Agreement" means the Guarantee Agreement, substantially in
-------------------
the form of Exhibit F, made by the Subsidiary Loan Parties in favor of the
Administrative Agent for the benefit of the Secured Parties.
"Hazardous Materials" means all explosive or radioactive substances
-------------------
or wastes, all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement,
-----------------
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
under conditional sale or other title retention agreements relating to property
acquired by such Person, (d) all obligations of such Person in respect of the
deferred purchase price of property or services (excluding current accounts
payable incurred in the ordinary course of business), (e) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed, provided that the amount of such Indebtedness shall, for purposes
--------
of this Agreement, be deemed to be limited to the value of the property so
pledged, (f) all Guarantees by such Person of Indebtedness of others, (g) all
Capital Lease Obligations of such Person, (h) all obligations, contingent or
otherwise, of such Person as an account party in respect of letters of credit
and letters of guaranty and (i) all obligations, contingent or otherwise, of
such Person in respect of bankers' acceptances. The Indebtedness of any Person
shall include the Indebtedness of any other entity (including any partnership in
which such Person is a general partner) to the extent such Person is liable
therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
-----------------
"Indemnity, Subrogation and Contribution Agreement" means the
-------------------------------------------------
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit C, among the Borrower, the Subsidiary Loan Parties and the
Administrative Agent.
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"Information Memorandum" means the Confidential Information Memorandum
----------------------
dated September, 1999 relating to the Borrower and the Transactions.
"Interest Election Request" means a request by the Borrower to convert
-------------------------
or continue a Revolving Borrowing or Term Borrowing in accordance with Section
2.07.
"Interest Payment Date" means (a) with respect to any ABR Loan (other
---------------------
than a Swingline Loan), the last day of each March, June, September and
December, (b) with respect to any Eurodollar Loan, the last day of the Interest
Period applicable to the Borrowing of which such Loan is a part and, in the case
of a Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day prior to the last day of such Interest Period that occurs at
intervals of three months' duration after the first day of such Interest Period,
and (c) with respect to any Swingline Loan, the day that such Loan is required
to be repaid.
"Interest Period" means, with respect to any Eurodollar Borrowing, the
---------------
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect; provided, that (a) if any Interest Period
--------
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (b) any Interest Period
that commences on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the last calendar month of
such Interest Period) shall end on the last Business Day of the last calendar
month of such Interest Period. For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and thereafter shall
be the effective date of the most recent conversion or continuation of such
Borrowing.
"IPO" means a bona fide underwritten initial public offering of voting
---
common stock of the Borrower as a direct result of which at least 25% of the
aggregate voting common stock of the Borrower (calculated on a fully-diluted
basis after giving effect to all options to acquire voting common stock of the
Borrower then outstanding, regardless of whether such options are then currently
exercisable) is beneficially owned by Persons other than the Kelso, the Borrower
and its Affiliates (including in the case of the Borrower, all directors,
officers and employees of the Borrower and any Subsidiary).
"Issuing Bank" means The Chase Manhattan Bank or any of its
------------
Affiliates, including Chase Manhattan Bank Delaware, in its capacity as the
issuer of Letters of Credit hereunder, and its successors in such capacity as
provided in Section 2.05(i). The Issuing Bank may, in its discretion, arrange
for one or more Letters of Credit to be issued by Affiliates of the Issuing
Bank, in which case the term "Issuing Bank" shall include any such Affiliate
with respect to Letters of Credit issued by such Affiliate.
"Kelso" means Kelso & Company and its Affiliates.
-----
"Kelso Designees" means C.I. LLC, William A. Marquard, Dieter
---------------
Spethmann, John F. Mc Gillicuddy, David M. Roderick, George L. Shinn, the Louis
and Patricia Kelso Trust, John Rutledge, Michel Rapoport, U. Bertram Ellis, Jr.
and Cardinal Court Investors LLC.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to
---------------
a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
-----------
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Borrower at such time. The LC Exposure of any Revolving Lender at any
time shall be its Applicable Percentage of the total LC Exposure at such time.
"Lenders" means the Persons listed on Schedule 2.01 and any other
-------
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance. Unless the context otherwise requires, the term
"Lenders" includes the Swingline Lender.
"Letter of Credit" means any letter of credit issued pursuant to this
----------------
Agreement.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
---------
Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service
(or on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided
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on such page of such Service, as determined by the Administrative Agent from
time to time for purposes of providing quotations of interest rates applicable
to dollar deposits in the London interbank market) at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period, as the rate for dollar deposits with a maturity comparable to such
Interest Period. In the event that such rate is not available at such time for
any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for
---------
such Interest Period shall be the rate at which dollar deposits of $5,000,000
and for a maturity comparable to such Interest Period are offered by the
principal London office of the Administrative Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
----
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means this Agreement, the Guarantee Agreement, the
--------------
Indemnity, Subrogation and Contribution Agreement and the Security Documents.
"Loan Parties" means the Borrower and the Subsidiary Loan Parties.
------------
"Loans" means the loans made by the Lenders to the Borrower pursuant
-----
to this Agreement.
"Long-Term Indebtedness" means any Indebtedness that, in accordance
----------------------
with GAAP, constitutes (or, when incurred, constituted) a long-term liability.
"Management Agreement" means the Financial Advisory Agreement between
--------------------
the Borrower and Kelso dated as of December 1, 1999.
"Management Investors" means the officers and employees (including
--------------------
current and former officers and employees), of the Borrower at any time when
Kelso beneficially owns (as defined in clause(a) of the definition of the term
"Change of Control") (a) more than 30% of the total ordinary voting power of the
capital stock of the Borrower and (b) a greater percentage of the total ordinary
voting power of the capital stock of the Borrower than is then beneficially
owned in the aggregate by the officers and employees of the Borrower.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, results of operations, properties, condition (financial or otherwise),
or prospects of the Borrower and the Subsidiaries taken as a whole, (b) the
ability of any Loan Party to perform any of its material obligations under any
Loan Document or (c) the rights of or benefits available to the Lenders under
any Loan Document.
"Material Indebtedness" means Indebtedness (other than the Loans and
---------------------
Letters of Credit), or obligations in respect of one or more Hedging Agreements,
of any one or more of the Borrower and its Subsidiaries in an aggregate
principal amount exceeding $5,000,000. For purposes of determining Material
Indebtedness, the "principal amount" of the obligations of the Borrower or any
Subsidiary in respect of any Hedging Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that the Borrower or
such Subsidiary would be required to pay if such Hedging Agreement were
terminated at such time.
"Merger" means the merger of Mergerco with and into the Borrower, with
------
the Borrower being the surviving corporation in such merger.
"Mergerco" means RSJ Acquisition Co., a Delaware corporation.
--------
"Moody's" means Moody's Investors Service, Inc.
-------
"Mortgage" means a mortgage, deed of trust, assignment of leases and
--------
rents, leasehold mortgage or other security document granting a Lien on any
Mortgaged Property to secure the Obligations. Each Mortgage shall be
satisfactory in form and substance to the Administrative Agent.
"Mortgaged Property" means, initially, each parcel of real property
------------------
and the improvements thereto owned by a Loan Party and identified on Schedule
1.01 (which schedule does not list all real properties owned by a
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Loan Party), and includes each other parcel of real property and improvements
thereto with respect to which a Mortgage is granted pursuant to Section 5.12 or
5.13.
"Multiemployer Plan" means a multiemployer plan as defined in Section
------------------
4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any event (a) the cash proceeds
------------
received in respect of such event including (i) any cash received in respect of
any non-cash proceeds, but only as and when received, (ii) in the case of a
casualty, insurance proceeds, and (iii) in the case of a condemnation or similar
event, condemnation awards and similar payments, net of (b) the sum of (i) all
reasonable fees and out-of-pocket expenses paid by the Borrower and the
Subsidiaries to third parties (other than Affiliates) in connection with such
event, (ii) in the case of a sale, transfer or other disposition of an asset
(including pursuant to a sale and leaseback transaction or a casualty or other
insured damage or condemnation or similar proceeding), the amount of all
payments required to be made by the Borrower and the Subsidiaries as a result of
such event to repay Indebtedness (other than Loans) secured by such asset or
otherwise subject to mandatory prepayment as a result of such event, and (iii)
the amount of all taxes paid (or reasonably estimated to be payable) by the
Borrower or any of the Subsidiaries, and the amount of any reserves established
by the Borrower and the Subsidiaries to fund contingent liabilities reasonably
estimated to be payable, in each case during the year that such event occurred
or the next succeeding year and that are directly attributable to such event (as
determined reasonably and in good faith by the chief financial officer of the
Borrower) provided, however, that, with respect to any sale, transfer or other
-------- -------
disposition of an asset (including pursuant to a sale and lease-back transaction
or, subject to Section 5.08, a casualty or other insured damage or condemnation
or similar proceeding), if the Borrower shall deliver a certificate of a
Financial Officer to the Administrative Agent at the time of such sale, transfer
or other disposition setting forth the Borrower's intent to use the proceeds of
such sale, transfer or other disposition to replace or repair the assets that
are the subject of such sale, transfer or other disposition with other assets to
be used in the same line of business within 365 days of receipt of such proceeds
and no Default or Event of Default shall have occurred and shall be continuing
at the time of such certificate or at the proposed time of the application of
such proceeds, such proceeds shall not, solely for purposes of Section 2.11(c),
constitute Net Proceeds except to the extent not so used (or not contractually
committed to be so used within six months) at the end of such 365-day period, at
which time such proceeds shall be deemed to be Net Proceeds; provided further
----------------
that any proceeds excluded at the end of such 365-day period due to a
contractual commitment to use such proceeds within six months and not so used by
the Borrower at the end of such six-month period will be deemed to be Net
Proceeds at the end of such six-month period, and provided further that any
-------- -------
proceeds of a Subordinated Loan Equity Prepayment Event that are applied to
prepay Subordinated Loans prior to the date that is one year from the Effective
Date also shall be deemed not to be Net Proceeds.
"Net Working Capital" means, at any date, (a) the consolidated current
-------------------
assets of the Borrower and its consolidated Subsidiaries as of such date
(excluding cash and Permitted Investments) minus (b) the consolidated current
liabilities of the Borrower and its consolidated Subsidiaries as of such date
(excluding current liabilities in respect of Indebtedness), in each case
excluding purchase accounting adjustments. Net Working Capital at any date may
be a positive or negative number. Net Working Capital increases when it becomes
more positive or less negative and decreases when it becomes less positive or
more negative.
"Obligations" has the meaning assigned to such term in the Security
-----------
Agreement.
"Other Taxes" means any and all present or future recording, stamp,
-----------
documentary, excise, transfer, sales or similar taxes, charges or levies arising
solely from any payment made under any Loan Document or from the execution,
delivery or enforcement of any Loan Document.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA and any successor entity performing similar functions.
"Perfection Certificate" means a certificate in the form of Annex 1 to
----------------------
the Security Agreement or any other form approved by the Administrative Agent.
"Permitted Acquisition" means any acquisition of all or substantially
---------------------
all the assets of, or shares or other equity interests in, a Person or division
or line of business of a Person that is engaged in a line or lines of business
reasonably related (ancillary or complementary) to the line of business or lines
of business of the Borrower or any Subsidiary if, immediately after giving
effect thereto, (a) no Default has occurred and is continuing or would result
therefrom, (b) all transactions related thereto are consummated in accordance
with applicable laws, (c) in the case of an acquisition of shares or other
equity interests in a Person, 100% of the capital stock of or other equity
interests in such Person, and (subject to the last sentence of this definition)
any other Subsidiary resulting from such
104
<PAGE>
acquisition, shall be owned directly by the Borrower or a Subsidiary Loan Party
and all actions required to be taken, if any, with respect to each Subsidiary
resulting from such acquisition under Sections 5.12 and 5.13 have been taken,
(d) the Borrower and the Subsidiaries are in compliance, on a pro forma basis
after giving effect to such acquisition, with the covenants contained in
Sections 6.12 and 6.13 recomputed as at the last day of the most recently ended
fiscal quarter of the Borrower for which financial statements are available as
if such acquisition had occurred on the first day of each relevant period for
testing such compliance (using Adjusted EBITDA in lieu of Consolidated EBITDA
for the relevant period) and (e) the Borrower has delivered to the
Administrative Agent an officers' certificate to the effect set forth in clauses
(a), (c) and (d) above, together with all relevant financial information for the
business or entity being acquired. Notwithstanding clause (c) above, in the case
of an acquisition of 100% of the capital stock of or other equity interests in a
Person that satisfies the other conditions applicable to a Permitted
Acquisition, such acquisition shall not fail to qualify as a Permitted
Acquisition solely by reason of such Person having subsidiaries that are not
wholly owned by such Person immediately prior to such acquisition, provided
that, at the time of such acquisition, the Adjusted EBITDA attributable to such
non-wholly owned subsidiaries for the period of four consecutive fiscal quarters
most recently ended prior to the date of such acquisition for which financial
information is available, does not exceed 5% of Adjusted EBITDA of such acquired
Person for the same period.
"Permitted Bridge Period Equity" means up to $15,000,000 of proceeds
------------------------------
from the issuance by the Borrower of Equity Interests pursuant to private
placement transactions during the period that the Subordinated Loans are
outstanding and in any event prior to the first anniversary of the Effective
Date.
"Permitted ECF Uses" means (a) consideration for Permitted
------------------
Acquisitions as contemplated by clause (g) of Section 6.04, (b) Restricted
Payments as contemplated by clause (iii) of Section 6.08(a) and (c) Capital
Expenditures as contemplated by the last sentence of Section 6.14.
"Permitted Encumbrances" means:
----------------------
(a) Liens imposed by law for taxes or other governmental charges that
are not yet due or are being contested in compliance with Section 5.05;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue by more than 60 days
or are being contested in compliance with Section 5.05;
(c) pledges, deposits and other Liens, in each case made in the
ordinary course of business in compliance with workers' compensation,
unemployment insurance and other social security laws or regulations;
(d) Liens to secure the performance of bids, trade contracts,
obligations for utilities, leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature, in each
case in the ordinary course of business;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under clause (k) of Article VII;
(f) easements, covenants, restrictions, leases, subleases, licenses,
zoning restrictions, rights-of-way and similar encumbrances on real
property (i) shown on the title insurance policies referred to in Section
4.01(g) or (ii) imposed by law or arising in the ordinary course of
business that do not secure any monetary obligations and do not materially
detract from the value of the affected property or interfere with the
ordinary conduct of business of the Borrower or any Subsidiary;
(g) any interest of a landlord in or to property of the tenant imposed
by law, arising in the ordinary course of business and securing lease
obligations that are not overdue by more than 60 days or are being
contested in compliance with Section 5.05, or any possessory rights of a
lessees to the leased property under the provisions of any lease permitted
by the terms of this Agreement; and
(h) Liens of a collection bank arising in the ordinary course of
business under (S)4-208 of the Uniform Commercial Code in effect in the
relevant jurisdiction; and
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<PAGE>
(i) Liens arising under the applicable Environmental Laws that are
being contested in compliance with Section 5.05;
provided that the term "Permitted Encumbrances" shall not include any Lien
- --------
securing Indebtedness.
"Permitted Holders" means Kelso, Kelso Designees, the Management
-----------------
Investors and any employee stock ownership plan established by the Borrower for
the benefit of the employees of the Borrower or any Subsidiary and their
Permitted Transferees.
"Permitted Investments" means:
---------------------
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, the
highest credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank organized
under the laws of the United States of America or any State thereof which
has a combined capital and surplus and undivided profits of not less than
$500,000,000; and
(d) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into
with a financial institution satisfying the criteria described in clause
(c) above; and
(e) shares of funds registered under the Investment Company Act of
1940, as amended, that have assets of at least $500,000,000 and invest only
in obligations described in clauses (a) through (c) above to the extent
that such shares are rated by Moody's or S&P in one of the two highest
rating categories assigned by such agency for shares of such nature.
"Permitted Preferred Stock" means any preferred stock issued by the
-------------------------
Borrower that does not contain any terms (and is not subject to any related
agreement containing any terms) that would require (including upon the
occurrence of any contingency or any exercise of rights by the holder thereof,
or otherwise) the Borrower, or any Subsidiary, to (a) prepay, redeem, or retire
such preferred stock or make any other Restricted Payment with respect thereto
at any time or (b) convert or exchange such preferred stock for any Indebtedness
or other asset of the Borrower or any Subsidiary or any Equity Interests therein
(other than common stock or Permitted Preferred Stock of the Borrower).
"Permitted Transferees" means (a) in the case of Kelso, (i) any Kelso
---------------------
Designee, (ii) any managing director, general partner, limited partner,
director, officer or employee of Kelso or any Kelso Designee (collectively,
"Kelso Associates"), (iii) the heirs, executors, administrators, testamentary
----------------
trustees, legatees or beneficiaries of any Kelso Associate and (iv) any trust,
the beneficiaries of which, or a corporation or partnership, the stockholders or
partners of which, include only a Kelso Associate, his spouse, parents, siblings
members of his or her immediate family (including adopted children) and/or
direct lineal descendants, and (b) in the case of any Management Investors, (i)
his executor, administrator, testamentary trustee, legatee or beneficiaries (ii)
his spouse, parents, siblings, members of his or her immediate family (including
adopted children) and/or direct lineal descendants or (iii) a trust, the
beneficiaries of which, or a corporation or partnership, the stockholders or
partners of which, include only the Management Investor, as the cause may be,
and his spouse, parents, siblings, members of his or her immediate family
(including adopted children) and/or direct lineal descendants.
"Person" means any natural person, corporation, limited liability
------
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
----
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the
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Borrower or any ERISA Affiliate is (or, if such plan were terminated, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section
3(5) of ERISA.
"Pledge Agreement" means the Pledge Agreement, substantially in the
----------------
form of Exhibit D, among the Loan Parties and the Administrative Agent for the
benefit of the Secured Parties.
"Prepayment Event" means:
----------------
(a) any sale, transfer or other disposition (including pursuant to a
sale and leaseback transaction) of any property or asset of the Borrower or
any Subsidiary, other than (i) dispositions described in clauses (a) and
(b) of Section 6.05 and (ii) other dispositions resulting in aggregate Net
Proceeds not exceeding $1,000,000 during any fiscal year of the Borrower;
or
(b) any casualty or other insured damage to, or any taking under power
of eminent domain or by condemnation or similar proceeding of, any property
or asset of the Borrower or any Subsidiary, other than casualties, insured
damage or takings resulting in aggregate Net Proceeds not exceeding
$1,000,000 during any fiscal year of the Borrower; or
(c) the issuance by the Borrower or any Subsidiary of any Equity
Interests, or the receipt by the Borrower or any Subsidiary of any capital
contribution, other than (i) any such issuance of Equity Interests to, or
receipt of any such capital contribution from, the Borrower or a
Subsidiary, (ii) the issuance of Equity Interests of the Borrower to
employees of the Borrower or any of the Subsidiaries in their capacity as
such pursuant to employee benefit plans and employment agreements, (iii)
Acquisition Equity Financing, (iv) warrants issued in connection with the
Subordinated Loans and shares issued pursuant thereto, (v) the issuance of
equity securities of the Borrower to any one or more of the Permitted
Holders pursuant to a private placement and (vi) Permitted Bridge Period
Equity; or
(d) the incurrence by the Borrower or any Subsidiary of any
Indebtedness, including any Subordinated Debt in excess of that incurred to
refinance or replace the Subordinated Loans (and pay fees and expenses in
connection therewith), but excluding any other Indebtedness permitted by
Section 6.01(a).
"Prime Rate" means the rate of interest per annum publicly announced
----------
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Recapitalization" has the meaning specified in the preamble hereto.
----------------
"Recapitalization Agreement" means the Agreement and Plan of Merger
--------------------------
and Recapitalization, dated June 24, 1999, as amended, between the Borrower and
Mergerco.
"Register" has the meaning set forth in Section 9.04.
--------
"Related Fund" means, with respect to any Lender that is a fund that
------------
invests in bank loans, any other fund that invests in bank loans and is advised
or managed by the same investment advisor as such Lender or by an Affiliate of
such investment advisor.
"Related Parties" means, with respect to any specified Person, such
---------------
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving
----------------
Exposures, Term Loans and unused Commitments representing more than 50% of the
sum of the total Revolving Exposures, outstanding Term Loans and unused
Commitments at such time.
"Responsible Officer" means the chief executive officer and the
-------------------
president of the Borrower or, with respect to financial matters, the chief
financial officer of the Borrower, or, with respect to benefits matters the
Corporate Vice-President--Human Resources of the Borrower.
"Restricted Payment" means any dividend or other distribution (whether
------------------
in cash, securities or other property) with respect to any Equity Interests in
the Borrower or any Subsidiary, or any payment (whether in cash, securities or
other property), including any sinking fund or similar deposit, on account of
the purchase,
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redemption, retirement, acquisition, cancelation or termination of any Equity
Interests in the Borrower or any Subsidiary or any option, warrant or other
right to acquire any such Equity Interests in the Borrower or any Subsidiary.
"Retained Equity" means common stock of the Borrower (including those
---------------
shares held by the Management Investors) outstanding prior to the Merger that,
pursuant to the Merger, remains outstanding after the Merger and having an
aggregate value (based on the Cash Consideration per share paid for the
Borrower's common stock in the Merger) equal to approximately $18,100,000.
"Revolving Availability Period" means the period from and including
-----------------------------
the Effective Date to but excluding the earlier of the Revolving Maturity Date
and the date of termination of the Revolving Commitments.
"Revolving Commitment" means, with respect to each Lender, the
--------------------
commitment, if any, of such Lender to make Revolving Loans and to acquire
participations in Letters of Credit and Swingline Loans hereunder, expressed as
an amount representing the maximum aggregate amount of such Lender's Revolving
Exposure hereunder, as such commitment may be (a) reduced from time to time
pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant
to assignments by or to such Lender pursuant to Section 9.04. The initial amount
of each Lender's Revolving Commitment is set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Revolving Commitment, as applicable. The initial aggregate amount of the
Lenders' Revolving Commitments is $100,000,000.
"Revolving Exposure" means, with respect to any Lender at any time,
------------------
the sum of the outstanding principal amount of such Lender's Revolving Loans and
its LC Exposure and Swingline Exposure at such time.
"Revolving Lender" means a Lender with a Revolving Commitment or, if
----------------
the Revolving Commitments have terminated or expired, a Lender with Revolving
Exposure.
"Revolving Loan" means a Loan made pursuant to clause (c) of Section
--------------
2.01.
"Revolving Maturity Date" means December 1, 2005.
-----------------------
"S&P" means Standard & Poor's.
---
"Secured Parties" shall have the meaning given such term in the
---------------
Security Agreement.
"Security Agreement" means the Security Agreement, substantially in
------------------
the form of Exhibit E, among the Loan Parties and the Administrative Agent for
the benefit of the Secured Parties.
"Security Documents" means the Security Agreement, the Pledge
------------------
Agreement, the Mortgages and each other security agreement or other instrument
or document executed and delivered pursuant to Section 5.12 or 5.13 to secure
any of the Obligations.
"Sold Entity or Business" has the meaning assigned to such term in the
-----------------------
definition of the term Adjusted EBITDA.
"Statutory Reserve Rate" means a fraction (expressed as a decimal),
----------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject (a) with
respect to the Base CD Rate, for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months and
(b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such
reserve percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve
Rate shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
"Subordinated Debt" means (a) the senior subordinated notes to be
-----------------
issued by the Borrower to refinance or replace the Subordinated Loans (and pay
fees or expenses in connection therewith) and the
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Indebtedness represented thereby and (b) additional senior subordinated notes
that may be issued by the Borrower on or after the date of issuance of the
senior subordinated notes referred to in clause (a) above and the Indebtedness
represented thereby.
"Subordinated Debt Documents" means any indenture or other agreement
---------------------------
under which any Subordinated Debt is issued and all other instruments,
agreements and other documents evidencing or governing any Subordinated Debt or
providing for any Guarantee or other right in respect thereof.
"Subordinated Financing" means the Subordinated Loans and the
----------------------
Subordinated Debt.
"Subordinated Loans" means (a) the senior subordinated notes to be
------------------
issued by the Borrower to certain note purchasers and senior subordinated loans
to be made to the Borrower by certain lenders, in each case on the Effective
Date and in an aggregate principal amount equal to $135,000,000 and (b)
additional senior subordinated notes and senior subordinated loans resulting
from the payment of interest in kind on the Indebtedness represented by the
senior subordinated notes and senior subordinated loans referred to in clause
(a) above and this clause (b), to the extent permitted by the Subordinated Loan
Documents.
"Subordinated Loan Documents" means the agreements under which the
---------------------------
Subordinated Loans are made or issued and all other instruments, agreements and
other documents evidencing or governing the Subordinated Loans or providing for
any Guarantee, warrant or other right in respect thereof.
"Subordinated Loan Equity Prepayment Event" means any Prepayment Event
-----------------------------------------
described in clause (c) of the definition of "Prepayment Event" and any event
excluded from such clause (c) by reason of sub-clause (v) or (vi) therein, in
each case during the period from the Effective Date to the one-year anniversary
thereof; provided that such an event excluded from such clause (c) of the
--------
definition of Prepayment Event by reason of sub-clause (v) shall be deemed to be
Subordinated Loan Equity Prepayment Events after the one-year anniversary
thereof if (i) the aggregate amount of the proceeds thereof to be applied to
repay or refinance the Subordinated Loans does not exceed $35,000,000 in the
aggregate, (ii) such amount is applied in connection with a repayment or
refinancing of the Subordinated Loans in whole but not in part and (iii) such
repayment or prepayment is prior to the Covenant Conversion Date (as defined in
the Subordinated Loan Documents).
"subsidiary" means, with respect to any Person (the "parent") at any
---------- ------
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity of which securities or other ownership interests representing more than
50% of the equity or more than 50% of the ordinary voting power or, in the case
of a partnership, more than 50% of the general partnership interests are, as of
such date, owned, controlled or held by the parent or one or more subsidiaries
of the parent or by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
----------
"Subsidiary Loan Party" means any Subsidiary that is not a Foreign
---------------------
Subsidiary.
"Swingline Exposure" means, at any time, the aggregate principal
------------------
amount of all Swingline Loans outstanding at such time. The Swingline Exposure
of any Lender at any time shall be its Applicable Percentage of the total
Swingline Exposure at such time.
"Swingline Lender" means The Chase Manhattan Bank, in its capacity as
----------------
lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to Section 2.04.
--------------
"Syndication Agent" means First Union National Bank, in its capacity
-----------------
as syndication agent for the Lenders hereunder.
"Taxes" means any and all present or future taxes, levies, imposts,
-----
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Term Loans" means Tranche A Term Loans and Tranche B Term Loans.
----------
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"Three-Month Secondary CD Rate" means, for any day, the secondary
-----------------------------
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day is not a Business Day, on the next preceding Business Day) by the
Administrative Agent from three negotiable certificate of deposit dealers of
recognized standing selected by it.
"Total Indebtedness" means, as of any date, the aggregate principal
------------------
amount of Indebtedness of the Borrower and the Subsidiaries outstanding as of
such date, in the amount that would be reflected on a balance sheet prepared as
of such date on a consolidated basis in accordance with GAAP, net of cash held
by the Borrower not subject to any Lien (other than pursuant to the Loan
Documents), but only to the extent that there are (a) Revolving Loans
outstanding that may be repaid and reborrowed or (b) such cash represents the
Net Proceeds of a Prepayment Event described in clause (a) or (b) of the
definition of the term "Prepayment Event"; provided that such cash is held in an
--------
account with the Administrative Agent.
"Tranche A Commitment" means, with respect to each Lender, the
--------------------
commitment, if any, of such Lender to make a Tranche A Term Loan hereunder on
the Effective Date, expressed as an amount representing the maximum principal
amount of the Tranche A Term Loan to be made by such Lender hereunder, as such
commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b)
reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04. The initial amount of each Lender's Tranche A
Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance
pursuant to which such Lender shall have assumed its Tranche A Commitment, as
applicable. The initial aggregate amount of the Lenders' Tranche A Commitments
is $50,000,000.
"Tranche A Lender" means a Lender with a Tranche A Commitment or an
----------------
outstanding Tranche A Term Loan.
"Tranche A Maturity Date" means December 1, 2005.
-----------------------
"Tranche A Term Loan" means a Loan made pursuant to clause (a) of
-------------------
Section 2.01.
"Tranche B Commitment" means, with respect to each Lender, the
--------------------
commitment, if any, of such Lender to make a Tranche B Term Loan hereunder on
the Effective Date, expressed as an amount representing the maximum principal
amount of the Tranche B Term Loan to be made by such Lender hereunder, as such
commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b)
reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04. The initial amount of each Lender's Tranche B
Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance
pursuant to which such Lender shall have assumed its Tranche A Commitment, as
applicable. The initial aggregate amount of the Lenders' Tranche B Commitments
is $210,000,000.
"Tranche B Lender" means a Lender with a Tranche B Commitment or an
----------------
outstanding Tranche B Term Loan.
"Tranche B Maturity Date" means December 1, 2007.
-----------------------
"Tranche B Term Loan" means a Loan made pursuant to clause (b) of
-------------------
Section 2.01.
"Transaction Costs" means the fees and expenses (including
-----------------
underwriting discounts and commissions) incurred or borne by the Borrower and
the Subsidiaries in connection with the Transactions.
"Transactions" means the Recapitalization and the Financing
------------
Transactions.
"Type", when used in reference to any Loan or Borrowing, refers to
----
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.
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"Withdrawal Liability" means liability to a Multiemployer Plan as a
--------------------
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes
---------------------------------------
of this Agreement, Loans may be classified and referred to by Class (e.g., a
----
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
----
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
- -----
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
---- ----
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving
----
Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall
----------------
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The word
"will" shall be construed to have the same meaning and effect as the word
"shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
-----------------------
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
--------
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be inter preted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments. Subject to the terms and conditions set
------------
forth herein, each Lender agrees (a) to make a Tranche A Term Loan to the
Borrower on the Effective Date in a principal amount not exceeding its Tranche A
Commitment, (b) to make a Tranche B Term Loan to the Borrower on the Effective
Date in a principal amount not exceeding its Tranche B Commitment and (c) to
make Revolving Loans to the Borrower from time to time during the Revolving
Availability Period in an aggregate principal amount that will not result in
such Lender's Revolving Exposure exceeding such Lender's Revolving Commitment
then in effect. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow
Revolving Loans. Amounts repaid in respect of Term Loans may not be reborrowed.
SECTION 2.02. Loans and Borrowings. (a) Each Loan (other than a
---------------------
Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the
same Class and Type made by the Lenders ratably in accordance with their
respective Commitments of the applicable Class. The failure of any Lender to
make any Loan required to be made by it shall not relieve any other Lender of
its obligations hereunder; provided that the Commitments of the Lenders are
--------
several and no Lender shall be responsible for any other Lender's failure to
make Loans as required.
(b) Subject to Section 2.14, each Revolving Borrowing and Term
Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the
Borrower may request in accordance herewith; provided that all Borrowings made
--------
on the Effective Date must be made as ABR Borrowings. Each Swingline Loan shall
be an ABR Loan. Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided that any exercise of such option shall not affect the obligation
--------
of the Borrower to repay such Loan in accordance with the terms of this
Agreement.
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<PAGE>
(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR
Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that
is an integral multiple of $500,000 and not less than $1,000,000; provided that
--------
an ABR Revolving Borrowing may be in an aggregate amount that is equal to the
entire unused balance of the total Revolving Commitments or that is required to
finance the reimbursement of an LC Disbursement as contemplated by Section
2.05(e). Each Swingline Loan shall be in an amount that is an integral multiple
of $100,000 and not less than $250,000. Borrowings of more than one Type and
Class may be outstanding at the same time; provided that there shall not at any
--------
time be more than a total of ten Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Revolving Maturity Date, Tranche A Maturity Date or Tranche B Maturity
Date, as applicable.
SECTION 2.03. Requests for Borrowings. To request a Revolving
------------------------
Borrowing or Term Borrowing, the Borrower shall notify the Administrative Agent
of such request by telephone (a) in the case of a Eurodollar Borrowing, not
later than 11:00 a.m., New York City time, three Business Days before the date
of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than
11:00 a.m., New York City time, one Business Day before the date of the proposed
Borrowing; provided that any such notice of an ABR Revolving Borrowing to
--------
finance the reimbursement of an LC Disbursement as contemplated by Section
2.05(e) may be given not later than 11:00 a.m., New York City time, on the date
of the proposed Borrowing. Each such telephonic Borrowing Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in a form approved by the
Administrative Agent and signed by the Borrower. Each such telephonic and
written Borrowing Request shall specify the following information in compliance
with Section 2.02:
(i) whether the requested Borrowing is to be a Revolving Borrowing,
Tranche A Term Borrowing or Tranche B Term Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a Business Day;
(iv) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(v) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to which
funds are to be disbursed, which shall comply with the requirements of
Section 2.06.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall
be deemed to have selected an Interest Period of one month's duration. Promptly
following receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Swingline Loans. (a) Subject to the terms and
----------------
conditions set forth herein, the Swingline Lender agrees to make Swingline
Loans to the Borrower from time to time during the Revolving Availability
Period, in an aggregate principal amount at any time outstanding that will not
result in (i) the aggregate principal amount of outstanding Swingline Loans
exceeding $10,000,000 or (ii) the sum of the total Revolving Exposures
exceeding the total Revolving Commitments; provided that the Swingline Lender
--------
shall not be required to make a Swingline Loan to refinance an outstanding
Swingline Loan. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow
Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the
Administrative Agent of such request by telephone (confirmed by telecopy), not
later than 2:00 p.m., New York City time, on the day of a proposed Swingline
Loan. Each such notice shall be irrevocable and shall specify the requested date
(which shall be a Business Day) and amount of the requested Swingline Loan. The
Administrative Agent will promptly advise the Swingline Lender of any such
notice received from the Borrower. The Swingline Lender shall make each
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<PAGE>
Swingline Loan available to the Borrower by means of a credit to the general
deposit account of the Borrower with the Swingline Lender (or, in the case of a
Swingline Loan made to finance the reimbursement of an LC Disbursement as
provided in Section 2.05(e), by remittance to the Issuing Bank) by 3:00 p.m.,
New York City time, on the requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 12:00 noon, New York City time, on any
Business Day require the Revolving Lenders to acquire participations on such
Business Day in all or a portion of the Swingline Loans outstanding. Such notice
shall specify the aggregate amount of Swingline Loans in which Revolving Lenders
will participate. Promptly upon receipt of such notice, the Administrative Agent
will give notice thereof to each Revolving Lender, specifying in such notice
such Lender's Applicable Percentage of such Swingline Loan or Loans. Each
Revolving Lender hereby absolutely and unconditionally agrees, upon receipt of
notice as provided above, to pay to the Administrative Agent, for the account of
the Swingline Lender, such Lender's Applicable Percentage of such Swingline Loan
or Loans. Each Revolving Lender acknowledges and agrees that its obligation to
acquire participations in Swingline Loans pursuant to this paragraph is absolute
and unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever. Each Revolving
Lender shall comply with its obligation under this paragraph by wire transfer of
immediately available funds, in the same manner as provided in Section 2.06 with
respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis
-------
mutandis, to the payment obligations of the Revolving Lenders), and the
- --------
Administrative Agent shall promptly pay to the Swingline Lender the amounts so
received by it from the Revolving Lenders. The Administrative Agent shall notify
the Borrower of any participations in any Swingline Loan acquired pursuant to
this paragraph, and thereafter payments in respect of such Swingline Loan shall
be made to the Administrative Agent and not to the Swingline Lender. Any amounts
received by the Swingline Lender from the Borrower (or other party on behalf of
the Borrower) in respect of a Swingline Loan after receipt by the Swingline
Lender of the proceeds of a sale of participations therein shall be promptly
remitted to the Administrative Agent; any such amounts received by the
Administrative Agent shall be promptly remitted by the Administrative Agent to
the Revolving Lenders that shall have made their payments pursuant to this
paragraph and to the Swingline Lender, as their interests may appear. The
purchase of participations in a Swingline Loan pursuant to this paragraph shall
not relieve the Borrower of any default in the payment thereof.
SECTION 2.05. Letters of Credit. (a) General. Subject to the terms
------------------ --------
and conditions set forth herein, the Borrower may request the issuance of
Letters of Credit for its own account, in a form reasonably acceptable to the
Issuing Bank, at any time and from time to time during the Revolving
Availability Period. In the event of any inconsistency between the terms and
conditions of this Agreement and the terms and conditions of any form of letter
of credit application or other agreement submitted by the Borrower to, or
entered into by the Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
----------------------------------------------------------
Conditions. To request the issuance of a Letter of Credit (or the amendment,
- -----------
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank and the Administrative Agent (reasonably in advance of the requested date
of issuance, amendment, renewal or extension) a notice requesting the issuance
of a Letter of Credit, or identifying the Letter of Credit to be amended,
renewed or extended, and specifying the date of issuance, amendment, renewal or
extension (which shall be a Business Day), the date on which such Letter of
Credit is to expire (which shall comply with paragraph (c) of this Section), the
amount of such Letter of Credit, the name and address of the beneficiary thereof
and such other information as shall be necessary to prepare, amend, renew or
extend such Letter of Credit. If requested by the Issuing Bank, the Borrower
also shall submit a letter of credit application on the Issuing Bank's standard
form in connection with any request for a Letter of Credit. A Letter of Credit
shall be issued, amended, renewed or extended only if (and upon issuance,
amendment, renewal or extension of each Letter of Credit the Borrower shall be
deemed to represent and warrant that), after giving effect to such issuance,
amendment, renewal or extension (i) the LC Exposure shall not exceed $15,000,000
and (ii) the total Revolving Exposures shall not exceed the total Revolving
Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at or prior
----------------
to the close of business on the earlier of (i) the date one year after the date
of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Revolving Maturity Date.
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(d) Participations. By the issuance of a Letter of Credit (or an
---------------
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Revolving Lender, and each Revolving Lender hereby
acquires from the Issuing Bank, a participation in such Letter of Credit equal
to such Lender's Applicable Percentage of the aggregate amount available to be
drawn under such Letter of Credit. In consideration and in furtherance of the
foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to
pay to the Administrative Agent, for the account of the Issuing Bank, such
Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank
and not reimbursed by the Borrower on the date due as provided in paragraph (e)
of this Section, or of any reimbursement payment required to be refunded to the
Borrower for any reason. Each Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph in respect of
Letters of Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, with holding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC
--------------
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such
LC Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on (i) the Business
Day that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt; provided that,
--------
if such LC Disbursement is not less than $250,000, the Borrower may, subject to
the conditions to borrowing set forth herein, request in accordance with Section
2.03 or 2.04 that such payment be financed with an ABR Revolving Borrowing or
Swingline Loan in an equivalent amount and, to the extent so financed, the
Borrower's obligation to make such payment shall be discharged and replaced by
the resulting ABR Revolving Borrowing or Swingline Loan. If the Borrower fails
to make such payment when due, the Administrative Agent shall notify each
Revolving Lender of the applicable LC Disbursement, the payment then due from
the Borrower in respect thereof and such Lender's Applicable Percentage thereof.
Promptly following receipt of such notice, each Revolving Lender shall pay to
the Administrative Agent its Applicable Percentage of the payment then due from
the Borrower, in the same manner as provided in Section 2.06 with respect to
Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to
------- --------
the payment obligations of the Revolving Lenders), and the Administrative Agent
shall promptly pay to the Issuing Bank the amounts so received by it from the
Revolving Lenders. Promptly following receipt by the Administrative Agent of
any payment from the Borrower pursuant to this paragraph, the Administrative
Agent shall distribute such payment to the Issuing Bank or, to the extent that
Revolving Lenders have made payments pursuant to this paragraph to reimburse the
Issuing Bank, then to such Lenders and the Issuing Bank as their interests may
appear. Any payment made by a Revolving Lender pursuant to this paragraph to
reimburse the Issuing Bank for any LC Disbursement (other than the funding of
ABR Revolving Loans or a Swingline Loan as contemplated above) shall not
constitute a Loan and shall not relieve the Borrower of its obligation to
reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse LC
---------------------
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder.
Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of
their Related Parties, shall have any liability or responsibility by reason of
or in connection with the issuance or transfer of any Letter of Credit or any
payment or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank; provided that the foregoing shall not be construed to excuse the
--------
Issuing Bank from liability to the Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrower to the extent
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<PAGE>
permitted by applicable law) suffered by the Borrower that are caused by the
Issuing Bank's failure to exercise care when determining whether drafts and
other documents presented under a Letter of Credit comply with the terms
thereof. The parties hereto expressly agree that, in the absence of gross
negligence or wilful misconduct on the part of the Issuing Bank (as finally
determined by a court of competent jurisdiction), the Issuing Bank shall be
deemed to have exercised care in each such determination. In furtherance of the
foregoing and without limiting the generality thereof, the parties agree that,
with respect to documents presented which appear on their face to be in
substantial compliance with the terms of a Letter of Credit, the Issuing Bank
may, in its sole discretion, either accept and make payment upon such documents
without responsibility for further investigation, regardless of any notice or
information to the contrary (other than notice by the Borrower of actual fraud
contained in such documents), or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
------------------------
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; provided that any failure to give or
--------
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC
Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
-----------------
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Revolving Loans;
provided that, if the Borrower fails to reimburse such LC Disbursement when due
- --------
pursuant to paragraph (e) of this Section, then Section 2.13(c) shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank, except that interest accrued on and after the date of payment by
any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the
Issuing Bank shall be for the account of such Lender to the extent of such
payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be
--------------------------------
replaced at any time by written agreement among the Borrower, the Administrative
Agent, the replaced Issuing Bank and the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such replacement of the
Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.12(b). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to Letters
of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and
-----------------------
be continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Revolving Lenders with LC Exposure representing greater
than 50% of the total LC Exposure) demanding the deposit of cash collateral
pursuant to this paragraph, the Borrower shall deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and for the
benefit of the Lenders, an amount in cash equal to the LC Exposure as of such
date plus any accrued and unpaid interest thereon; provided that the obligation
--------
to deposit such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand or other notice
of any kind, upon the occurrence of any Event of Default with respect to the
Borrower described in clause (h) or (i) of Article VII. The Borrower also shall
deposit cash collateral pursuant to this paragraph as and to the extent required
by Section 2.11(b). Each such deposit shall be held by the Administrative Agent
as collateral for the payment and performance of the obligations of the Borrower
under this Agreement. The Administrative Agent shall have exclusive dominion
and control, including the exclusive right of withdrawal, over such account.
Other than any interest earned on the investment of such deposits, which
investments shall be made at the option and sole discretion of the
Administrative Agent and at the Borrower's risk and expense, such deposits shall
not bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall be applied by the
Administrative Agent to reimburse the Issuing Bank for LC Disbursements for
which it has not been reimbursed and, to the extent not so applied, shall be
held for the satisfaction of the reimbursement obligations of the Borrower for
the LC
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<PAGE>
Exposure at such time or, if the maturity of the Loans has been accelerated (but
subject to the consent of Revolving Lenders with LC Exposure representing
greater than 50% of the total LC Exposure), be applied to satisfy other
obligations of the Borrower under this Agreement. If the Borrower is required to
provide an amount of cash collateral hereunder as a result of the occurrence of
an Event of Default, such amount (to the extent not applied as aforesaid) shall
be returned to the Borrower within three Business Days after all Events of
Default have been cured or waived. If the Borrower is required to provide an
amount of cash collateral hereunder pursuant to Section 2.11(b), such amount (to
the extent not applied as aforesaid) shall be returned to the Borrower as and to
the extent that, after giving effect to such return, the Borrower would remain
in compliance with Section 2.11(b) and no Default shall have occurred and be
continuing.
SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make
----------------------
each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 12:00 noon, New York City time, to
the account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders; provided that Swingline Loans shall be made as
--------
provided in Section 2.04; provided further that Revolving Loans on the Effective
--------
Date in excess of an aggregate of $10,000,000 shall not be made. The
Administrative Agent will make such Loans available to the Borrower by promptly
crediting the amounts so received, in like funds, to an account of the Borrower
maintained with the Administrative Agent in New York City and designated by the
Borrower in the applicable Borrowing Request; provided that ABR Revolving Loans
--------
made to finance the reimbursement of an LC Disbursement as provided in Section
2.05(e) shall be remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing and
-------------------
Term Borrowing initially shall be of the Type specified in the applicable
Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an
initial Interest Period as specified in such Borrowing Request. Thereafter, the
Borrower may elect to convert such Borrowing to a different Type or to continue
such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest
Periods therefor, all as provided in this Section. The Borrower may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing. This Section shall not apply
to Swingline Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
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<PAGE>
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the
request of the Required Lenders, so notifies the Borrower, then, so long as an
Event of Default is continuing (i) no outstanding Borrowing may be converted to
or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.08. Termination and Reduction of Commitments. (a) Unless
-----------------------------------------
previously terminated, (i) the Tranche A Commitments and Tranche B Commitments
shall terminate at 5:00 p.m., New York City time, on the Effective Date and (ii)
the Revolving Commitments shall terminate on the Revolving Maturity Date.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Commitments of any Class; provided that (i) each reduction of the
--------
Commitments of any Class shall be in an amount that is an integral multiple of
$1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not
terminate or reduce the Revolving Commitments if, after giving effect to any
concurrent prepayment of the Revolving Loans in accordance with Section 2.11,
the sum of the Revolving Exposures would exceed the total Revolving Commitments.
(c) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
--------
of termination of the Revolving Commitments delivered by the Borrower may state
that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by notice
to the Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments of
any Class shall be permanent. Each reduction of the Commitments of any Class
shall be made ratably among the Lenders in accordance with their respective
Commitments of such Class.
SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) The
-------------------------------------
Borrower hereby unconditionally promises to pay (i) to the Administrative Agent
for the account of each Lender the then unpaid principal amount of each
Revolving Loan of such Lender on the Revolving Maturity Date, (ii) to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Term Loan of such Lender as provided in Section 2.10 and (iii) to
the Swingline Lender the then unpaid principal amount of each Swingline Loan on
the earlier of the Revolving Maturity Date and the first date after such
Swingline Loan is made that is the 15th or last day of a calendar month and is
at least two Business Days after such Swingline Loan is made; provided that on
--------
each date that a Revolving Borrowing is made, the Borrower shall repay all
Swingline Loans that were outstanding on the date such Borrowing was requested.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
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<PAGE>
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall be prima facie evidence of the existence and
----- -----
amounts of the obligations recorded therein; provided that the failure of any
--------
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans of any Class made by it be
evidenced by a promissory note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 9.04) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and its
registered assigns).
SECTION 2.10. Amortization of Term Loans. (a) Subject to adjustment
---------------------------
pursuant to paragraph (d) of this Section, the Borrower shall repay Tranche A
Term Borrowings on each date set forth below in the aggregate principal amount
set forth opposite such date:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
December 31, 2000 $1,250,000
March 31, 2001 $1,250,000
June 30, 2001 $1,250,000
September 30, 2001 $1,250,000
December 31, 2001 $1,250,000
March 31, 2002 $1,250,000
June 30, 2002 $1,250,000
September 30, 2002 $1,250,000
December 31, 2002 $2,500,000
March 31, 2003 $2,500,000
June 30, 2003 $2,500,000
September 30, 2003 $2,500,000
December 31, 2003 $3,125,000
March 31, 2004 $3,125,000
June 30, 2004 $3,125,000
September 30, 2004 $3,125,000
December 31, 2004 $4,375,000
March 31, 2005 $4,375,000
June 30, 2005 $4,375,000
September 30, 2005 $4,375,000
</TABLE>
(b) Subject to adjustment pursuant to paragraph (d) of this Section,
the Borrower shall repay Tranche B Term Borrowings on each date set forth below
in the aggregate principal amount set forth opposite such date:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
December 31, 2000 $ 250,000
March 31, 2001 $ 250,000
June 30, 2001 $ 250,000
September 30, 2001 $ 250,000
December 31, 2001 $ 250,000
March 31, 2002 $ 250,000
June 30, 2002 $ 250,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
September 30, 2002 $ 250,000
December 31, 2002 $ 250,000
March 31, 2003 $ 250,000
June 30, 2003 $ 250,000
September 30, 2003 $ 250,000
December 31, 2003 $ 250,000
March 31, 2004 $ 250,000
June 30, 2004 $ 250,000
September 30, 2004 $ 250,000
December 31, 2004 $ 250,000
March 31, 2005 $ 250,000
June 30, 2005 $ 250,000
September 30, 2005 $ 250,000
December 31, 2005 $20,000,000
March 31, 2006 $20,000,000
June 30, 2006 $20,000,000
September 30, 2006 $20,000,000
December 31, 2006 $31,250,000
March 31, 2007 $31,250,000
June 30, 2007 $31,250,000
September 30, 2007 $31,250,000
</TABLE>
(c) To the extent not previously paid, (i) all Tranche A Term Loans
shall be due and payable on the Tranche A Maturity Date and (ii) all Tranche B
Term Loans shall be due and payable on the Tranche B Maturity Date.
(d) Any prepayment of a Term Borrowing of either Class shall be
applied to reduce the subsequent scheduled repayments of the Term Borrowings of
such Class to be made pursuant to this Section ratably. If the initial
aggregate amount of the Lenders' Term Commitments of either Class exceeds the
aggregate principal amount of Term Loans of such Class that are made on the
Effective Date, then the scheduled repayments of Term Borrowings of such Class
to be made pursuant to this Section shall be reduced ratably by an aggregate
amount equal to such excess; provided that any prepayment made pursuant to
--------
Section 2.11(a) shall be applied, first to reduce (in the direct order of
maturity) the next two scheduled repayments of the Term Borrowings of such Class
to be made pursuant to this Section (to the extent that such scheduled
repayments would otherwise occur within 12 months of such prepayments made
pursuant to Section 2.11(a)) unless and until such next two scheduled repayments
have been eliminated as a result of reductions hereunder and, second, to reduce
the remaining scheduled repayments of the Term Borrowings of such Class to be
made pursuant to this Section ratably.
(e) Prior to any repayment of any Term Borrowings of either Class
hereunder, the Borrower shall select the Borrowing or Borrowings of the
applicable Class to be repaid and shall notify the Administrative Agent by
telephone (confirmed by telecopy) of such selection not later than 11:00 a.m.,
New York City time, three Business Days before the scheduled date of such
repayment. Each repayment of a Borrowing shall be applied ratably to the Loans
included in the repaid Borrowing. Repayments of Term Borrowings shall be
accompanied by accrued interest on the amount repaid.
SECTION 2.11. Prepayment of Loans. (a) The Borrower shall have the
--------------------
right at any time and from time to time to prepay any Borrowing in whole or in
part, subject to the requirements of this Section.
(b) In the event and on such occasion that the sum of the Revolving
Exposures exceeds the total Revolving Commitments, the Borrower shall prepay
Revolving Borrowings or Swingline Borrowings (or, if no such Borrowings are
outstanding, deposit cash collateral in an account with the Administrative Agent
pursuant to Section 2.05(j)) in an aggregate amount equal to such excess.
(c) In the event and on each occasion that any Net Proceeds are
received by or on behalf of the Borrower or any Subsidiary in respect of any
Prepayment Event, the Borrower shall, within three Business Days after such Net
Proceeds are received, prepay Term Borrowings in accordance with paragraph (e)
below in an aggregate amount equal to (i) in the case of a Prepayment Event
described in clause (a), (b) or (d) of the definition of "Prepayment Event",
100% of such Net Proceeds and (ii) in the case of a Prepayment Event described
in
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<PAGE>
clause (c) of the definition of "Prepayment Event", 50% of such Net Proceeds. In
addition, in the event and on each occasion that the Borrower or any Subsidiary
shall sell, lease or otherwise dispose of any asset (whether or not such
transaction shall constitute a Prepayment Event), if the Borrower would be
required to prepay or redeem, or to offer to prepay or redeem, any Subordinated
Financing as a result of such transaction unless the proceeds of such
transaction are applied within a specified period to prepay Term Borrowings (or
otherwise reinvested as permitted in accordance with the terms of such
Subordinated Financing), then the Borrower shall (unless such proceeds are
otherwise reinvested within the specified period in a manner that relieves the
Borrower of any such requirement in respect of the Subordinated Financing)
prepay Term Borrowings within such specified period to the extent necessary to
relieve the Borrower of any such requirement. The Borrower also shall prepay
Term Borrowings as and when required by clauses (iii) and (xii) of
Section 6.01(a).
(d) Following the end of each fiscal year of the Borrower, commencing
with the fiscal year ending September 27, 2000, the Borrower shall prepay Term
Borrowings in an aggregate amount equal to 50% of Excess Cash Flow for such
fiscal year in accordance with paragraph (e) below. Each prepayment pursuant to
this paragraph shall be made on or before the date on which financial statements
are delivered pursuant to Section 5.01 with respect to the fiscal year for which
Excess Cash Flow is being calculated (and in any event within 90 days after the
end of such fiscal year).
(e) Prior to any optional or mandatory prepayment of Borrowings
hereunder, the Borrower shall select the Borrowing or Borrowings to be prepaid
and shall specify such selection in the notice of such prepayment pursuant to
paragraph (f) of this Section. In the event of any optional or mandatory
prepayment of Term Borrowings made at a time when Term Borrowings of both
Classes remain outstanding, the Borrower shall select Term Borrowings to be
prepaid so that the aggregate amount of such prepayment is allocated between the
Tranche A Term Borrowings and Tranche B Term Borrowings pro rata based on the
aggregate principal amount of outstanding Borrowings of each such Class;
provided that any Tranche B Lender may elect, by notice to the Administrative
- --------
Agent by telephone (confirmed by telecopy) at least one Business Day prior to
the prepayment date, to decline all or any portion of any prepayment of its
Tranche B Term Loans pursuant to this Section (other than an optional prepayment
pursuant to paragraph (a) of this Section, which may not be declined), in which
case the aggregate amount of the prepayment that would have been applied to
prepay Tranche B Term Loans but was so declined shall be applied to prepay
Tranche A Term Borrowings.
(f) The Borrower shall notify the Administrative Agent (and, in the
case of prepayment of a Swingline Loan, the Swingline Lender) by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment, (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment or (iii) in the case of
prepayment of a Swingline Loan, not later than 12:00 noon, New York City time,
on the date of prepayment. Each such notice shall be irrevocable and shall
specify the prepayment date, the principal amount of each Borrowing or portion
thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably
detailed calculation of the amount of such prepayment; provided that, if a
--------
notice of optional prepayment is given in connection with a conditional notice
of termination of the Revolving Commitments as contemplated by Section 2.08,
then such notice of prepayment may be revoked if such notice of termination is
revoked in accordance with Section 2.08. Promptly following receipt of any such
notice (other than a notice relating solely to Swingline Loans), the
Administrative Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of any Borrowing shall be in an amount that would be
permitted in the case of an advance of a Borrowing of the same Type as provided
in Section 2.02, except as necessary to apply fully the required amount of a
mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably
to the Loans included in the prepaid Borrowing. Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.13.
(g) Whenever any (i) voluntary prepayment of any Tranche B Term Loans
is made pursuant to Section 2.11(a) or (ii) repayment of any Tranche B Term
Loans is required as a result of a declaration pursuant to Article VII,
following the occurrence of a Change of Control, that such Tranche B Loans are
due and payable, in each case within two years after the Effective Date, the
Borrower shall on the date of such prepayment or declaration, as applicable, pay
to the Tranche B Lenders a prepayment premium equal to (A) if such prepayment or
declaration occurs on or before the first anniversary of the Effective Date, 2%
of the principal amount of such Tranche B Term Loans being so prepaid or repaid
or (B) if such prepayment or declaration occurs after the first anniversary of,
but on or before the second anniversary of the Effective Date, 1% of the
principal amount of such Tranche B Term Loans being so prepaid or repaid.
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SECTION 2.12. Fees. (a) The Borrower agrees to pay to the
-----
Administrative Agent for the account of each Revolving Lender a commitment fee,
which shall accrue at the Applicable Rate on the average daily unused amount of
the Revolving Commitment of such Lender during the period from and including the
Effective Date to but excluding the date on which such Commitment terminates.
Accrued commitment fees shall be payable in arrears on the last day of March,
June, September and December of each year and on the date on which the Revolving
Commitments terminate, commencing on the first such date to occur after the date
hereof. All commitment fees shall be computed on the basis of a year of 360
days and shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). For purposes of computing commitment
fees, a Revolving Commitment of a Lender shall be deemed to be used to the
extent of the outstanding Revolving Loans and LC Exposure of such Lender (and
the Swingline Exposure of such Lender shall be disregarded for such purpose).
(b) The Borrower agrees to pay (i) to the Administrative Agent for
the account of each Revolving Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Rate as interest on Eurodollar Revolving Loans on the average daily amount of
such Lender's LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date on which such Lender's
Revolving Commitment terminates and the date on which such Lender ceases to have
any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue
at the rate or rates per annum separately agreed upon with the Issuing Bank on
the average daily amount of the LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the Effective Date to but excluding the later of the date of
termination of the Revolving Commitments and the date on which there ceases to
be any LC Exposure, as well as the Issuing Bank's standard fees with respect to
the issuance, amendment, renewal or extension of any Letter of Credit or
processing of drawings thereunder. Participation fees and fronting fees accrued
through and including the last day of March, June, September and December of
each year shall be payable on the third Business Day following such last day,
commencing on the first such date to occur after the Effective Date; provided
--------
that all such fees shall be payable on the date on which the Revolving
Commitments terminate and any such fees accruing after the date on which the
Revolving Commitments terminate shall be payable on demand. Any other fees
payable to the Issuing Bank pursuant to this paragraph shall be payable within
10 days after demand. All participation fees and fronting fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent, for its
own account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees and participation fees, to the Lenders entitled thereto. Fees
paid shall not be refundable under any circumstances.
SECTION 2.13. Interest. (a) The Loans comprising each ABR Borrowing
---------
(including each Swingline Loan) shall bear interest at the Alternate Base Rate
plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Revolving Loans as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Revolving Loans, upon
termination of the Revolving Commitments; provided that (i) interest accrued
--------
pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in
the event of any repayment or prepayment of any Loan (other than a prepayment of
an ABR Revolving Loan prior to the end of the Revolving Availability Period),
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment and (iii) in the event of any
conversion of any Eurodollar Loan prior to the
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end of the current Interest Period therefor, accrued interest on such Loan shall
be payable on the effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to the Alternate Base
Rate at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable Alternate Base Rate or
Adjusted LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error; provided the
--------
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing in reasonable detail the calculations used by the
Administrative Agent in determining any interest rate pursuant to Sections
2.13(e) and 2.14.
SECTION 2.14. Alternate Rate of Interest. If prior to the
---------------------------
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the Adjusted LIBO Rate for such Interest Period will not adequately and
fairly reflect the cost to such Lenders of making or maintaining their
Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.15. Increased Costs. (a) If any Change in Law shall:
----------------
(i) impose, modify or deem applicable any reserve, special deposit
or similar requirement against assets of, deposits with or for the account
of, or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBO Rate) or the Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or Eurodollar
Loans made by such Lender or any Letter of Credit or participation therein
(excluding imposition of Taxes, which shall be governed by Section 2.17);
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in
Law regarding capital requirements has or would have the effect of reducing the
rate of return on such Lender's or the Issuing Bank's capital or on the capital
of such Lender's or the Issuing Bank's holding company, if any, as a consequence
of this Agreement or the Loans made by, or participations in Letters of Credit
held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a
level below that which such Lender or the Issuing Bank or such Lender's or the
Issuing Bank's holding company could have achieved but for such Change in Law
(taking into consideration such Lender's or the Issuing Bank's policies and the
policies of such Lender's or the Issuing Bank's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
or the Issuing Bank, as the case may be, such additional amount or amounts as
will compensate such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
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(c) A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as the case may be, as specified in paragraph (a) or (b) of
this Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the
case may be, the amount shown as due on any such certificate within 10 days
after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation; provided
--------
that the Borrower shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than 180 days prior to the date that such Lender or the Issuing Bank, as
the case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; provided further that, if the Change
-------- -------
in Law giving rise to such increased costs or reductions is retroactive, then
the 180-day period referred to above shall be extended to include the period of
retroactive effect thereof.
SECTION 2.16. Break Funding Payments. In the event of (a) the
-----------------------
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Revolving Loan or Term Loan on the date specified in any
notice delivered pursuant hereto (regardless of whether such notice may be
revoked under Section 2.11(f) and is revoked in accordance therewith), or (d)
the assignment of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by the Borrower pursuant to
Section 2.19, then, in any such event, the Borrower shall compensate each Lender
for the loss, cost and expense attributable to such event. In the case of a
Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to
include an amount determined by such Lender to be the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount of such Loan
had such event not occurred, at the Adjusted LIBO Rate that would have been
applicable to such Loan, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert or continue, for the period that would have been the Interest
Period for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section and a brief
explanation of the basis therefor shall be delivered to the Borrower and shall
be conclusive absent manifest error. The Borrower shall pay such Lender the
amount shown as due on any such certificate within 10 days after receipt
thereof.
SECTION 2.17. Taxes. (a) Any and all payments by or on account of
------
any obligation of the Borrower hereunder or under any other Loan Document shall
be made free and clear of and without deduction for any Indemnified Taxes or
Other Taxes; provided that if the Borrower shall be required to deduct any
--------
Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable
shall be increased as necessary so that after making all required deductions of
Indemnified Taxes and Other Taxes (including deductions applicable to additional
sums payable under this Section) the Administrative Agent, Lender or Issuing
Bank (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent, each
Lender and the Issuing Bank, within 10 days after written demand therefor, for
the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or
with respect to any payment by or on account of any obligation of the Borrower
hereunder or under any other Loan Document (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority, unless such penalties, interest or expenses are incurred solely as a
result of any negligence or misconduct of the Administrative Agent, such Lender
or the Issuing Bank, as applicable, or any of its Related Parties. A
certificate setting forth in reasonable detail the amount of such payment or
liability and the reasonable basis of such
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payment or liability delivered to the Borrower by a Lender or the Issuing Bank,
or by the Administrative Agent on its own behalf or on behalf of a Lender or the
Issuing Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law, such properly completed and executed documentation prescribed by applicable
law or reasonably requested by the Borrower as will permit such payments to be
made without withholding or at a reduced rate.
SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of
--------------------------------------------------
Setoffs. (a) The Borrower shall make each payment required to be made by it
- --------
hereunder or under any other Loan Document (whether of principal, interest, fees
or reimbursement of LC Disbursements, or of amounts payable under Section 2.15,
2.16 or 2.17, or otherwise) prior to the time expressly required hereunder or
under such other Loan Document for such payment (or, if no such time is
expressly required, prior to 12:00 noon, New York City time), on the date when
due, in immediately available funds, without setoff or counterclaim. Any
amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York, except payments to be made directly to the Issuing Bank or
Swingline Lender as expressly provided herein and except that payments pursuant
to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons
entitled thereto and payments pursuant to other Loan Documents shall be made to
the Persons specified therein. The Administrative Agent shall distribute any
such payments received by it for the account of any other Person to the
appropriate recipient promptly following receipt thereof. If any payment under
any Loan Document shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension. All payments under each Loan Document shall be made
in dollars.
(b) If at any time insufficient funds are received by and available
to the Administrative Agent to pay fully all amounts of principal, unreimbursed
LC Disbursements, interest and fees then due hereunder, such funds shall be
applied (i) first, towards payment of interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, towards payment of
principal and unreimbursed LC Disbursements then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of principal and
unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of setoff or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans, Term Loans or participations in LC
Disbursements or Swingline Loans resulting in such Lender receiving payment of a
greater proportion of the aggregate amount of its Revolving Loans, Term Loans
and participations in LC Disbursements and Swingline Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Revolving Loans, Term Loans and participations in LC
Disbursements and Swingline Loans of other Lenders to the extent necessary so
that the benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Revolving Loans, Term Loans and participations in LC
Disbursements and Swingline Loans; provided that (i) if any such participations
--------
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or participations
in LC Disbursements to any assignee or participant, other than to the Borrower
or any Subsidiary or Affiliate thereof (as to which the provisions of this
paragraph shall apply). The Borrower consents to the foregoing and agrees, to
the extent it may effectively do so under applicable law, that any Lender
acquiring a participation pursuant to the foregoing arrangements may exercise
against the Borrower rights of setoff and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of the Borrower
in the amount of such participation.
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(d) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that the
Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing Bank,
as the case may be, the amount due. In such event, if the Borrower has not in
fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender or Issuing Bank with interest
thereon, for each day from and including the date such amount is distributed to
it to but excluding the date of payment to the Administrative Agent, at the
greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on interbank
compensation.
(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b), 2.18(d) or 9.03(c),
then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender's
obligations under such Sections until all such unsatisfied obligations are fully
paid.
SECTION 2.19. Mitigation Obligations; Replacement of Lenders. (a)
-----------------------------------------------
If any Lender requests compensation under Section 2.15, or if the Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.17, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the
reasonable judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as the
case may be, in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender. The Borrower hereby agrees to pay all reasonable costs and expenses
incurred by any Lender in connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.15, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
--------
shall have received the prior written consent of the Administrative Agent (and,
if a Revolving Commitment is being assigned, the Issuing Bank and Swingline
Lender), which consent shall not unreasonably be withheld, (ii) such Lender
shall have received payment of an amount equal to the outstanding principal of
its Loans and participations in LC Disbursements and Swingline Loans, accrued
interest thereon, accrued fees and all other amounts payable to it hereunder,
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or the Borrower (in the case of all other amounts) and (iii)
in the case of any such assignment resulting from a claim for compensation under
Section 2.15 or payments required to be made pursuant to Section 2.17, such
assignment will result in a material reduction in such compensation or payments.
A Lender shall not be required to make any such assignment and delegation if,
prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation
cease to apply.
SECTION 2.20. Permitted Bridge Period Equity. The proceeds of any
-------------------------------
Permitted Bridge Period Equity shall be deposited with the Administrative Agent
until the date of issuance of any Subordinated Debt to refinance the
Subordinated Loans, at which time such proceeds shall be (a) applied to repay
Subordinated Loans, to the extent the proceeds of such Subordinated Debt are
insufficient to do so, and (b) to the extent of any excess, released to the
Borrower.
ARTICLE III
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrower and its
---------------------
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted (after giving effect to the
Transactions) and, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a
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Material Adverse Effect, is qualified to do business in, and is in good standing
in, every jurisdiction where such qualification is required.
SECTION 3.02. Authorization; Enforceability. The Transactions to be
------------------------------
entered into by each Loan Party are within such Loan Party's corporate or other
organization powers and have been duly authorized by all necessary corporate or
other organization and, if required, stockholder action. This Agreement has been
duly executed and delivered by the Borrower and constitutes, and each other Loan
Document to which any Loan Party is to be a party, when executed and delivered
by such Loan Party, will constitute, a legal, valid and binding obligation of
the Borrower or such Loan Party (as the case may be), enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions
-------------------------------------
(a) do not require any consent or approval of, registration or filing with, or
any other action by, any Governmental Authority, except such as have been
obtained or made and are in full force and effect and except filings necessary
to perfect Liens created under the Loan Documents, (b) will not violate any
applicable law or regulation or the charter, by-laws or other organizational
documents of the Borrower or any of its Subsidiaries or any order of any
Governmental Authority, (c) will not violate or result in a default under any
indenture, agreement or other instrument binding upon, the Borrower or any of
its Subsidiaries or its assets, or give rise to a right thereunder to require
any payment to be made by the Borrower or any of its Subsidiaries (other than in
respect of Existing Indebtedness that is repaid on the Effective Date), and (d)
will not result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries, except Liens created under the Loan
Documents.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a)
------------------------------------------------
The Borrower has heretofore furnished to the Lenders its consolidated balance
sheet and statements of income, stockholders equity and cash flows (i) as of and
for the fiscal year ended September 27, 1998, reported on by
PriceWaterhouseCoopers, LLP, independent public accountants, and (ii) as of and
for the fiscal quarter and the portion of the fiscal year ended June 27, 1999,
certified by its chief financial officer. Such financial statements present
fairly, in all material respects, the financial position and results of
operations and cash flows of the Borrower and its consolidated Subsidiaries as
of such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the statements
referred to in clause (ii) above.
(b) The Borrower has heretofore furnished to the Lenders its pro
forma consolidated balance sheet as of June 27, 1999, prepared giving effect to
the Transactions as if the Transactions had occurred on such date. Such pro
forma consolidated balance sheet (i) has been prepared in good faith based on
the same assumptions used to prepare the pro forma financial statements included
in the Information Memorandum (which assumptions are believed by the Borrower to
be reasonable), (ii) is based on the best information available to the Borrower
after due inquiry, (iii) accurately reflects all adjustments necessary to give
effect to the Transactions and (iv) presents fairly, in all material respects,
the pro forma financial position of the Borrower and its consolidated
Subsidiaries as of June 27, 1999, as if the Transactions had occurred on such
date.
(c) Except as disclosed in the financial statements referred to above
or the notes thereto or in the Information Memorandum and except for the
Disclosed Matters, after giving effect to the Transactions, none of the Borrower
or its Subsidiaries has, as of the Effective Date, any material contingent
liabilities, unusual long-term commitments or unrealized losses.
(d) Since September 27, 1998, there has been no material adverse
change in the business, results of operations, properties, condition (financial
or otherwise) or prospects of the Borrower and its Subsidiaries, taken as a
whole.
SECTION 3.05. Properties. (a) Each of the Borrower and its
-----------
Subsidiaries has good title to, or valid leasehold interests in, all its real
and personal property material to its business (including its Mortgaged
Properties), free of all Liens, except for Liens permitted by Section 6.02.
(b) Each of the Borrower and its Subsidiaries owns, or is licensed to
use, all trademarks, tradenames, copyrights, patents and other intellectual
property material to its business, and the use thereof by the Borrower and its
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
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(c) Schedule 3.05 sets forth the address of each real property that
is owned or leased by the Borrower or any of its Subsidiaries as of the
Effective Date after giving effect to the Transactions.
(d) As of the Effective Date, neither the Borrower nor any of its
Subsidiaries has received notice of, or has knowledge of, any pending or
contemplated condemnation proceeding affecting any Mortgaged Property or any
sale or disposition thereof in lieu of condemnation. Neither any Mortgaged
Property nor any interest of any Loan Party therein is subject to any right of
first refusal, option or other contractual right to purchase such Mortgaged
Property or interest therein.
SECTION 3.06. Litigation and Environmental Matters. (a) There are
-------------------------------------
no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters) or (ii) that involve any of the Loan Documents or the Transactions.
(b) Except for the Disclosed Matters indicated on Schedule 3.06(b),
neither the Borrower nor any of its Subsidiaries (i) has failed to comply with
any Environmental Law or to obtain, maintain or comply with any permit, license
or other approval required under any Environmental Law, except as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, (ii) has become subject to any Environ mental Liability, except
as could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, (iii) has received notice of any claim with respect to
any Environmental Liability except as could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect or (iv)
knows of any basis for any Environmental Liability, except as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of the
------------------------------------
Borrower and its Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. No Default has
occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status. Neither the
--------------------------------------
Borrower nor any of its Subsidiaries is (a) an "investment company" as defined
in, or subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has
------
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) any Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably
------
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $1,000,000 the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $2,000,000 the fair
market value of the assets of all such underfunded Plans.
SECTION 3.11. Disclosure. The Borrower has disclosed to the Lenders
-----------
all agreements, instruments and corporate or other restrictions to which, the
Borrower or any of its Subsidiaries is subject, and all other matters known to
any of them, that, individually or in the aggregate, could reasonably be
expected to result in
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a Material Adverse Effect. As of the Effective Date, neither the Information
Memorandum nor any of the other reports, financial statements, certificates or
other information furnished by or on behalf of any Loan Party to the
Administrative Agent or any Lender in connection with the negotiation of this
Agreement contains any material misstatement of fact or omits to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that, with
--------
respect to projected financial information, the Borrower represents only that
such information was prepared in good faith based upon assumptions believed to
be reasonable at the time. None of the reports, financial statements,
certificates or other information furnished by or on behalf of any Loan Party to
the Administrative Agent or any Lender or delivered hereunder or thereunder (as
modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that, with respect to projected financial
--------
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.
SECTION 3.12. Subsidiaries. Schedule 3.12 sets forth the name of,
-------------
and the ownership interest of the Borrower in, each Subsidiary of the Borrower
and identifies each Subsidiary that is a Subsidiary Loan Party, in each case as
of the Effective Date.
SECTION 3.13. Insurance. Schedule 3.13 sets forth a description of
----------
all insurance maintained by or on behalf of the Borrower and its Subsidiaries as
of the Effective Date. As of the Effective Date, all premiums in respect of
such insurance have been paid.
SECTION 3.14. Labor Matters. As of the Effective Date, there are no
--------------
strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending
or, to the knowledge of the Borrower, threatened. The hours worked by and
payments made to employees of the Borrower and the Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Federal,
state, local or foreign law dealing with such matters. All payments due from
the Borrower or any Subsidiary, or for which any claim may be made against the
Borrower or any Subsidiary, on account of wages and employee health and welfare
insurance and other benefits, have been paid or accrued as a liability on the
books of the Borrower or such Subsidiary. The consummation of the Transactions
will not give rise to any right of termination or right of renegotiation on the
part of any union under any collective bargaining agreement to which the
Borrower or any Subsidiary is bound.
SECTION 3.15. Solvency. Immediately after the consummation of the
---------
Transactions to occur on the Effective Date and immediately following the making
of each Loan made on the Effective Date and after giving effect to the
application of the proceeds of such Loans, (a) the fair value of the assets of
each Loan Party, at a fair valuation, will exceed its debts and liabilities,
subordinated, contingent or otherwise; (b) the present fair saleable value of
the property of each Loan Party will be greater than the amount that will be
required to pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (c) each Loan Party will be able to pay its debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) each Loan Party will not have
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted
following the Effective Date.
SECTION 3.16. Senior Indebtedness. The Obligations constitute
--------------------
"Designated Senior Debt" under and as defined in the Subordinated Loan Documents
and, from and after the issuance of the Subordinated Debt, in the Subordinated
Debt Documents (or any similar term used therein).
SECTION 3.17. Year 2000. Any reprogramming required to permit the
----------
proper functioning, in and following the year 2000, of (a) the computer systems
of the Borrower and its Subsidiaries and (b) equipment containing embedded
microchips (including systems and equipment supplied by others or with which the
Borrower's systems interface) and the testing of all such systems and equipment,
as so reprogrammed, has been completed. The cost to the Borrower and its
Subsidiaries of the reasonably foreseeable consequences of year 2000 to the
Borrower and its Subsidiaries (including reprogramming errors and the failure of
others' systems or equipment) will not result in a Default or a Material Adverse
Effect. The computer and management information systems of the Borrower and its
Subsidiaries are and, with ordinary course upgrading and maintenance, will
continue for the term of this Agreement to be, sufficient to permit the Borrower
to conduct its businesses without Material Adverse Effect.
SECTION 3.18. Security Documents. (a) The Pledge Agreement is
-------------------
effective to create in favor of the Administrative Agent, for the ratable
benefit of the Secured Parties, a legal, valid and enforceable security
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interest in the Collateral (as defined in the Pledge Agreement) and, when such
Collateral is delivered to the Administrative Agent, the Pledge Agreement shall
constitute a fully perfected first priority Lien on, and security interest in,
all right, title and interest of the pledgors thereunder in such Collateral, in
each case prior and superior in right to any other Person.
(b) The Security Agreement is effective to create in favor of the
Administrative Agent, for the ratable benefit of the Secured Parties, a legal,
valid and enforceable security interest in the Collateral (as defined in the
Security Agreement) and, when financing statements in appropriate form are filed
in the offices specified on Schedule 6 to the Perfection Certificate, the
Security Agreement shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the grantors thereunder in such
Collateral (other than the Intellectual Property (as defined in the Security
Agreement)), in each case prior and superior in right to any other Person, other
than with respect to Liens expressly permitted by Section 6.02.
(c) When the Security Agreement is filed in the United States Patent
and Trademark Office and the United States Copyright Office, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the Loan Parties in the Intellectual Property
(as defined in the Security Agreement) in which a security interest may be
perfected by filing, recording or registering a security agreement, financing
statement or analogous document in the United States Patent and Trademark Office
or the United States Copyright Office, as applicable, in each case prior and
superior in right to any other Person other than Liens expressly permitted by
Section 6.02 (it being understood that subsequent recordings in the United
States Patent and Trademark Office and the United States Copyright Office may be
necessary to perfect a Lien on registered trademarks, trademark applications and
copyrights acquired by the Loan Parties after the date hereof).
(d) The Mortgages, when executed and delivered, will be effective to
create, subject to the exceptions listed in each title insurance policy covering
such Mortgage, in favor of the Administrative Agent, for the ratable benefit of
the Secured Parties, a legal, valid and enforceable Lien on all of the Loan
Parties' right, title and interest in and to the Mortgaged Properties thereunder
and the proceeds thereof, and when the Mortgages are filed in the offices
specified on Schedule 3.16(d), the Mortgages shall constitute a Lien on, and
security interest in, all right, title and interest of the Loan Parties in such
Mortgaged Properties and the proceeds thereof, in each case prior and superior
in right to any other Person, other than with respect to the rights of Persons
pursuant to Liens expressly permitted by Section 6.02.
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date. The obligations of the Lenders to make
---------------
Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not
become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(b) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated
the Effective Date) of each of (i) Debevoise & Plimpton, counsel for the
Loan Parties, substantially in the form of Exhibit B-1, and (ii) local
counsel in each jurisdiction where a Mortgaged Property is located,
substantially in the form of Exhibit B-2, and, in the case of each such
opinion required by this paragraph, covering such other matters relating to
the Loan Parties, the Loan Documents or the Transactions as the Required
Lenders shall reasonably request. The Borrower hereby requests such
counsel to deliver such opinions.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of each
Loan Party, the authorization of the Transactions and any other legal
matters relating to the Loan Parties, the Loan Documents or the
Transactions, all in form and substance satisfactory to the Administrative
Agent and its counsel.
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(d) The Administrative Agent shall have received a certificate, dated
the Effective Date and signed by the President, a Vice President or a
Financial Officer of the Borrower, confirming compliance with the
conditions set forth in paragraphs (a) and (b) of Section 4.02.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
(including fees, charges and disbursements of counsel) required to be
reimbursed or paid by any Loan Party hereunder or under any other Loan
Document.
(f) The Administrative Agent shall have received a counterpart of the
Guarantee Agreement signed on behalf of each Subsidiary Loan Party and
counterparts of the Security Agreement, the Pledge Agreement and the
Indemnity, Subrogation and Contribution Agreement, each signed on behalf of
the Borrower and each Subsidiary Loan Party, together with the following:
(i) stock certificates representing all the outstanding shares
of capital stock of each Subsidiary owned by or on behalf of any Loan
Party as of the Effective Date after giving effect to the Transactions
(except that stock certificates representing shares of common stock of
a Foreign Subsidiary may be limited to 65% of the outstanding shares
of common stock of such Foreign Subsidiary), promissory notes
evidencing all intercompany Indebtedness owed to any Loan Party by the
Borrower or any Subsidiary as of the Effective Date after giving
effect to the Transactions and stock powers and instruments of
transfer, endorsed in blank, with respect to such stock certificates
and promissory notes;
(ii) all documents and instruments, including Uniform Commercial
Code financing statements, required by law or reasonably requested by
the Administrative Agent to be filed, registered or recorded to
perfect the Liens created under the Security Agreement; and
(iii) a completed Perfection Certificate dated the Effective Date
and signed by a Financial Officer of the Borrower, together with all
attachments contemplated thereby, including the results of a search of
the Uniform Commercial Code (or equivalent) filings made with respect
to the Loan Parties in the jurisdictions contemplated by the
Perfection Certificate and copies of the financing statements (or
similar documents) disclosed by such search and evidence reasonably
satisfactory to the Administrative Agent that the Liens indicated by
such financing statements (or similar documents) are permitted by
Section 6.02 or have been released.
(g) The Administrative Agent shall have received (i) counterparts of
a Mortgage with respect to each Mortgaged Property owned by any Loan Party
on the Effective Date, signed on behalf of the record owner of such
Mortgaged Property, (ii) a policy or policies of title insurance issued by
a nationally recognized title insurance company, insuring the lien of each
such Mortgage as a valid first lien on the Mortgaged Property described
therein, free of any other Liens except as permitted by Section 6.02,
together with such endorsements, coinsurance and reinsurance as the
Administrative Agent or the Required Lenders may reasonably request and
(iii) such surveys, abstracts, appraisals, legal opinions and other
documents as the Administrative Agent or the Required Lenders may
reasonably request with respect to any such Mortgage or Mortgaged Property.
(h) The Administrative Agent shall have received evidence that the
insurance required by Section 5.07 and the Security Documents is in effect,
together with evidence that the Administrative Agent on behalf of the
Secured Parties is an additional insured or loss payee (to the extent
required by the Security Agreement or the Mortgages).
(i) The Agents shall be reasonably satisfied as to the amount and
nature of any environmental and employee health and safety exposures to
which the Borrower and its Subsidiaries may be subject after giving effect
to the Transactions, and with the plans of the Borrower or such
Subsidiaries with respect thereto, and, to the extent reasonably requested
by the Agents, the Lenders shall have received environmental assessments
(including, if applicable, Phase I reports) reasonably satisfactory to the
Agents from an environmental consulting firm reasonably satisfactory to the
Agents.
(j) The Borrower shall have received gross cash proceeds of not less
than $240,000,000 from the Equity Contribution. After giving effect to the
Transactions and the other transactions contemplated hereby, Kelso and
certain other investors, including the Management Investors, shall hold not
less than
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93% of the outstanding post-Merger common stock of the Borrower; provided
--------
that Kelso shall hold not less than 75% of such post-Merger common stock.
(k) The Borrower shall have received not less than $135,000,000 in
gross cash proceeds from the issuance or borrowing of the Subordinated
Loans from one or more note purchasers or lenders reasonably satisfactory
to the Agents. The terms and conditions of the Subordinated Loans and
Subordinated Loan Documents (including terms and conditions relating to the
interest rate, fees, maturity, redemption, subordination, covenants, events
of default and remedies) shall be reasonably satisfactory in all respects
to the Agents. The Agents shall have received copies of the Subordinated
Loan Documents, certified by a Financial Officer as complete and correct.
(l) All requisite material governmental authorities and third parties
shall have approved or consented to the Transactions and the other
transactions contemplated hereby to the extent required, all applicable
appeal periods shall have expired and there shall be no governmental or
judicial action, actual or threatened, that is reasonably likely to
restrain, prevent or impose burdensome conditions on the Transactions or
the other transactions contemplated hereby.
(m) The Recapitalization shall have been consummated or shall be
consummated simultaneously with or immediately following the initial
funding under the Facilities on the Effective Date in accordance with
applicable law, the Recapitalization Agreement and all other related
documentation (without giving effect (i) to any material changes to the
draft, dated June 23, 1999, of such documents after execution thereof if
they are not reasonably satisfactory to the Agents or (ii) to any material
amendments or waivers to or of such documents after execution thereof if
they are not approved by the Lenders). The Agents shall be reasonably
satisfied with all documentation related to the Recapitalization (to the
extent not delivered to the Agents for review prior to June 24, 1999). The
Cash Consideration shall not exceed $288,500,000.
(n) The Lenders shall have received a pro forma consolidated balance
sheet of the Borrower as of the Effective Date, after giving effect to the
Transactions and the other transactions contemplated hereby, which balance
sheet shall not be materially inconsistent with the forecasts previously
provided to the Agents. After giving effect to the Transactions, neither
the Borrower nor any of its Subsidiaries shall have outstanding any shares
of preferred stock or any Indebtedness, other than (i) Indebtedness
incurred under the Loan Documents, (ii) the Subordinated Loans and (iii)
the Existing Indebtedness identified on Schedule 6.01 in an aggregate
principal amount not exceeding $6,450,000. Any such Existing Indebtedness
that is to remain outstanding after the Effective Date shall have terms and
conditions reasonably satisfactory to the Agents. The aggregate
Transaction Costs shall not exceed $31,000,000.
(o) The Lenders shall have received a solvency letter, in form and
substance reasonably satisfactory to the Agents, from Murray Devine & Co.
confirming the solvency of the Borrower and its Subsidiaries after giving
effect to the Transactions and the other transactions contemplated hereby.
(p) The Lenders shall have received unaudited consolidated balance
sheets and related statements of income, stockholders' equity and cash
flows of the Borrower for (i) each fiscal quarter subsequent to the end of
the 1998 fiscal year that ended at least 30 days before the Effective Date
and (ii) each fiscal month after the most recent 1999 fiscal quarter for
which financial statements were received by the Lenders as described above
and that ended at least 30 days before the Effective Date.
(q) There shall be no material litigation against the Borrower or any
Subsidiary and the consummation of the Transactions and the other
transactions contemplated hereby shall not (a) violate any applicable law,
statute, rule or regulation or (b) conflict with, or result in (i) a
default or event of default under, (ii) a prepayment event under or (iii)
the creation of Liens under, any agreement of the Borrower or any of its
Subsidiaries, except such as would not reasonably be expected to have a
Material Adverse Effect.
(r) The tax position and contingent tax and other liabilities of the
Borrower and the Subsidiaries after giving effect to the Transactions shall
be satisfactory to the Administrative Agent and the Lenders.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans and
of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior to 5:00 p.m., New York City time, on
December 15,
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1999 (and, in the event such conditions are not so satisfied or waived, the
Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to
------------------
make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue,
amend, renew or extend any Letter of Credit, is subject to receipt of the
request therefor in accordance herewith and to the satisfaction of the following
conditions:
(a) The representations and warranties of each Loan Party set forth
in the Loan Documents shall be true and correct on and as of the date of
such Borrowing or the date of issuance, amendment, renewal or extension of
such Letter of Credit, as applicable.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter
of Credit, as applicable, no Default shall have occurred and be continuing.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in paragraphs (a) and
(b) of this Section.
ARTICLE V
Affirmative Covenants
---------------------
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements shall have been reimbursed, the Borrower covenants and
agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
-------------------------------------------
Borrower will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of the Borrower,
its audited consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for
such year, setting forth in each case in comparative form the figures for
the previous fiscal year, all reported on by PriceWaterhouseCoopers LLP or
other independent public accountants of recognized national standing
(without a "going concern" or like qualification or exception and without
any qualification or exception as to the scope of such audit) to the
effect that such consolidated financial statements present fairly in all
material respects the financial condition and results of operations of the
Borrower and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied (it being understood that
delivery of the Borrower's annual report, as filed with the SEC on Form 10-
K, shall be adequate to comply with the requirements of this Section
5.01(a) if such report contains the information otherwise required by this
paragraph);
(b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of the Borrower, its consolidated balance
sheet and related statements of operations, stockholders' equity and cash
flows as of the end of and for such fiscal quarter and the then elapsed
portion of the fiscal year, setting forth in each case in comparative form
the figures for the corresponding period or periods of (or, in the case of
the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all
material respects the financial condition and results of operations of the
Borrower and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes (it being understood that delivery
of the Borrower's quarterly financial statements, as filed with the SEC on
Form 10-Q, shall be adequate to comply with the requirements of this
Section 5.01(b));
(c) within 30 days after the end of each of the first two fiscal
months of each fiscal quarter of the Borrower, its consolidated balance
sheet and related statements of operations, stockholders' equity and cash
flows as of the end of and for such fiscal month and the then elapsed
portion of the fiscal year, all certified by one of its Financial Officers
as presenting in all material respects the financial condition and results
of operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;
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(d) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of the
Borrower (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken
or proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Sections 6.12, 6.13 and
6.14 and (iii) stating whether any change in GAAP or in the application
thereof has occurred since the date of the Borrower's audited financial
statements referred to in Section 3.04 and, if any such change has
occurred, specifying the effect of such change on the financial statements
accompanying such certificate;
(e) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any Default
(which certificate may be limited to the extent required by accounting
rules or guidelines);
(f) within 45 days of the commencement of each fiscal year of the
Borrower, a detailed consolidated budget for such fiscal year (including a
projected consolidated balance sheet and related statements of projected
operations and cash flow as of the end of and for such fiscal year and
setting forth the assumptions used for purposes of preparing such budget)
and, promptly when available, any significant revisions of such budget;
(g) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the Securities and Exchange Commission,
or any Governmental Authority succeeding to any or all of the functions of
said Commission, or with any national securities exchange, or distributed
by the Borrower to its shareholders generally, as the case may be; and
(h) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, or compliance with the terms of any Loan
Document, as the Administrative Agent or any Lender may reasonably request.
SECTION 5.02. Notices of Material Events. The Borrower will furnish
---------------------------
to the Administrative Agent and each Lender prompt written notice of the
following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to
result in liability of the Borrower and its Subsidiaries in an aggregate
amount exceeding $1,000,000; and
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Information Regarding Collateral. (a) The Borrower
---------------------------------
will furnish to the Administrative Agent prompt written notice of any change (i)
in any Loan Party's corporate name or in any trade name used to identify it in
the conduct of its business or in the ownership of its properties, (ii) in the
location of any Loan Party's chief executive office, its principal place of
business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility),
(iii) in any Loan Party's identity or corporate structure or (iv) in any Loan
Party's Federal Taxpayer Identification Number. The Borrower agrees not to
effect or permit any change referred to in the preceding sentence unless all
filings have been made under the Uniform Commercial Code or otherwise that are
required in order for the Administrative Agent to continue at all times
following such change to
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have a valid, legal and perfected security interest in all the Collateral. The
Borrower also agrees promptly to notify the Administrative Agent if any material
portion of the Collateral is damaged or destroyed.
(b) Each year, at the time of delivery of annual financial statements
with respect to the preceding fiscal year pursuant to clause (a) of Section
5.01, the Borrower shall deliver to the Administrative Agent a certificate of a
Financial Officer of the Borrower (i) setting forth the information required
pursuant to Sections 1, 2, 8, 9, 10 and 11 of the Perfection Certificate or
confirming that there has been no change in such information since the date of
the Perfection Certificate delivered on the Effective Date or the date of the
most recent certificate delivered pursuant to this Section and (ii) certifying
that all Uniform Commercial Code financing statements (including fixture
filings, as applicable) or other appropriate filings, recordings or
registrations, including all refilings, rerecordings and reregistrations,
containing a description of the Collateral have been filed of record in each
governmental, municipal or other appropriate office in each jurisdiction
identified pursuant to clause (i) above to the extent necessary to protect and
perfect the security interests under the Collateral Agreement for a period of
not less than 18 months after the date of such certificate (except as noted
therein with respect to any continuation statements to be filed within such
period).
SECTION 5.04. Existence; Conduct of Business. The Borrower will, and
-------------------------------
will cause each of its Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges, franchises, patents,
copyrights, trademarks and trade names material to the conduct of its business;
provided that the foregoing shall not prohibit any merger, consolidation,
- --------
liquidation or dissolution permitted under Section 6.03.
SECTION 5.05. Payment of Obligations. The Borrower will, and will
-----------------------
cause each of its Subsidiaries to, pay its Indebtedness and other obligations,
including Tax liabilities, before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP, (c) such contest effectively suspends collection of the contested
obligation and the enforcement of any Lien securing such obligation and (d) the
failure to make payment pending such contest could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 5.06. Maintenance of Properties. The Borrower will, and will
--------------------------
cause each of its Subsidiaries to, keep and maintain all property material to
the conduct of its business in good working order and condition, ordinary wear
and tear excepted.
SECTION 5.07. Insurance. The Borrower will, and will cause each of
----------
its Subsidiaries to, maintain, with financially sound and reputable insurance
companies (a) insurance in such amounts (with no greater risk retention) and
against such risks as are customarily maintained by companies of established
repute engaged in the same or similar businesses operating in the same or
similar locations and (b) all insurance required to be maintained pursuant to
the Security Documents. The Borrower will furnish to the Lenders, upon request
of the Administrative Agent, information in reasonable detail as to the
insurance so maintained.
SECTION 5.08. Casualty and Condemnation. (a) The Borrower (a) will
--------------------------
furnish to the Administrative Agent and the Lenders prompt written notice of any
casualty or other insured damage to any material portion of any Collateral or
the commencement of any action or proceeding for the taking of any Collateral or
any part thereof or interest therein under power of eminent domain or by
condemnation or similar proceeding and (b) will ensure that the Net Proceeds of
any such event (whether in the form of insurance proceeds, condemnation awards
or otherwise) are collected and applied in accordance with the applicable
provisions of the Security Documents.
SECTION 5.09. Books and Records; Inspection Rights. The Borrower
-------------------------------------
will, and will cause each of its Subsidiaries to, keep proper books of record
and account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. The Borrower will, and
will cause each of its Subsidiaries to, permit any representatives designated by
the Administrative Agent or any Lender, upon reasonable prior notice, to visit
and inspect its properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its officers
and independent accountants, all at such reasonable times and as often as
reasonably requested.
SECTION 5.10. Compliance with Laws. The Borrower will, and will
---------------------
cause each of its Subsidiaries to, comply with all laws, rules, regulations and
orders of any Governmental Authority applicable to it
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or its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.11. Use of Proceeds and Letters of Credit. The proceeds of
--------------------------------------
the Term Loans, together with the proceeds of the Equity Contribution and the
Subordinated Loans, will be used solely (a) to pay the Cash Consideration, (b)
to repay all principal, interest, fees and other amounts outstanding under the
Existing Indebtedness (except as permitted by Section 4.01(n)) and (c) to pay
the Transaction Costs. Letters of Credit and the proceeds of the Revolving Loans
and Swingline Loans will be used only for general corporate purposes. No part of
the proceeds of any Loan will be used, whether directly or indirectly, for any
purpose that entails a violation of any of the Regulations of the Board,
including Regulations T, U and X.
SECTION 5.12. Additional Subsidiaries. If any additional Subsidiary
------------------------
is formed or acquired after the Effective Date, the Borrower will notify the
Administrative Agent thereof and (a) if such Subsidiary is a Subsidiary Loan
Party, within ten Business Days after such Subsidiary is formed or acquired the
Borrower will cause such Subsidiary to (i) become a party to the Guarantee
Agreement, the Indemnity, Subrogation and Contribution Agreement, the Security
Agreement and the Pledge Agreement and (iii) take such actions to perfect Liens
on such Subsidiary's assets to secure the Obligations as the Administrative
Agent or the Required Lenders shall reasonably request and (b) if any Equity
Interest in or Indebtedness of such Subsidiary are owned by or on behalf of any
Loan Party, the Borrower will cause such Equity Interests and promissory notes
evidencing such Indebtedness to be pledged pursuant to the Pledge Agreement
within ten Business Days after such Subsidiary is formed or acquired (except
that, if such Subsidiary is a Foreign Subsidiary, shares of common stock of such
Subsidiary to be pledged pursuant to the Pledge Agreement may be limited to 65%
of the outstanding shares of common stock of such Subsidiary).
SECTION 5.13. Further Assurances. (a) The Borrower will, and will
-------------------
cause each Subsidiary Loan Party to, execute any and all further documents,
financing statements, agreements and instruments, and take all such further
actions (including the filing and recording of financing statements, fixture
filings, mortgages, deeds of trust and other documents), which may be required
under any applicable law, or which the Administrative Agent or the Required
Lenders may reasonably request, to effectuate the transactions contemplated by
the Loan Documents or to grant, preserve, protect or perfect the Liens created
or intended to be created by the Security Documents or the validity or priority
of any such Lien, all at the expense of the Loan Parties. The Borrower also
agrees to provide to the Administrative Agent, from time to time upon request,
evidence reasonably satisfactory to the Administrative Agent as to the
perfection and priority of the Liens created or intended to be created by the
Security Documents.
(b) If any material assets (including any real property or
improvements thereto or any interest therein, other than any individual real
property or improvements with a fair market value not in excess of $250,000,
provided that the aggregate fair market value of all real property or
- --------
improvements excluded pursuant to this parenthetical shall in no event exceed
$750,000 in the aggregate) are acquired by the Borrower or any Subsidiary Loan
Party after the Effective Date (other than assets constituting Collateral under
the Security Agreement that become subject to the Lien of the Security Agreement
upon acquisition thereof), the Borrower will notify the Administrative Agent and
the Lenders thereof, and, if requested by the Administrative Agent or the
Required Lenders, the Borrower will cause such assets to be subjected to a Lien
securing the Obligations and will take, and cause the Subsidiary Loan Parties to
take, such actions as shall be necessary or reasonably requested by the
Administrative Agent to grant and perfect such Liens, including actions
described in paragraph (a) of this Section, all at the expense of the Loan
Parties.
SECTION 5.14. Interest Rate Protection. As promptly as practicable,
-------------------------
and in any event within 90 days after the Effective Date, the Borrower will
enter into, and thereafter for a period of not less than three years will
maintain in effect, one or more interest rate protection agreements on such
terms and with such parties as shall be reasonably satisfactory to the
Administrative Agent, the effect of which shall be to fix or limit the interest
cost to the Borrower with respect to at least 50% of the outstanding Term Loans.
SECTION 5.15. PIK Interest on Subordinated Loans. So long as any
-----------------------------------
Subordinated Loans are outstanding, the Borrower will, to the maximum extent
permitted by and in accordance with the Subordinated Loans Documents, satisfy
its obligation to pay interest on the Subordinated Loans by capitalizing such
interest as additional Subordinated Loans rather than by payment in cash.
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ARTICLE VI
Negative Covenants
------------------
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full
and all Letters of Credit have expired or terminated and all LC Disbursements
shall have been reimbursed, the Borrower covenants and agrees with the Lenders
that:
SECTION 6.01. Indebtedness; Certain Equity Securities. (a) The
----------------------------------------
Borrower will not, and will not permit any Subsidiary to, create, incur, assume
or permit to exist any Indebtedness, except:
(i) Indebtedness created under the Loan Documents;
(ii) the Subordinated Loans;
(iii) the Subordinated Debt; provided that (A) the terms and
--------
conditions of such Subordinated Debt and the related Subordinated Debt
Documents (including terms and conditions relating to the interest rate,
fees, maturity, redemption, subordination, covenants, events of default and
remedies) shall be reasonably satisfactory in all respects to the Agents
(it being understood that the terms and conditions contained in the
Preliminary Offering Memorandum of Citation Corporation dated September 13,
1999 with respect to subordination are acceptable to the Agents) and (B)
the proceeds therefrom are applied to pay fees and expenses of issuance of
such Subordinated Debt and to refinance or replace the Subordinated Loans
and, to the extent of any such proceeds in respect of Subordinated Debt in
excess of the fees and expenses of issuance paid with such proceeds and the
principal amount of Subordinated Loans so refinanced or replaced, to prepay
Term Borrowings as provided in Section 2.11(c);
(iv) the Existing Indebtedness existing on the date hereof and set
forth in Schedule 6.01 and extensions, renewals and replacements of any
such Indebtedness that do not increase the outstanding principal amount
thereof or result in an earlier maturity date or decreased weighted average
life thereof;
(v) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary; provided that
--------
Indebtedness of any Subsidiary that is not a Loan Party to the Borrower or
any Subsidiary Loan Party shall be subject to Section 6.04;
(vi) Guarantees by the Borrower of Indebtedness of any Subsidiary
and by any Subsidiary of Indebtedness of the Borrower or any other
Subsidiary; provided that Guarantees by the Borrower or any Subsidiary Loan
--------
Party of Indebtedness of any Subsidiary that is not a Loan Party shall be
subject to Section 6.04;
(vii) Indebtedness of the Borrower or any Subsidiary incurred to
finance the acquisition, construction or improvement of any fixed or
capital assets, including Capital Lease Obligations and any Indebtedness
assumed in connection with the acquisition of any such assets or secured by
a Lien on any such assets prior to the acquisition thereof, and extensions,
renewals and replacements of any such Indebtedness that do not increase the
outstanding principal amount thereof or result in an earlier maturity date
or decreased weighted average life thereof; provided that (A) such
--------
Indebtedness is incurred prior to or within 90 days after such acquisition
or the completion of such construction or improvement and (B) the aggregate
principal amount of Indebtedness permitted by this clause (vii) shall not
exceed $20,000,000 at any time outstanding;
(viii) Indebtedness of any Person that becomes a Subsidiary after the
date hereof; provided that (A) such Indebtedness exists at the time such
--------
Person becomes a Subsidiary and is not created in contemplation of or in
connection with such Person becoming a Subsidiary and (B) the aggregate
principal amount of Indebtedness permitted by this clause (viii) shall not
exceed $30,000,000 at any time outstanding;
(ix) other unsecured Indebtedness in an aggregate principal amount
not exceeding $30,000,000 at any time outstanding; provided that the
--------
aggregate principal amount of Indebtedness of the Borrower's Subsidiaries
permitted by this clause (ix) shall not exceed $5,000,000 at any time
outstanding;
(x) Indebtedness of Foreign Subsidiaries of the Borrower (in
addition to Indebtedness of Foreign Subsidiaries of the Borrower permitted
by clause (iv) above) for working capital purposes (including in
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respect of overdrafts) not exceeding, as to all such Foreign Subsidiaries,
$10,000,000 in aggregate principal amount at any one time outstanding;
(xi) Indebtedness of the Borrower incurred (A) in consideration for
the repurchase, redemption, retirement or other acquisition of shares of
its capital stock, or options or warrants for the purchase of shares of its
capital stock, held by officers, directors or employees of the Borrower or
any Subsidiary in compliance with clause (iii) of Section 6.08(a) pursuant
to a compensation plan or arrangement in connection with the death,
disability or termination of employment of such officer, director or
employee or (B) in exchange for or in payment of Indebtedness permitted
under this Section clause (xi); provided that such Indebtedness is
--------
subordinate to the Obligations (as defined in the Security Agreement) on
terms no less favorable to the Lenders than the Subordinated Financing; and
(xii) Indebtedness incurred to finance the consideration payable in
connection with Permitted Acquisitions, provided that (A) any Permitted
Acquisitions that are to be financed with any such Indebtedness must be
within six months before or six months after the date of issuance of such
Indebtedness (and, if not consummated on or before such date of issuance,
the proceeds of such Indebtedness shall be deposited with the
Administrative Agent until so used and, to the extent such proceeds are not
applied to Permitted Acquisitions within such six-month period, such
proceeds shall be applied to prepay Term Borrowings as provided in Section
2.11(c), (B) such Indebtedness is subordinated to the Obligations on terms
no less favorable to the Lenders than the Subordinated Debt and otherwise
satisfactory to the Administrative Agent (including that no payments shall
be required in respect of such Indebtedness, whether of principal, interest
or otherwise, at any time that a Default has occurred and is continuing),
(C) the stated maturity thereof shall be on or after June 1, 2008, and no
scheduled or other mandatory payments of principal shall be required prior
to June 1, 2008, (D) the other terms and conditions thereof shall be no
less favorable to the Lenders than the terms and conditions contained in
the Subordinated Debt Documents and such other terms and conditions shall
be otherwise satisfactory to the Administrative Agent, (E) the amount of
Indebtedness permitted by this clause (xii) at any time outstanding shall
not exceed the sum of $50,000,000 plus the aggregate principal amount of
Term Loans prepaid with the proceeds of such Indebtedness as provided in
clause (A) above or clause (G)(3) below at any time outstanding, (F) the
Borrower and the Subsidiaries are in compliance, after giving effect to the
Indebtedness to be incurred pursuant to this clause (xii), with the
covenants contained in Sections 6.12 and 6.13 recomputed as at the last day
of the most recently ended fiscal quarter of the Borrower for which
financial statements are available as if such debt had been incurred on the
first day of each relevant period for testing such compliance, (G) to the
extent that any such Indebtedness (or portion thereof) is incurred to
finance any Permitted Acquisitions consummated prior to the date of
issuance of such Indebtedness, the Borrower shall (1) certify to the
Administrative Agent on the date of such issuance that such Indebtedness
(or portion, as applicable) is being incurred to finance consideration paid
for Permitted Acquisitions within six months prior to such date that was
previously financed with Revolving Loans, which certificate shall identify
the Permitted Acquisitions so financed, (2) apply the net proceeds of such
Indebtedness (or portion thereof, as applicable) to prepay Revolving Loans
outstanding on such date (but without reducing Revolving Commitments) and
(3) if such net proceeds exceed the amount of Revolving Loans then
outstanding, apply such excess to prepay Term Loans as provided in Section
2.11(c) and (H) Indebtedness pursuant to this clause (xii) shall not be
incurred prior to the date that all Subordinated Loans are refinanced with
Subordinated Debt.
(b) The Borrower will not, nor will it permit any Subsidiary to,
issue any preferred stock or other preferred Equity Interests, except that the
Borrower may issue Permitted Preferred Stock in connection with the Permitted
Bridge Period Equity.
SECTION 6.02. Liens. The Borrower will not, and will not permit any
------
Subsidiary to, create, incur, assume or permit to exist any Lien on any property
or asset now owned or hereafter acquired by it, or assign or sell any income or
revenues (including accounts receivable) or rights in respect of any thereof,
except:
(a) Liens created under the Loan Documents;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset of the Borrower or any
Subsidiary existing on the date hereof and set forth in Schedule 6.02;
provided that (i) such Lien shall not apply to any other property or asset
--------
of the Borrower or any Subsidiary and (ii) such Lien shall secure only
those obligations that it
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secures on the date hereof and extensions, renewals and replacements
thereof that do not increase the outstanding principal amount thereof;
(d) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on any
property or asset of any Person that becomes a Subsidiary after the date
hereof prior to the time such Person becomes a Subsidiary; provided that
--------
(i) such Lien is not created in contemplation of or in connection with such
acquisition or such Person becoming a Subsidiary , as the case may be, (ii)
such Lien shall not apply to any other property or assets of the Borrower
or any Subsidiary and (iii) such Lien shall secure only those obligations
that it secures on the date of such acquisition or the date such Person
becomes a Subsidiary, as the case may be and extensions, renewals and
replacements thereof that do not increase the outstanding principal amount
thereof;
(e) Liens on fixed or capital assets acquired, constructed or
improved by the Borrower or any Subsidiary; provided that (i) such security
--------
interests secure Indebtedness permitted by clause (vii) of Section 6.01(a),
(ii) such security interests and the Indebtedness secured thereby are
incurred prior to or within 90 days after such acquisition or the
completion of such construction or improvement, (iii) the Indebtedness
secured thereby does not exceed 100% of the cost of acquiring, constructing
or improving such fixed or capital assets and (iv) such security interests
shall not apply to any other property or assets of the Borrower or any
Subsidiary;
(f) put and call agreements with respect to the Equity Interests of
any joint venture or similar arrangement pursuant to the joint venture or
similar agreement relating thereto;
(g) Liens on property of any Foreign Subsidiary of the Borrower
securing any Indebtedness of such Foreign Subsidiary of the Borrower
permitted by clause (x) of Section 6.01(a); and
(h) Liens on property sold pursuant to sale and leaseback
transactions permitted under Section 6.06 and general intangibles related
thereto.
SECTION 6.03. Fundamental Changes. (a) The Borrower will not, nor
--------------------
will it permit any Subsidiary to, merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
liquidate or dissolve, except that, if at the time thereof and immediately after
giving effect thereto no Default shall have occurred and be continuing (i) any
Subsidiary may merge into the Borrower in a transaction in which the Borrower is
the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary
Loan Party in a transaction in which the surviving entity is a Subsidiary Loan
Party, (iii) any Subsidiary that is not a Loan Party may merge into any
Subsidiary that is not a Loan Party, (iv) any Subsidiary may liquidate or
dissolve if the Borrower determines in good faith that such liquidation or
dissolution is in the best interests of the Borrower and is not materially
disadvantageous to the Lenders and (v) the Merger and the Recapitalization shall
be permitted; provided that any such merger involving a Person that is not a
--------
wholly owned Subsidiary immediately prior to such merger shall not be permitted
unless also permitted by Section 6.04.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, engage to any material extent in any business other than
businesses of the type conducted by the Borrower and its Subsidiaries on the
date of execution of this Agreement and businesses reasonably related thereto.
SECTION 6.04. Investments, Loans, Advances, Guarantees and
--------------------------------------------
Acquisitions. The Borrower will not, and will not permit any of its
- -------------
Subsidiaries to, purchase, hold or acquire (including pursuant to any merger
with any Person that was not a wholly owned Subsidiary prior to such merger) any
Equity Interests in or evidences of indebtedness or other securities (including
any option, warrant or other right to acquire any of the foregoing) of, make or
permit to exist any loans or advances to, Guarantee any obligations of, or make
or permit to exist any investment or any other interest in, any other Person, or
purchase or otherwise acquire (in one transaction or a series of transactions)
any assets of any other Person constituting a business unit, except:
(a) Permitted Investments;
(b) investments existing on the date hereof and set forth on Schedule
6.04;
(c) investments by the Borrower and its Subsidiaries in Equity
Interests in their respective Subsidiaries; provided that (i) any such
--------
Equity Interests held by a Loan Party shall be pledged pursuant to the
Pledge Agreement (subject to the limitations applicable to common stock of
a Foreign Subsidiary
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referred to in Section 5.12) and (ii) the aggregate amount of investments
by Loan Parties in, and loans and advances by Loan Parties to, and
Guarantees by Loan Parties of Indebtedness of, Subsidiaries that are not
Loan Parties (including all such investments, loans, advances and
Guarantees existing on the Effective Date) shall not exceed $25,000,000 at
any time outstanding;
(d) loans or advances made by the Borrower to any Subsidiary and made
by any Subsidiary to the Borrower or any other Subsidiary; provided that
--------
(i) any such loans and advances made by a Loan Party shall be evidenced by
a promissory note pledged pursuant to the Pledge Agreement and (ii) the
amount of such loans and advances made by Loan Parties to Subsidiaries that
are not Loan Parties shall be subject to the limitation set forth in clause
(c) above;
(e) Guarantees constituting Indebtedness permitted by Section 6.01;
provided that (i) a Subsidiary shall not Guarantee any Subordinated
--------
Financing unless (A) such Subsidiary also has Guaranteed the Obligations
pursuant to the Guarantee Agreement, (B) such Guarantee of the Subordinated
Financing is subordinated to such Guarantee of the Obligations on terms no
less favorable to the Lenders than the subordination provisions of the
Subordinated Financing and (C) such Guarantee of the Subordinated Financing
provides for the release and termination thereof, without action by any
party, upon such Subsidiary ceasing to be a subsidiary of the Borrower
(including as a result of a sale or disposition pursuant to the Pledge
Agreement), and (ii) the aggregate principal amount of Indebtedness of
Subsidiaries that are not Loan Parties that is Guaranteed by any Loan Party
shall be subject to the limitation set forth in clause (c) above;
(f) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business;
(g) Permitted Acquisitions; provided that (i) the consideration for
--------
each Permitted Acquisition shall consist solely of cash, shares of common
stock of the Borrower, Indebtedness permitted pursuant to clause (xii) of
Section 6.01(a), the assumption of Indebtedness of the acquired Person or
encumbering the acquired assets, Indebtedness referred to in clause (viii)
of Section 6.01(a) or a combination thereof and (ii) the sum of the
principal amount of all Indebtedness so assumed or otherwise resulting from
Permitted Acquisitions (including Indebtedness referred to in clauses
(viii) and (xii) of Section 6.01(a)) plus the cash consideration paid in
connection with Permitted Acquisitions as consideration for Permitted
Acquisitions shall not exceed, during any fiscal year of the Borrower, the
sum of $50,000,000 plus (i) the Net Proceeds of any Acquisition Equity
Financing received during such fiscal year, (ii) commencing with the fiscal
year ending on or about September 30, 2001, the amount of Excess Cash Flow
for the immediately preceding fiscal year that (A) is not required to be
applied to make prepayments of Loans pursuant to Section 2.11(d) and (B)
has not previously been applied to Permitted ECF Uses and (iii) the Net
Proceeds received during such fiscal year from the sale of a non-strategic
asset or division identified to the Administrative Agent prior to the date
hereof; provided that, commencing with the fiscal year ending September
--------
30, 2001, the amount of allowed consideration for Permitted Acquisitions
set forth above in respect of any fiscal year shall be increased by 100% of
the excess, if any of (I) the amount of such consideration allowed pursuant
to this paragraph for the immediately preceding fiscal year (or, in the
case of the fiscal year ending September 27, 2001, for the period from the
Effective Date to the end of the immediately preceding fiscal year)
(disregarding any consideration permitted by reason of this proviso) less
(II) the aggregate amount of consideration paid in connection with
Permitted Acquisitions in such preceding period;
(h) investments made after the Effective Date in joint ventures and
other business entities (in each case that are not Subsidiaries of the
Borrower) that are engaged in the same line or lines of business as the
Borrower and its Subsidiaries in an aggregate amount not to exceed
$30,000,000;
(i) investments constituting a purchase of the Equity Interests not
owned by the Borrower as of the Effective Date of [Caterpillar joint
venture] for aggregate consideration not to exceed $15,000,000;
(j) loans to employees of the Borrower and the Subsidiaries in their
capacity as such, in an aggregate principal amount not to exceed $1,000,000
at any time outstanding;
(k) Hedging Agreements permitted under Section 6.07; and
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(l) (i) non-recourse loans to employees the proceeds of which shall be
used to purchase common stock of the Borrower and (ii) loans to management
shareholders the proceeds of which shall be used to purchase common stock
of the Borrower, provided that all loans outstanding under this clause (l)
shall not exceed $4,000,000 in the aggregate at any time outstanding.
SECTION 6.05. Asset Sales. The Borrower will not, and will not
------------
permit any of its Subsidiaries to, sell, transfer, lease or otherwise dispose of
any asset, including any Equity Interest owned by it, nor will the Borrower
permit any of it Subsidiaries to issue any additional Equity Interest in such
Subsidiary, except:
(a) sales of inventory, used or surplus equipment and Permitted
Investments in the ordinary course of business;
(b) sales, transfers and dispositions to the Borrower or a Subsidiary;
provided that any such sales, transfers or dispositions involving a
--------
Subsidiary that is not a Loan Party shall be made in compliance with
Section 6.09;
(c) sales, transfers and other dispositions of assets (other than less
than 100% of the Equity Interests in a Subsidiary) that are not permitted
by any other clause of this Section; provided that the aggregate fair
--------
market value of all assets sold, transferred or otherwise disposed of in
reliance upon this clause (c) shall not exceed $35,000,000 during any
fiscal year of the Borrower;
(d) sales of fixed or capital assets pursuant to sale and lease-back
transactions, to the extent expressly permitted by Section 6.06;
(e) sales, transfers and dispositions of non-strategic assets
purchased as part of a Permitted Acquisition that are sold, transferred or
disposed of on or prior to the first anniversary of such Permitted
Acquisition; and
(f) sale of a non-strategic asset or division identified to the
Administrative Agent prior to the date hereof;
provided that all sales, transfers, leases and other dispositions permitted
- --------
hereby (other than those permitted by clause (b) above) shall be made for fair
value and for at least 85% cash consideration.
SECTION 6.06. Sale and Leaseback Transactions. The Borrower will
--------------------------------
not, and will not permit any of its Subsidiaries to, enter into any arrangement,
directly or indirectly, whereby it shall sell or transfer any property, real or
personal, used or useful in its business, whether now owned or hereinafter
acquired, and thereafter rent or lease such property or other property that it
intends to use for substantially the same purpose or purposes as the property
sold or transferred, except for any such sale of any fixed or capital assets
that is made for cash consideration in an amount not less than the cost of such
fixed or capital asset and is consummated within 90 days after the Borrower or
such Subsidiary acquires or completes the construction of such fixed or capital
asset.
SECTION 6.07. Hedging Agreements. The Borrower will not, and will
-------------------
not permit any of its Subsidiaries to, enter into any Hedging Agreement, other
than (a) Hedging Agreements required by Section 5.14 and (b) Hedging Agreements
entered into in the ordinary course of business to hedge or mitigate risks to
which the Borrower or any Subsidiary is exposed in the conduct of its business
or the management of its liabilities.
SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness.
------------------------------------------------------
(a) The Borrower will not, nor will it permit any Subsidiary to, declare or
make, or agree to pay or make, directly or indirectly, any Restricted Payment,
or incur any obligation (contingent or otherwise) to do so, except (i) the
Borrower may declare and pay dividends with respect to its capital stock payable
solely in additional shares of its common stock or options, warrants or other
rights to purchase common stock of the Borrower, (ii) Subsidiaries may declare
and pay dividends ratably with respect to their capital stock and (iii) the
Borrower may make Restricted Payments to repurchase, redeem, retire or otherwise
acquire shares of its capital stock, or options or warrants for the purchase of
shares of its capital stock, held by current or former officers, directors or
employees of the Borrower or any Subsidiary pursuant to a compensation plan or
arrangement in connection with the death, disability or termination of
employment of such officer, director or employee, so long as the aggregate
amount of all payments pursuant to this clause (iii) during any fiscal year does
not exceed (A) $5,000,000 plus (B) commencing with the fiscal year ending on or
about September 30, 2001, any Excess Cash Flow for the immediately preceding
fiscal year to the
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extent that such Excess Cash Flow is not required to be applied to make
prepayments of Loans pursuant to Section 2.11(d) and has not previously been
applied to Permitted ECF Uses.
(b) The Borrower will not, nor will it permit any Subsidiary to,
make or agree to pay or make, directly or indirectly, any payment or other
distribution (whether in cash, securities or other property) of or in respect of
principal of or interest on any Indebtedness, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancelation or termination of any Indebtedness, except:
(i) payment or prepayment of Indebtedness created under the Loan
Documents;
(ii) payment of regularly scheduled interest and principal payments
as and when due in respect of any Indebtedness (and refinancings and
repayments of Subordinated Loans pursuant to the following proviso), other
than payments in respect of any Subordinated Financing prohibited by the
subordination provisions thereof; provided that any payment of principal
--------
in respect of any Subordinated Financing shall not be permitted, other than
pursuant to refinancings or repayments, as the case may be, of Subordinated
Loans with (A) Subordinated Debt or (B) the proceeds of any Subordinated
Loan Equity Prepayment Event; provided further, that (I) no Default exists
-------- -------
at the time of such refinancing or repayment and (II) any such Subordinated
Loan Equity Prepayment Event is designated as such by Kelso;
(iii) refinancings of Indebtedness to the extent permitted by Section
6.01;
(iv) payment of secured Indebtedness that becomes due as a result of
the voluntary sale or transfer of the property or assets securing such
Indebtedness; and
(v) repayment of the Existing Indebtedness.
SECTION 6.09. Transactions with Affiliates. The Borrower will not,
-----------------------------
nor will it permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase, lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions in the ordinary course of business that are
at prices and on terms and conditions not less favorable to the Borrower or such
Subsidiary than could be obtained on an arm's-length basis from unrelated third
parties, (b) transactions between or among the Borrower and the Subsidiary Loan
Parties not involving any other Affiliate, (c) transactions with Affiliates set
forth in Schedule 6.09, (d) any Restricted Payment permitted by Section 6.08,
(e) the Borrower may make payments specified in the Management Agreement, (f)
employment arrangements entered into in the ordinary course of business with
officers of the Borrower and its Subsidiaries, and (g) customary fees paid to
members of the Board of Directors of the Borrower and its Subsidiaries.
SECTION 6.10. Restrictive Agreements. The Borrower will not, nor
-----------------------
will it permit any Subsidiary to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of the Borrower or any Subsidiary to
create, incur or permit to exist any Lien upon any of its property or assets, or
(b) the ability of any Subsidiary to pay dividends or other distributions with
respect to any shares of its capital stock or to make or repay loans or advances
to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the
Borrower or any other Subsidiary; provided that (i) the foregoing shall not
--------
apply to restrictions and conditions imposed by law or by any Loan Document,
Subordinated Loan Document or Subordinated Debt Document, (ii) the foregoing
shall not apply to restrictions and conditions existing on the date hereof
identified on Schedule 6.10 (but shall apply to any extension or renewal of, or
any amendment or modification expanding the scope of, any such restriction or
condition), (iii) the foregoing shall not apply to customary restrictions and
conditions contained in agreements relating to the sale of a Subsidiary pending
such sale, provided such restrictions and conditions apply only to the
Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause
(a) of the foregoing shall not apply to restrictions or conditions imposed by
any agreement relating to secured Indebtedness permitted by this Agreement if
such restrictions or conditions apply only to the property or assets securing
such Indebtedness and (v) clause (a) of the foregoing shall not apply to
customary provisions in leases restricting the assignment thereof.
SECTION 6.11. Amendment of Material Documents. The Borrower will not
--------------------------------
nor will it permit any Subsidiary to, amend, modify or waive any of its rights
under (a) any Subordinated Debt Document and/or Subordinated Loan Document, (b)
its certificate of incorporation, by-laws or other organizational documents if
such an amendment would have a Material Adverse Effect on the interests of the
Lenders, (c) any indenture, credit
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agreement, or other document executed in connection with Indebtedness permitted
pursuant to clause (xii) of Section 6.01(a) or (d) the Management Agreement.
SECTION 6.12. Interest Expense Coverage Ratio. As of the last day of
--------------------------------
any fiscal quarter, the Borrower will not permit the ratio of (a) Consolidated
EBITDA to (b) Consolidated Interest Expense, for the previous four quarters,
including such fiscal quarter and the three consecutive fiscal quarters
immediately prior to such fiscal quarter, to be less than the ratio set forth
below opposite the period during which such fiscal quarter ends; provided that
--------
for purposes of this Section 6.12, Consolidated EBITDA for the quarter period
ending on or about (x) March 31, 1999, shall be deemed to be $28,100,000, (y)
June 30, 1999, shall be deemed to be $28,000,000 and (z) September 30, 1999,
shall be deemed to be $22,900,000:
Period (on or about) Ratio
------ -----
December 31, 1999 to March 31, 2001 1.75 to 1.00
April 1, 2001 to March 31, 2002 2.00 to 1.00
April 1, 2002 to March 31, 2003 2.25 to 1.00
April 1, 2003 to March 31, 2004 2.50 to 1.00
April 1, 2004 to March 31, 20005 2.75 to 1.00
April 1, 2005 and thereafter 3.00 to 1.00
SECTION 6.13. Adjusted Leverage Ratio. As of the last day of any
------------------------
fiscal quarter, the Borrower will not permit the Adjusted Leverage Ratio as of
such day to exceed the ratio set forth opposite the period during which such day
occurs; provided that for purposes of this Section 6.13, Consolidated EBITDA for
--------
the quarter period ending on or about (x) March 31, 1999, shall be deemed to be
$28,100,000, (y) June 30, 1999, shall be deemed to be $28,000,000 and (z)
September 30, 1999, shall be deemed to be $22,900,000:
Period (on or about) Ratio
------ -----
December 31, 1999 to June 30, 2001 5.25 to 1.00
July 1, 2001 to June 30, 2002 5.00 to 1.00
July 1, 2002 to June 30, 2003 4.50 to 1.00
July 1, 2003 to June 30, 2004 4.00 to 1.00
July 1, 2004 and thereafter 3.50 to 1.00
SECTION 6.14. Capital Expenditures. The Borrower will not permit the
---------------------
aggregate amount of Capital Expenditures made by the Borrower and the
Subsidiaries in any fiscal year to exceed (i) aggregate amount of the proceeds
with respect to any sale, transfer or other disposition of an asset that are
applied to make Capital Expenditures during such fiscal year and would
constitute Net Proceeds of a Prepayment Event if not so applied pursuant to the
proviso contained in the definition of "Net Proceeds" plus (ii) the amount set
forth below opposite such year:
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Fiscal Year Ending In Amount
--------------------- ------
2000 $60,000,000
2001 $60,000,000
2002 $65,000,000
2003 $65,000,000
2004 $70,000,000
Each fiscal year $70,000,000
thereafter
The amount of permitted Capital Expenditures set forth in the immediately
preceding sentence in respect of any fiscal year (other than 2000) shall be
increased by 50% of the excess, if any, of (a) the amount of Capital
Expenditures permitted pursuant to the preceding sentence for the immediately
preceding fiscal year (disregarding any Capital Expenditures permitted by reason
of this sentence) less (b) the aggregate amount of Capital Expenditures made by
the Borrower and the Subsidiaries in such preceding fiscal year. Additionally,
so long as prior to and after giving effect to such payments the Borrower shall
be in compliance with Sections 6.12 and 6.13, the Borrower may in any fiscal
year, commencing with the fiscal year ending on or about September 30, 2001,
also apply Excess Cash Flow for the immediately preceding fiscal year toward
Capital Expenditures to the extent such Excess Cash Flow (a) is not required to
be applied to make prepayments of Loans pursuant to Section 2.11(d) and (b) has
not previously been applied to Permitted ECF Uses.
ARTICLE VII
Events of Default
-----------------
If any of the following events ("Events of Default") shall occur:
-----------------
(a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the
same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement or any other Loan Document, when and
as the same shall become due and payable, and such failure shall continue
unremedied for a period of three Business Days;
(c) any representation or warranty made or deemed made by or on behalf
of the Borrower or any Subsidiary in or in connection with any Loan
Document or any amendment or modification thereof or waiver thereunder, or
in any report, certificate, financial statement or other document furnished
pursuant to or in connection with any Loan Document or any amendment or
modification thereof or waiver thereunder, shall prove to have been
incorrect when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in Section 5.02, 5.04 (with respect to the
existence of the Borrower) or 5.11 or in Article VI;
(e) any Loan Party shall fail to observe or perform any covenant,
condition or agreement contained in any Loan Document (other than those
specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after notice thereof from
the Administrative Agent to the Borrower (which notice will be given at the
request of any Lender); provided, however, that, in the event the Loan
-------- -------
Document in question is a Mortgage, and such failure shall be of a nature
that same cannot, with the exercise of reasonable diligence, be remedied
within such 30-day period, such 30-day period shall be extended for such
further period of time as shall be reasonably necessary, with exercise of
due diligence, to remedy such failure;
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(f) the Borrower or any Subsidiary shall fail to make any payment
(whether of principal or interest and regardless of amount) in respect of
any Material Indebtedness, when and as the same shall become due and
payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Material Indebtedness or any trustee or
agent on its or their behalf to cause any Material Indebtedness to become
due, or to require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity; provided that this clause (g)
--------
shall not apply to secured Indebtedness that becomes due as a result of the
voluntary sale or transfer of the property or assets securing such
Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of the Borrower or any Subsidiary or its debts, or of a
substantial part of its assets, under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Subsidiary or for a substantial part of its assets, and, in any such case,
such proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered;
(i) the Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or
other relief under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner, any
proceeding or petition described in clause (h) of this Article, (iii) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official the Borrower or any
Subsidiary or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of creditors
or (vi) take any action for the purpose of effecting any of the foregoing;
(j) the Borrower or any Subsidiary shall become unable, admit in
writing its inability or fail generally to pay its debts as they become
due;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $5,000,000 shall be rendered against the Borrower, any
Subsidiary or any combination thereof and the same shall remain
undischarged for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to attach or levy upon any assets of the Borrower or any
Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in liability of the
Borrower and its Subsidiaries in an aggregate amount exceeding (i)
$2,500,000 in any year or (ii) $5,000,000 for all periods;
(m) any Lien purported to be created under any Security Document shall
cease to be, or shall be asserted by any Loan Party not to be, a valid and
perfected Lien on any Collateral, with the priority required by the
applicable Security Document, except (i) as a result of the sale or other
disposition of the applicable Collateral in a transaction permitted under
the Loan Documents or (ii) as a result of the Administrative Agent's
failure to maintain possession of any stock certificates, promissory notes
or other instruments delivered to it under the Pledge Agreement; or
(n) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate
the Commitments, and thereupon the Commitments shall terminate immediately, and
(ii) declare the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and
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all fees and other obligations of the Borrower accrued hereunder, shall become
due and payable immediately, without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower; and in case
of any event with respect to the Borrower described in clause (h) or (i) of this
Article, the Commitments shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and
other obligations of the Borrower accrued hereunder, shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
------------------------
Each of the Lenders and the Issuing Bank hereby irrevocably appoints
the Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms of the Loan Documents, together with such
actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Borrower or any Subsidiary or other Affiliate
thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth in the Loan Documents. Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated by the Loan Documents
that the Administrative Agent is required to exercise in writing by the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 9.02), and (c) except as
expressly set forth in the Loan Documents, the Administrative Agent shall not
have any duty to disclose, and shall not be liable for the failure to disclose,
any information relating to the Borrower or any of its Subsidiaries that is
communicated to or obtained by the bank serving as Administrative Agent or any
of its Affiliates in any capacity. The Administrative Agent shall not be liable
for any action taken or not taken by it with the consent or at the request of
the Required Lenders (or such other number or percentage of the Lenders as shall
be necessary under the circumstances as provided in Section 9.02) or in the
absence of its own gross negligence or wilful misconduct. The Administrative
Agent shall not be deemed not to have knowledge of any Default unless and until
written notice thereof is given to the Administrative Agent by the Borrower or a
Lender, and the Administrative Agent shall not be responsible for or have any
duty to ascertain or inquire into (i) any statement, warranty or representation
made in or in connection with any Loan Document, (ii) the contents of any
certificate, report or other document delivered thereunder or in connection
therewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth in any Loan Document, (iv) the
validity, enforceability, effectiveness or genuineness of any Loan Document or
any other agreement, instrument or document, or (v) the satisfaction of any
condition set forth in Article IV or elsewhere in any Loan Document, other than
to confirm receipt of items expressly required to be delivered to the
Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who
may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of each Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
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Subject to the appointment and acceptance of a successor the
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Bank and the Borrower.
Upon any such resignation, the Required Lenders shall have the right, in
consultation with the Borrower, to appoint a successor. If no successor shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent gives notice
of its resignation, then the retiring Administrative Agent may, on behalf of the
Lenders and the Issuing Bank, appoint a successor Administrative Agent which
shall be a bank with an office in New York, New York, or an Affiliate of any
such bank. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor. After the
Administrative Agent's resignation hereunder, the provisions of this Article and
Section 9.03 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while it was
acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document or related agreement or any document furnished hereunder
or thereunder.
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices. Except in the case of notices and other
--------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at Citation Corporation, 2 Office Park
Circle, Suite 204, Birmingham, AL 35233, Attention of Tommy Schifanella,
with a copy to Debevoise & Plimpton, 875 Third Avenue, New York, New York
10022, Attention of Richard D. Bohm, Esq., Phone 212-909-6000, Fax 212-909-
6836;
(b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York,
New York 10081, Attention of Jesus Sang (Telecopy No. 212-552-5650), with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York
10017, Attention of Julie Long (Telecopy No. 212-972-9854);
(c) if to the Issuing Bank, to it at Chase Manhattan Bank Delaware,
1201 Market Street, Corporate Banking, 8th Floor, Wilmington, Delaware
19801, Attention of Michael Handago (Telecopy No. 302-984-4904);
(d) if to the Swingline Lender, to it at The Chase Manhattan Bank,
Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New
York, New York 10081, Attention of Jesus Sang (Telecopy No. 212-552-5662);
and
(e) if to any other Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
--------------------
Administrative Agent, the Issuing Bank or any Lender in exercising any right or
power hereunder or under any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment
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<PAGE>
or discontinuance of steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Administrative Agent, the Issuing Bank and the
Lenders hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of any Loan Document or consent to any departure by any Loan Party
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan or
issuance of a Letter of Credit shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent, any Lender or the
Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders or, in the case of any
other Loan Document, pursuant to an agreement or agreements in writing entered
into by the Administrative Agent and the Loan Party or Loan Parties that are
parties thereto, in each case with the consent of the Required Lenders; provided
--------
that no such agreement shall (i) increase the Commitment of any Lender without
the written consent of such Lender, (ii) reduce the principal amount of any Loan
or LC Disbursement or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(iii) postpone the final maturity of any Loan, or the required date of
reimbursement of any LC Disbursement, or any date for the payment of any
interest or fees payable hereunder, or reduce the amount of, waive or excuse any
such payment, or postpone the scheduled date of expiration of any Commitment,
without the written consent of each Lender affected thereby, (iv) postpone any
scheduled date of payment of the principal amount of any Term Loan under Section
2.10, or reduce the amount of, waive or excuse any such payment, without the
written consent of the Required Lenders and Lenders holding more than 80% of the
aggregate principal amount of the then outstanding Loans of each Class affected
thereby, (v) change Section 2.18(b) or (c) in a manner that would alter the pro
rata sharing of payments required thereby, without the written consent of each
Lender, (vi) change any of the provisions of this Section or the percentage set
forth in the definition of "Required Lenders" or any other provision of any Loan
Document specifying the number or percentage of Lenders (or Lenders of any
Class) required to waive, amend or modify any rights thereunder or make any
determination or grant any consent thereunder, without the written consent of
each Lender (or each Lender of such Class, as the case may be), (vii) release
any Subsidiary Loan Party from its Guarantee under the Guarantee Agreement
(except as expressly provided in the Guarantee Agreement), or limit its
liability in respect of such Guarantee, without the written consent of each
Lender, (viii) release all or substantially all of the Collateral from the Liens
of the Security Documents, without the written consent of each Lender, (ix)
change any provisions of any Loan Document in a manner that by its terms
adversely affects the rights in respect of payments due to Lenders holding Loans
of any Class differently than those holding Loans of any other Class, without
the written consent of Lenders holding a majority in interest of the outstanding
Loans and unused Commitments of each affected Class or (x) change the rights of
the Tranche B Lenders to decline mandatory prepayments as provided in Section
2.11, without the written consent of Tranche B Lenders holding a majority of the
outstanding Tranche B Loans; provided further that (A) no such agreement shall
----------------
amend, modify or otherwise affect the rights or duties of the Administrative
Agent, the Issuing Bank or the Swingline Lender without the prior written
consent of the Administrative Agent, the Issuing Bank or the Swingline Lender,
as the case may be, and (B) any waiver, amendment or modification of this
Agreement that by its terms affects the rights or duties under this Agreement of
the Revolving Lenders (but not the Tranche A Lenders and Tranche B Lenders), the
Tranche A Lenders (but not the Revolving Lenders and Tranche B Lenders) or the
Tranche B Lenders (but not the Revolving Lenders and Tranche A Lenders) may be
effected by an agreement or agreements in writing entered into by the Borrower
and requisite percentage in interest of the affected Class of Lenders that would
be required to consent thereto under this Section if such Class of Lenders were
the only Class of Lenders hereunder at the time. Notwithstanding the foregoing,
any provision of this Agreement may be amended by an agreement in writing
entered into by the Borrower, the Required Lenders and the Administrative Agent
(and, if their rights or obligations are affected thereby, the Issuing Bank and
the Swingline Lender) if (i) by the terms of such agreement the Commitment of
each Lender not consenting to the amendment provided for therein shall terminate
upon the effectiveness of such amendment and (ii) at the time such amendment
becomes effective, each Lender not consenting thereto receives payment in full
of the principal of and interest accrued on each Loan made by it and all other
amounts owing to it or accrued for its account under this Agreement.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower
-----------------------------------
shall pay (i) all reasonable out-of-pocket expenses incurred by the Agents and
their Affiliates, including the reasonable fees, charges and disbursements of
counsel for the Administrative Agent, in connection with the syndication of the
credit facilities provided for herein, the preparation and administration of the
Loan Documents or any amendments, modifications or waivers of the provisions
thereof (whether or not the transactions contemplated hereby or thereby
147
<PAGE>
shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by
the Issuing Bank in connection with the issuance, amendment, renewal or
extension of any Letter of Credit or any demand for payment thereunder and (iii)
all reasonable out-of-pocket expenses incurred by the Administrative Agent, the
Issuing Bank or any Lender, including the fees, charges and disbursements of any
counsel for the Administrative Agent, the Issuing Bank or any Lender, in
connection with the enforcement or protection of its rights in connection with
the Loan Documents, including its rights under this Section, or in connection
with the Loans made or Letters of Credit issued hereunder, including all such
out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit.
(b) The Borrower shall indemnify the Agents, the Issuing Bank and
each Lender, and each Related Party of any of the foregoing Persons (each such
Person being called an "Indemnitee") against, and hold each Indemnitee harmless
----------
from, any and all losses, claims, damages, liabilities and related expenses,
including the fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of (i) the execution or delivery of any Loan Document or
any other agreement or instrument contemplated hereby, the performance by the
parties to the Loan Documents of their respective obligations thereunder or the
consummation of the Transactions or any other transactions contemplated hereby,
(ii) any Loan or Letter of Credit or the use of the proceeds therefrom
(including any refusal by the Issuing Bank to honor a demand for payment under a
Letter of Credit if the documents presented in connection with such demand do
not strictly comply with the terms of such Letter of Credit), (iii) any actual
or alleged presence or release of Hazardous Materials on or from any Mortgaged
Property or any other property currently or formerly owned or operated by the
Borrower or any of its Subsidiaries, or any Environmental Liability related in
any way to the Borrower or any of its Subsidiaries, or (iv) any actual or
prospective claim, litigation, investigation or proceeding relating to any of
the foregoing, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto; provided that such
--------
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or wilful misconduct of such Indemnitee or
any of its Related Parties.
(c) To the extent that the Borrower fails to pay any amount required
to be paid by it to the Administrative Agent, the Issuing Bank or the Swingline
Lender under paragraph (a) or (b) of this Section, each Lender severally agrees
to pay to the Administrative Agent, the Issuing Bank or the Swingline Lender, as
the case may be, such Lender's pro rata share (determined as of the time that
the applicable unreimbursed expense or indemnity payment is sought) of such
unpaid amount; provided that the unreimbursed expense or indemnified loss,
--------
claim, damage, liability or related expense, as the case may be, was incurred by
or asserted against the Administrative Agent, the Issuing Bank or the Swingline
Lender in its capacity as such. For purposes hereof, a Lender's "pro rata
share" shall be determined based upon its share of the sum of the total
Revolving Exposures, outstanding Term Loans and unused Commitments at the time.
(d) To the extent permitted by applicable law, the Borrower shall not
assert, and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable promptly
after written demand therefor.
(f) Notwithstanding anything to the contrary, the Borrower shall not
be required to indemnify any Indemnitee against, and hold such Indemnitee
harmless from, any Excluded Taxes.
SECTION 9.04. Successors and Assigns. (a) The provisions of this
-----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit), except that the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any Letter of Credit) and, to the extent expressly contemplated
hereby, the Related Parties of each of the Administrative Agent, the Issuing
Bank and the Lenders) any legal or equitable right, remedy or claim under or by
reason of this Agreement.
148
<PAGE>
(b) Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans at the time owing to it); provided that (i)
--------
except in the case of an assignment to a Lender or an Affiliate of a Lender or
Related Fund of any Lender, each of the Borrower and the Administrative Agent
(and, in the case of an assignment of all or a portion of a Revolving Commitment
or any Lender's obligations in respect of its LC Exposure or Swingline Exposure,
the Issuing Bank and the Swingline Lender) must give their prior written consent
to such assignment (which consent shall not be unreasonably withheld or
delayed), (ii) except in the case of an assignment to a Lender or an Affiliate
or Related Fund of a Lender or an assignment of the entire remaining amount of
the assigning Lender's Commitment or Loans, the amount of the Commitment or
Loans of the assigning Lender subject to each such assignment (determined as of
the date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $5,000,000 unless
each of the Borrower and the Administrative Agent otherwise consent, (iii) each
partial assignment shall be made as an assignment of a proportionate part of all
the assigning Lender's rights and obligations under this Agreement, except that
this clause (iii) shall not be construed to prohibit the assignment of a
proportionate part of all the assigning Lender's rights and obligations in
respect of one Class of Commitments or Loans, (iv) the parties to each
assignment shall execute and deliver to the Administrative Agent an Assignment
and Acceptance, together with a processing and recordation fee of $3,500, and
(v) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; and provided further that
----------------
any consent of the Borrower otherwise required under this paragraph shall not be
required if an Event of Default under clause (h) or (i) of Article VII has
occurred and is continuing. Subject to acceptance and recording thereof
pursuant to paragraph (d) of this Section, from and after the effective date
specified in each Assignment and Acceptance the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all of the assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
--------
the Register shall be conclusive, and the Borrower, the Administrative Agent,
the Issuing Bank and the Lenders may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary. The Register shall
be available for inspection by the Borrower, the Issuing Bank and any Lender, at
any reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent, the Issuing Bank or the Swingline Lender, sell
participations to one or more banks or other entities (a "Participant") in all
-----------
or a portion of such Lender's rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided that (i) such Lender's obligations under this Agreement shall remain
- --------
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations and (iii) the Borrower, the
Administrative Agent, the Issuing Bank and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement. Any agreement or instrument
pursuant to which a Lender sells such a participation shall provide that such
Lender shall retain the sole right to enforce the Loan Documents and to approve
any amendment, modification or waiver of any provision of the Loan Documents;
provided that such agreement or instrument may provide that such Lender will
- --------
not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the first proviso to Section 9.02(b) that
affects such Participant. Subject to paragraph (f) of this Section, the
Borrower agrees that each Participant shall be entitled to the benefits of
Sections 2.15, 2.16 and 2.17 to
149
<PAGE>
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section. To the extent permitted by
law, each Participant also shall be entitled to the benefits of Section 9.08 as
though it were a Lender, provided such Participant agrees to be subject to
Section 2.18(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.15 or 2.17 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.17 unless
the Borrower is notified in writing of the participation sold to such
Participant and such Participant agrees, for the benefit of the Borrower, to
comply with Section 2.17(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of
--------
a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations
---------
and warranties made by the Loan Parties in the Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Administrative Agent, the Issuing
Bank or any Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Commitments have not expired or terminated. The provisions of
Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in
full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Letters of Credit and the Commitments or the termination of this
Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This
-----------------------------------------
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Documents and any separate letter agreements with respect to fees
payable to the Administrative Agent constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Except as provided in Section 4.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be effective
as delivery of a manually executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held to
-------------
be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, 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 and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the
Borrower against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured. The rights of each Lender under this Section
are in addition to other rights and remedies (including other rights of setoff)
which such Lender may have.
150
<PAGE>
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
--------------------------------------------------
Process. (a) This Agreement shall be construed in accordance with and governed
- --------
by the law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to any
Loan Document, or for recognition or enforcement of any judgment, and each of
the parties hereto hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, in such Federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement or any other Loan Document shall affect any right that the
Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement or any other Loan Document
against the Borrower or its properties in the courts of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any other Loan
Document in any court referred to in paragraph (b) of this Section. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
---------------------
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table
---------
of Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative Agent,
----------------
the Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates' directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or any other Loan Document or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to any
assignee of or Participant in, or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement, (g) to any direct or
indirect contractual counterparty in swap agreements or such contractual
counterparty's professional advisor to such contractual counterparty which
agrees to be bound by the provisions of this Section, (h) with the consent of
the Borrower or (i) to the extent such Information (i) becomes publicly
available other than as a result of a breach of this Section or (ii) becomes
available to the Administrative Agent, the Issuing Bank or any Lender on a
nonconfidential basis from a source other than the Borrower. For the purposes of
this Section, "Information" means all information received from the Borrower
-----------
relating to the Borrower or its business, other than any such information that
is available to the Administrative
151
<PAGE>
Agent, the Issuing Bank or any Lender on a nonconfidential basis
prior to disclosure by the Borrower; provided that, in the case of information
--------
received from the Borrower after the date hereof, such information is clearly
identified at the time of delivery as confidential. Any Person required to
maintain the confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
SECTION 9.13. Interest Rate Limitation. Notwithstanding anything
-------------------------
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
-------
maximum lawful rate (the "Maximum Rate") which may be contracted for, charged,
------------
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
CITATION CORPORATION,
by
/s/ Thomas W. Burleson
-------------------------------------
Name: Thomas W. Burleson
Title: Vice President
THE CHASE MANHATTAN BANK, individually
and as Administrative Agent,
by
/s/ Deborah Davey
-------------------------------------
Name: Deborah Davey
Title: Vice President
FIRST UNION NATIONAL BANK,
by
/s/ Andrew G. Payne
-------------------------------------
Name: Andrew G. Payne
Title: Vice President
DLJ CAPITAL FUNDING INC.,
by
/s/ Richard N. Beaudoin
-------------------------------------
Name: Richard N. Beaudoin
Title: Senior Vice President
152
<PAGE>
CHASE MANHATTAN BANK DELAWARE,
by
/s/ Michael P. Handago
----------------------------------
Name: Michael P. Handago
Title: Vice President
NATIONAL CANADA FINANCE
CORPORATION,
by
/s/ J. Michael Smith
----------------------------------
Name: J. Michael Smith
Title: Vice President
153
<PAGE>
NATIONAL CANADA FINANCE
CORPORATION,
by
/s/ James F. Hannon
-----------------------------------
Name: James F. Hannon
Title: Vice President
THE CIT GROUP/EQUIPMENT FINANCING,
INC.,
by
/s/ Mike Hampton
-----------------------------------
Name: Mike Hampton
Title: Assistant Vice President
MICHIGAN NATIONAL BANK,
by
/s/ Eric Haege
-----------------------------------
Name: Eric Haege
Title: Commercial Relationship
Manager
NATEXIS BANQUE, BFCE
by
/s/ Daniel Payer
-----------------------------------
Name: Daniel Payer
Title: Assistant Vice President
by
/s/ Louis P. Laville, III
-----------------------------------
Name: Louis P. Laville, III
Title: Group Manager
GENERAL ELECTRIC CAPITAL
CORPORATION,
by
/s/ Edward Smith Christie
-----------------------------------
Name: Edward Smith Christie
Title: Manager-Operations
MERRILL LYNCH SENIOR FLOATING RATE
FUND II, INC.
by
/s/ Joseph Moroney
-----------------------------------
Name: Joseph Moroney
Title: Authorized Signatory
154
<PAGE>
DEBT STRATEGIES FUND III, INC.
by
/s/ Joseph Moroney
-----------------------------------
Name: Joseph Moroney
Title: Authorized Signatory
DEBT STRATEGIES FUND II, INC.
by
/s/ Joseph Moroney
-----------------------------------
Name: Joseph Moroney
Title: Authorized Signatory
DEBT STRATEGIES FUND, INC.
by
/s/ Joseph Moroney
-----------------------------------
Name: Joseph Moroney
Title: Authorized Signatory
SENIOR HIGH INCOME PORTFOLIO, INC.
by
/s/ Joseph Moroney
-----------------------------------
Name: Joseph Moroney
Title: Authorized Signatory
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
by
/s/ Joseph Moroney
-----------------------------------
Name: Joseph Moroney
Title: Authorized Signatory
VAN KAMPEN SENIOR INCOME TRUST
By: Van Kampen Investment Advisory Corp.,
by
/s/ Darvin D. Pierce
-----------------------------------
Name: Darvin D. Pierce
Title: Vice President
VAN KAMPEN SENIOR FLOATING RATE
FUND
By: Van Kampen Investment Advisory Corp.,
by
/s/ Darvin D. Pierce
-----------------------------------
Name: Darvin D. Pierce
Title: Vice President
155
<PAGE>
FOOTHILL CAPITAL CORPORATION,
by
/s/ Sean T. Dixon
-----------------------------------
Name: Sean T. Dixon
Title: Vice President
HELLER FINANCIAL, INC.,
by
/s/ Scott Ziemke
-----------------------------------
Name: Scott Ziemke
Title: Assistant Vice President
MORGAN STANLEY DEAN WITTER PRIME
INCOME TRUST
by
/s/ Sheila A. Finnerty
-----------------------------------
Name: Sheila A. Finnerty
Title: Vice President
OPPENHEIMER SENIOR FLOATING RATE
FUND,
by
/s/ Scott Farrar
-----------------------------------
Name: Scott Farrar
Title: Vice President
KZH SHOSHONE LLC,
by
/s/ Virginia Conway
-----------------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH CRESCENT-3 LLC,
by
/s/ Virginia Conway
-----------------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH CRESCENT-2 LLC,
by
/s/ Virginia Conway
-----------------------------------
Name: Virginia Conway
Title: Authorized Agent
156
<PAGE>
KZH CRESCENT LLC,
by
/s/ Virginia Conway
-----------------------------------
Name: Virginia Conway
Title: Authorized Agent
CRESCENT/MACH 1 PARTNERS, L.P.,
by: TCW Asset Management Company, Its
Investment Manager,
by
/s/ Justin L. Driscoll
-----------------------------------
Name: Justin L. Driscoll
Title: Senior Vice President
DAI-ICHI KANGYO BANK, LIMITED,
by
/s/ Christopher Fahey
-----------------------------------
Name: Christopher Fahey
Title: Vice President
ORIX USA CORPORATION,
by
/s/ Hiroyuki Miyauchi
-----------------------------------
Name: Hiroyuki Miyauchi
Title: Executive Vice President
157
<PAGE>
Exhibit 4.13
BRIDGE FINANCING AGREEMENT
DATED AS OF DECEMBER 1, 1999
158
<PAGE>
BRIDGE FINANCING AGREEMENT
--------------------------
dated as of
December 1, 1999
among
CITATION CORPORATION,
CITATION FUNDING, INC.,
THE CHASE MANHATTAN BANK
and
FIRST UNION INVESTORS, INC.
159
<PAGE>
BRIDGE FINANCING AGREEMENT
--------------------------
This BRIDGE FINANCING AGREEMENT dated as of December 1, 1999 among CITATION
CORPORATION and CITATION FUNDING, INC., THE CHASE MANHATTAN BANK and FIRST UNION
INVESTORS, INC.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, shall
-----------
have the following meanings:
"Additional Loans" has the meaning set forth in Section 2.6.
"Additional Notes" has the meaning set forth in Section 2.6.
"Additional Obligations" means Additional Loans or Additional Notes or
both, as the context may require.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For purposes of this definition, "control" including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with", as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Bridge Financing Agreement, as amended, restated or
otherwise modified from time to time in accordance with its terms.
"Asset Sale" means any sale, lease or other disposition (including any
such transaction effected by way of merger or consolidation) by the Company or
any Subsidiary, of any asset, including without limitation any sale-leaseback
transaction, but excluding (i) dispositions of inventory and used, surplus or
worn out equipment in the ordinary course of business, (ii) dispositions to a
wholly-owned Subsidiary of the Company and (iii) cash payments otherwise
permitted under this Agreement.
"Bona Fide Proposal" means a proposal to market securities of all or any
Credit Party to one or more financially responsible institutional investors (or
a commitment from the Underwriters to underwrite the sale of securities, on a
firm commitment basis), on financial and other terms and conditions no less
favorable to the Company than those generally available in the United States
capital markets to issuers of securities having a creditworthiness comparable to
that of such Credit Party, in an amount sufficient to redeem all the outstanding
Obligations and in respect of which the Company is provided with a period of
time to respond to such proposal that is consistent with then prevailing market
practices taking into account the nature, circumstances and prevailing market
conditions of such proposal (it being understood that no such proposal shall be
deemed to be a Bona Fide Proposal if the Underwriters fail to execute such
proposal on substantially the terms proposed).
"Bridge Financing Documents" means this Agreement, the Notes, the
Subsidiary Guaranty, the Warrants, the Warrant Shares, the Fee Letter, the
Engagement Letter and the Warrant Escrow Agreement.
"Bridge Party" means each and any of DLJ Bridge, FUI and Chase.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
or other government action to close.
"Cash Consideration" means the aggregate cash consideration to be paid to
the holders of capital stock of the Company and options, warrants and other
rights in respect of such capital stock (other than the Retained Equity and any
such capital stock held by the Management Investors that is to remain
outstanding after the Merger) as consideration for the cancellation thereof
pursuant to the Merger.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of
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America is pledged in support thereof), (ii) time deposits and certificates of
deposit of any domestic commercial bank (including a domestic branch of a
foreign bank) whose outstanding senior long-term debt securities are rated
either A-or higher by Standard & Poor's Ratings Services or A3 or higher by
Moody's Investors Service, Inc., (iii) repurchase obligations with a term of not
more than seven (7) days for underlying securities of the types described in
clause (i) entered into with any bank meeting the qualifications specified in
clause (ii) above, (iv) commercial paper rated at least A-1 or the equivalent
thereof by Standard & Poor's Ratings Services or at least P-1 or the equivalent
thereof by Moody's Investors Service, Inc., maturing within one year after the
date of acquisition, and (v) investments in money market funds substantially all
of whose assets are comprised of securities of the types described in clauses
(i) through (iv) above.
"Change of Control" has the meaning set forth in the Credit Agreement.
"Chase" means The Chase Manhattan Bank, a New York banking corporation, and
its successors.
"Closing" means the date on which all of the conditions set forth in
Section 5.1 shall have been satisfied.
"Commission" means the Securities and Exchange Commission.
"Commitment" means collectively, up to $135,000,000 with the Commitment of
(i) DLJ Bridge severally to be up to $67,500,000, (ii) FUI severally to be up
to $33,750,000 and (iii) Chase severally to be up to $33,750,000 and the
obligation of each Purchaser to purchase Notes hereunder in an aggregate
principal amount at any time outstanding not to exceed the amounts of its
respective several Commitment and the obligation of Chase to make a Loan not to
exceed the amount of its Commitment, as the Commitment may be reduced from time
to time pursuant to Sections 2.4 and 2.5.
"Company" means Citation Corporation, a Delaware corporation.
"Company Corporate Documents" means the operating agreement, articles of
incorporation, by-laws or other governing organizational documents of each
Credit Party.
"Covenant Conversion Date" means the date on which all the conditions set
forth in Section 6.1(b) have been satisfied and the Company is required to
comply with each of the covenants set forth in Exhibit G attached hereto.
---------
"Credit Agreement" means the Credit Agreement dated as of November 30,
1999, among the Company, the lenders party thereto and The Chase Manhattan Bank,
as administrative agent, as amended, supplemented or otherwise modified from
time to time in accordance with its terms.
"Credit Party" means, individually, the Company, Mergerco and each of their
respective Subsidiaries (except those Foreign Subsidiaries that are not "Loan
Parties" under the Credit Agreement); and "Credit Parties" means all of the
foregoing, taken collectively.
"CSI" means Chase Securities Inc., a Delaware corporation, and its
successors.
"Debt" of any Person means, at any date, without duplication, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade liabilities incurred in
the ordinary course of business) or which is evidenced by a note, bond,
debenture or similar instrument, (ii) all obligations of such Person under
Financing Leases, (iii) all obligations (contingent or otherwise) of such Person
to reimburse any bank or other Person in respect of amounts paid under a letter
of credit or similar instrument, (iv) all Derivatives Obligations of such
Person, (v) all Guarantee Obligations of such Person in respect of Debt of any
other Person and (vi) all liabilities of the types described in clauses (i)
through (v) above secured by any Lien on any property owned by such Person even
though such person has not assumed or otherwise become liable for the payment
thereof.
"Debt Incurrence" means any incurrence by the Company or any of its
Subsidiaries of any Debt (including without limitation pursuant to the Permanent
Financing).
"Default" means any Event of Default or any event or condition which, with
the giving of notice or lapse of time or both, would, unless cured or waived,
become an Event of Default.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
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equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Disclosed Matters" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.6.
------------
"DLJ Bridge" means Citation Funding, Inc.
"DLJ Capital" means DLJ Capital Funding, Inc.
"DLJ High Yield Index" means the index of high yield securities published
by DLJSC on a weekly basis.
"DLJSC" means Donaldson, Lufkin & Jenrette Securities Corporation, a
Delaware corporation, and its successors.
"dollars" or "$" means lawful currency of the United States of America.
"Domestic Taxes" has the meaning set forth in Section 2.8(a).
"Eligible Financing" has the meaning set forth in Section 2.7(b).
"Engagement Letter" means an engagement letter among the Company and the
Underwriters pursuant to which the Underwriters shall be engaged as lead
investment bankers for the Credit Parties to provide certain investment banking
and advisory services for the period as set forth therein.
"Environmental Laws" means all applicable laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Company or any Subsidiary resulting from or
based upon (i) violation of any Environmental Law, (ii) the generation, use,
handling, transportation, storage, treatment or disposal of any Hazardous
Materials, (iii) exposure to any Hazardous Materials, (iv) the release or
threatened release of any Hazardous Materials into the environment or (v) any
contract, agreement or other consensual arrangement pursuant to which
environmental liability is assumed or imposed with respect to any of the
foregoing.
"Equity Contribution" means a contribution of an aggregate amount of not
less than $240,000,000 in cash to Mergerco as common equity.
"Equity Interest" means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person.
"Equity Issuance" means the issuance of any equity securities by the
Company or any of its Subsidiaries (including without limitation any equity
securities issued pursuant to the exercise of stock options or warrants or the
Permanent Financing).
"Equity Securities" means, with respect to the Company, any of its
preferred stock or common stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary, and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"Escrow Agent" means Snoga, Inc., in its capacity as escrow agent under the
Warrant Escrow Agreement, and its successor in such capacity.
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"Event of Default" has the meaning set forth in Section 7.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" has the meaning set forth in Section 2.1(b).
"Fee Letter" means the Fee Letter dated as of October 12, 1999 among the
Company and DLJ Bridge Finance, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, The Chase Manhattan Bank, Chase Securities, Inc., First Union
National Bank, First Union Investors, Inc. and First Union Securities, Inc., as
amended and restated on December 1, 1999, and as further amended, supplemented
or otherwise modified from time to time in accordance with its terms.
"Financing Leases" means any lease of property, real or personal, the
obligations or the lease in respect of which are required in accordance with
GAAP to be capitalized on the balance sheet of the lessee.
"Financing Transactions" means (i) the execution, delivery and performance
by each Loan Party (as defined in the Credit Agreement) of the Senior Facilities
Loan Documents to which it is to be a party, the borrowing of loans, the use of
the proceeds thereof and the issuance of letters of credit under the Senior
Facilities, (ii) the execution, delivery and performance by each Credit Party of
the Bridge Financing Documents to which it is to be a party, the issuance of the
Notes, the making of the Loans and the use of the proceeds hereof and (iii) the
Equity Contribution.
"First Anniversary" means the date that is the first anniversary of the
Funding Date.
"Fixed Rate Sale Date" means the date that is the earlier to occur of (i)
the First Anniversary and (ii) the date of any refusal by the Company to execute
a Bona Fide Proposal.
"Foreign Subsidiary" means any Subsidiary that is organized under the laws
of a jurisdiction other than the United States of America or any State thereof
or the District of Columbia.
"FUI" means First Union Investors, Inc., a North Carolina corporation, and
its successors.
"FUNB" means First Union National Bank, a national banking association
organized under the laws of the United States of America, and its successors.
"Funding Date" means the date of the original issuance of the Notes and the
making of the Loans.
"FUSI" means First Union Securities, Inc., a Delaware corporation, and its
successors.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee Obligation" means as to any Person (the "guaranteeing person"),
without duplication, any obligation of (a) the guaranteeing person or (b)
another Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Debt, leases, dividends or other
obligations (the "primary obligations") of any other third Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of the guaranteeing person whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (1) for the
purchase or payment of any such primary obligation or (2) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency 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 against loss in respect thereof, provided, however, that
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the term Guarantee Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business or the guaranty
obligation of any primary obligation which does not constitute Debt. The amount
of any Guarantee Obligation of any guaranteeing person shall be deemed to be the
lower of (x) an amount equal to the stated or determinable amount of the primary
obligation in respect of which such
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Guarantee Obligation is made and (y) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not stated
or determinable, in which case the amount of such Guarantee Obligation shall be
such guaranteeing person's maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith.
"Hart Scott Rodino" means the Hart Scott Rodino Antitrust Improvements Act
of 1976, as amended, or any successor statute.
"Hazardous Materials" means all explosive or radioactive substances or
wastes, all hazardous or toxic substances, wastes or other pollutants, including
petroleum or petroleum distillates, asbestos or asbestos containing materials,
polychlorinated biphenyls, radon gas, infectious or medical wastes and all other
substances or wastes of any nature regulated pursuant to any Environmental Law.
"Holder" means any registered owner from time to time of any Obligation.
"Initial Rate" has the meaning set forth in Section 2.6(b).
"Interest Payment Date" means the last day of each Interest Period (or, if
any such date is not a Business Day, the next succeeding Business Day).
"Interest Period" shall mean the period from the date of this Agreement to
but excluding the 90/th/ day thereafter, and thereafter each successive 90-day
period. If any Interest Period would begin or end on a date which is not a
Business Day, such Interest Period shall begin or end, as the case may be, on
the next succeeding Business Day and any Interest Period that would extend
beyond the Maturity Date shall end on the Maturity Date. DLJ Bridge may, in its
discretion, select Interest Periods of one day for any day on or after the
Obligations shall have become due and payable in accordance with the terms
hereof.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Kelso" means Kelso & Company and its Affiliates.
"Lien" means (i) any mortgage, deed of trust, lien, pledge, hypothecation,
encumbrance, charge or security interest in, on or of such asset, (ii) the
interest of a vendor or a lessor under any conditional sale agreement, capital
lease or title retention agreement (or any financing lease having substantially
the same economic effect as any of the foregoing) relating to such asset and
(iii) in the case of securities, any purchase option, call or similar right of a
third party with respect to such securities, and (iv) any other arrangement
having substantially the same economic effect as any of the foregoing.
"Loan" means the Loan made to the Company pursuant to Section 2.1.
References to the "Loans" include (i) any portion of such loan sold, assigned or
otherwise transferred in accordance with the terms of this Agreement and (ii)
any Additional Loans.
"Majority Holders" means (i) at any time prior to the Funding Date, DLJ
Bridge, Chase and FUI and (ii) at any time thereafter, the Holders of more than
50% in aggregate principal outstanding amount of the Obligations at such time.
"Management Investors" means the officers and employees (including current
and former officers and employees), of the Company at any time when Kelso
beneficially owns (as defined in clause (a) of the definition of the term
"Change of Control") (i) more than 30% of the total ordinary voting power of the
capital stock of the Company and (ii) a greater percentage of the total ordinary
voting power of the capital stock of the Company than is then beneficially owned
in the aggregate by the officers and employees of the Company.
"Material Adverse Effect" means a material adverse effect on (i) the
business, results of operations, properties, condition (financial or otherwise)
or prospects of the Company and its Subsidiaries taken as a whole, (ii) the
ability of any Credit Party to perform any of its material obligations under any
Bridge Financing Document or (iii) the rights of or benefits available to the
Bridge Parties under any Bridge Financing Documents.
"Material Plan" means at any time a Plan or Plans having aggregate Unfunded
Liabilities in excess of $2,500,000.
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"Maturity Date" has the meaning set forth in Section 2.7(a).
"Merger" means the merger of Mergerco with and into the Company, with the
Company being the surviving corporation after such merger.
"Mergerco" means RSJ Acquisition Co., a Delaware corporation.
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"Net Cash Proceeds" means, with respect to any transaction, an amount equal
to the cash proceeds received by the Company or any of its Subsidiaries from or
in respect of such transaction (including any cash proceeds received as income
or other proceeds of any non-cash proceeds but only as and when received), less
----
(i) any reasonable fees and expenses (including commissions) incurred by the
Company or any of its Subsidiaries in respect of such transaction, (ii) the
amount of any Debt secured by a Lien on a related asset and discharged from the
proceeds of such transaction; (iii) any taxes paid or payable by the Company or
any of its Subsidiaries with respect to such transaction (as reasonably
estimated by such Person's chief financial officer in good faith), (iv) all
distributions and other payments required to be made to minority interest
holders and Subsidiaries or joint ventures as a result of such transaction, or
to any Person (other than the Company or a Credit Party) owning a beneficial
interest in the assets disposed of in such transaction and (v) appropriate
amounts, reasonably determined by the Company in accordance with GAAP, as a
reserve against any liabilities retained by the Company or any of its
Subsidiaries with respect to such transaction.
"Notes" means the Senior Subordinated Increasing Rate Notes issued by the
Company substantially in the form set forth as Exhibit A attached hereto
---------
including any Additional Notes.
"Obligation" means a Loan or a Note, and "Obligations" means Loans or Notes
or both, including any Additional Obligations, in each case as the context may
require.
"Other Taxes" has the meaning set forth in Section 2.8(a).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permanent Financing" means any Debt Incurrence or Equity Issuance
following the date hereof for the purpose of refinancing the Obligations.
"Permits" means all domestic and foreign licenses, permits and approvals
required for the full operation of the Company and its Subsidiaries, taken as a
whole, including, without limitation, provincial, state, federal, city and
county permits and approvals.
"Permitted Transferee" means any Person that acquires Securities other than
any Person who acquires such Securities (i) in a public offering or (ii) in the
open market pursuant to sales under Rule 144 of the Securities Act or otherwise.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Prime Rate" means the prime or reference rate as announced from time to
time by the Bank of New York.
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"Purchasers" means collectively, each of DLJ Bridge and FUI and "Purchaser"
means each of DLJ Bridge and FUI, individually and their respective successors
and assigns.
"Recapitalization" means the transactions contemplated by the
Recapitalization Agreement including, without limitation, transactions in which
(i) Kelso and certain other investors, including the Management Investors, will
make the Equity Contribution, (ii) the Merger will be consummated and (iii)
pursuant to the Merger, unless Kelso elects to replace the public holders with a
third party investor (in which case each of the Equity Contribution and the Cash
Consideration will be increased by approximately $18,100,000) (a) the pre-Merger
common stockholders of the Company (other than the holders of the Retained
Equity and the Management Investors) and holders of outstanding options to
purchase common stock of the Company will receive the Cash Consideration, (b)
certain pre-Merger common stockholders of the Company will retain the Retained
Equity, and (c) Kelso, the Management Investors and other investors will acquire
approximately 93% of the outstanding post-Merger common stock of the Company.
"Recapitalization Agreement" means the Merger and Recapitalization
Agreement, dated June 24, 1999, among the Company, the Management Investors and
Mergerco, as amended by Amendment No. 1 dated as of September 3, 1999 and
Amendment No. 2 dated as of October 12, 1999, and as further amended,
supplemented or otherwise modified from time to time in accordance with its
terms and the terms of this Agreement.
"Retained Equity" means common stock of the Company (including those shares
held by the Management Investors) outstanding prior to the Merger that, pursuant
to the Merger, remains outstanding after the Merger and having an aggregate
value (based on the Cash Consideration per share paid for the Company's common
stock in the Merger) equal to approximately $18,100,000.
"Securities" means the Notes, the Warrants and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Facilities" means the credit facilities contemplated by the Credit
Agreement and the other Senior Facilities Loan Documents and the transactions
contemplated thereby (excluding any extension, renewal, refinancing or
replacement of all or a portion thereof).
"Senior Facilities Loan Documents" has the meaning set forth in the
definition of "Loan Documents" in the Credit Agreement.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person.
"Subsidiary Guaranty" means the Subsidiary Guaranty in the form of Exhibit
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D attached hereto executed by each Subsidiary (except those Foreign Subsidiaries
- -
that do not guarantee the Senior Facilities) of the Company and delivered
pursuant to this Agreement.
"Takedown" has the meaning set forth in Section 2.2(a).
"Taxes" has the meaning set forth in Section 2.8(a).
"Transaction Costs" means the fees and expenses incurred or borne by the
Company and its Subsidiaries in connection with the Transactions.
"Transactions" means, collectively, the Recapitalization and the Financing
Transactions.
"Transfer" means any disposition of Securities that would constitute a sale
thereof under the Securities Act.
"Treasury Rate" means the rate applicable to the most recent auction of
direct obligations of the United States having a maturity of ten years, as
published by the Board of Governors of the Federal Reserve System.
"Underwriters" means, collectively, each of DLJSC, CSI and FUSI.
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"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrant Escrow Agreement" means the Warrant Escrow Agreement among the
Company, the Bridge Parties and the Escrow Agent, in substantially the form of
Exhibit C attached hereto, as amended, supplemented or otherwise modified from
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time to time in accordance with its terms.
"Warrants" means warrants in substantially the form of Exhibit F attached
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hereto.
"Warrant Shares" means shares of common stock issued or issuable upon
exercise of the Warrants.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
-----------------------------------
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP
applied on a consistent basis.
ARTICLE II
PURCHASE AND SALE OF SECURITIES, MAKING OF THE LOAN, TERMS OF SECURITIES
AND LOAN
SECTION 2.1. Commitments. (a) Subject to the terms and conditions set
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forth herein and in reliance on the representations and warranties contained
herein and in the other Bridge Financing Documents, the Company agrees to (i)
issue and sell Notes in an aggregate principal amount not to exceed $101,250,000
and each Purchaser severally agrees to purchase Notes in an aggregate principal
amount not to exceed its respective Commitment and (ii) borrow in the principal
amount not to exceed $33,750,000 and Chase agrees to make a Loan in the
principal amount not to exceed its Commitment (the "Loan"). The purchase price
for the Notes and the Loans shall be 100% of the principal amount thereof.
(b) Termination of Commitment. The Commitment will terminate on the
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earliest of (i) the date of the termination of the Recapitalization Agreement,
(ii) the date of the closing of the Transactions without the funding of the
Commitment, (iii) the date on which Kelso or any Credit Party commences the
marketing of any proposed Permanent Financing or the arrangement of any other
financing related to the Transactions with respect to which DLJSC or any of its
affiliates is not the joint book-running manager (on the "left"), CSI is not
joint book-running manager (on the "right") and FUSI is not co-manager, or in
the case of senior bank financing (other than the Senior Facilities), DLJ
Capital is not joint-book manager (on the "left"), co-lead arranger and
syndication agent, Chase is not joint-book manager (on the "right"), co-lead
arranger and administrative agent and FUNB is not co-lead arranger and
documentation agent, as the case may be or (iv) 5:00 PM New York City time on
December 31, 1999 if the Closing has not occurred by such time (such earliest
date, the "Expiration Date"); provided that if at any time on or after the date
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hereof an Event of Default shall have occurred and be continuing, each Bridge
Party may at its option terminate its respective Commitment by notice to the
Company, such termination to be effective upon the giving of such notice; and
provided further that the Commitment shall automatically terminate, without
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notice to the Company or any other action on the part of the Bridge Parties,
upon the occurrence of any of the events specified in Sections 7.1(e) and 7.1(f)
with respect to any Credit Party.
(c) The Commitment is not revolving in nature, and the principal amounts
of Obligations prepaid in accordance with Section 2.7 may not be resold or
reborrowed hereunder.
SECTION 2.2. Takedown Procedures. (a) Notice. The Company shall give
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the Bridge Parties notice not later than 11:00 AM (New York City time) three (3)
Business Days prior to the proposed purchase and sale of Notes hereunder (the
"Notes Takedown") and the borrowing of the Loan hereunder (such borrowing,
together with the Notes Takedown, collectively, the "Takedown"), which notice
shall specify (i) the principal amount of Notes to be purchased and sold at such
Notes Takedown (which amount shall be in minimum denominations of $10,000,000 or
larger multiples of $250,000), (ii) the principal amount of the Loan to be made
hereunder at such Takedown (which amount shall be in minimum denominations of
$10,000,000 or larger multiples of $250,000) and (iii) the date of such Takedown
(which shall be a Business Day). There shall be only one Takedown permitted
hereunder.
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(b) Funding. On the date of the Takedown, each Bridge Party shall deliver
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by wire transfer, to the account number of the Company specified by the Company
in writing no later than 2:00 PM (New York City time) three (3) Business Days
prior to the date of the Takedown, immediately available funds in an amount
equal to the aggregate purchase price of the Notes to be purchased by such
Purchaser hereunder and the principal amount of the Loan to be made hereunder on
such date, less, unless a Bridge Party otherwise requests, the aggregate amount
of fees payable by the Company to such Bridge Party on such date pursuant to
Section 2.3 and expenses (if any) payable to such Bridge Party on such date
pursuant to Section 9.4.
(c) Delivery of Notes. At the Takedown, against payment as set forth in
-----------------
subsection (b) of this Section 2.2, the Company shall deliver to each Purchaser
a single Note representing the aggregate principal amount of Notes to be
purchased at such Takedown registered in the name of such Bridge Party, or, if
requested by a Bridge Party, separate Notes in such other denominations and
registered in such name or names as shall be designated by such Bridge Party by
notice to the Company at least three (3) Business Days prior to the date of the
Takedown.
SECTION 2.3. Fees. The Company shall pay each Bridge Party all fees as
----
and when due in accordance with the Fee Letter.
SECTION 2.4. Mandatory Termination and Reduction of Commitment.
-------------------------------------------------
(a) The Commitment shall terminate on the earlier of the Expiration Date
or the Takedown hereunder.
(b) The Commitment shall be reduced by an amount equal to the Net Cash
Proceeds received by any Credit Party in respect of any Asset Sale (in excess of
the amount thereof required to be paid to the banks under the Senior
Facilities), Debt Incurrence or Equity Issuance (to the extent permitted under
the Senior Facilities) minus the amount of such Net Cash Proceeds applied to
-----
repay outstanding Obligations in accordance with Section 2.7(d) in excess of the
amount thereof required to be paid to the lenders in Senior Facilities. Each
such reduction shall be effective on the date of the related prepayment of the
Obligations, or if no Obligations are at the time outstanding, on the date of
receipt of such Net Cash Proceeds.
(c) Any such reduction shall reduce permanently each Bridge Party's
Commitment then in effect pro rata.
--- ----
SECTION 2.5. Optional Reduction of Commitment. The Company may, upon not
--------------------------------
less than three (3) Business Days' notice to the Bridge Parties, terminate the
unused Commitment at any time or reduce the unused Commitment from time to time
in amounts equal to $5,000,000 or any larger multiple of $1,000,000. Any such
reduction shall reduce permanently each Bridge Party's commitment then in effect
pro rata.
- --- ----
SECTION 2.6. Interest. (a) Payment Dates. Interest on the Obligations
-------- -------------
shall be payable in dollars in arrears, on each Interest Payment Date during
which such Obligations remain outstanding, commencing with the first Interest
Payment Date after the Funding Date, on the principal sum of the Obligations
outstanding. Interest on the Obligations shall be calculated at the rate per
annum set forth in subsection (b) below, and shall accrue from and including the
most recent Interest Payment Date to which interest has been paid on the
Obligations (or if no interest has been paid on the Obligations, from the date
of issuance thereof) to but excluding the date on which payment in full of the
principal sum of the Obligations has been made.
(b) Interest Rate. Interest for the first Interest Period
-------------
commencing on shall be, as determined by DLJ Bridge on the Funding Date, the
greatest of each of thirteen percent (13.00%) and each of the rates set forth in
clauses (i) through (iii) of the next sentence on such Funding Date (the
"Initial Rate"). Thereafter, the interest rate shall be payable at the greatest
of the following as determined at the beginning of each subsequent Interest
Period: (i) the Prime Rate plus 475 basis points, increasing by an additional 50
basis points at the end of each Interest Period subsequent to the Funding Date
for so long as the Obligations are outstanding; (ii) the Treasury Rate plus 695
basis points, increasing by an additional 50 basis points at the end of each
Interest Period subsequent to the Funding Date; (iii) the DLJ High Yield Index
Rate plus 98 basis points, increasing by an additional 50 basis points at the
end of each Interest Period subsequent to the Funding Date; and (iv) an amount
equal to the Initial Rate plus the product of 50 basis points times the number
of complete Interest Periods that have elapsed since the Funding Date.
Notwithstanding anything to the contrary set forth above, at no time shall the
per annum interest rate on the Obligations exceed seventeen percent (17.00%) nor
shall the per annum interest rate on the Obligations be less than ten percent
(10.00%).
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<PAGE>
(c) If and to the extent that the amount of interest payable on any
Interest Payment Date exceeds the amount of interest on the Obligations which
would have been payable on such Interest Payment Date if the Interest Rate in
effect at all times during the Interest Period then ended had been fifteen
percent (15.00%) (the amount of such excess, if any, being hereinafter referred
to as the "Excess Amount" for such period), then the Company may, at its option,
in lieu of payment of the Excess Amount of interest in cash, pay interest on
such Interest Payment Date through an increase in the outstanding principal
amount of the Loans ("Additional Loans") or the issuance of additional Notes
("Additional Notes"), as the case may be. Such Additional Obligations incurred
on any Interest Payment Date shall, subject to the remaining provisions of this
paragraph, be in an aggregate principal amount equal to the Excess Amount for
such Interest Payment Date, shall otherwise be identical to the outstanding
Obligations and shall be issued to the Holders at the time outstanding in
proportions such that each Holder shall receive the same ratio of cash interest
to Additional Obligations on such Interest Payment Date. Such Additional
Obligations shall be incurred only in denominations of $1,000 and multiples
thereof. Any interest otherwise payable in Additional Obligations which cannot
be so paid because an Additional Obligation would have a denomination less than
$1,000 (or not be a multiple thereof) shall be paid in cash on such Interest
Payment Date. For the avoidance of doubt, it is understood and agreed that
Additional Obligations, if any, are not incurred and issued pursuant to the
Commitments.
(d) Interest on the Obligations will be calculated on the basis of a 365-
day year and paid for the actual number of days elapsed.
SECTION 2.7. Maturity of Obligations; Prepayment of Obligations. (a)
--------------------------------------------------
Maturity Date. The Obligations shall mature and become due and payable on the
- -------------
First Anniversary; provided, however, that the maturity of the Obligations will
-------- -------
be automatically extended to May 1, 2008 (such date, the "Maturity Date") if, on
the First Anniversary, the following conditions are met: (i) there shall exist
no Default or Event of Default hereunder, (ii) there shall exist no default
under the Senior Facilities or any other debt instrument of any Credit Party and
(iii) all fees due to the Bridge Parties and the Underwriters as of such date
shall have been paid in full.
(b) Optional Redemption or Prepayment. The Obligations may be redeemed or
---------------------------------
repaid, in whole or in part, upon not less than ten (10) days written notice, at
the option of the Company, at any time at par plus accrued interest to the
redemption or prepayment date; provided, that the redemption or prepayment price
--------
shall be one hundred three percent (103%) of par plus such accrued interest if
the Obligations are redeemed or prepaid (whether at the time of redemption,
prepayment or maturity) with or in anticipation of funds raised or generated by
any means other than a transaction in which DLJSC or one of its affiliates has
acted as joint book-running manager (on the "left"), CSI has acted as joint
book-running manager (on the "right") and FUSI has acted as co-manager or, in
the case of senior bank financing (other than the Senior Facilities) DLJ Capital
has acted as joint-book manager (on the "left"), co-lead arranger and
syndication agent, Chase has acted as joint-book manager (on the "right"), co-
lead arranger and administrative agent and FUNB has acted as co-lead arranger
and documentation agent (any such transaction, an "Eligible Financing");
provided further however, that the Obligations may be redeemed or prepaid at
- -------- ------- -------
one hundred percent (100%) of par plus accrued interest (i) at any time with the
proceeds from an Eligible Financing or (ii) at any time after the First
Anniversary unless (x)(i) prior to such First Anniversary the Underwriters have
delivered a Bona Fide Proposal and (ii) the Company did not instruct or
otherwise authorize the Underwriters to execute such Bona Fide Proposal, or (y)
the Company and the Underwriters have agreed in their reasonable judgment that
no such Bona Fide Proposal could be made.
(c) Fixed Rate Option. Commencing on the Fixed Rate Sale Date, the
-----------------
Obligations may be sold, transferred or assigned by the Bridge Parties, upon 10
days prior notice to the Company, to third party purchasers on a fixed rate
basis at an interest rate no greater than seventeen percent (17.00%). In such
event, such Obligations may be redeemed or prepaid thereafter, in whole or in
part, upon not less than 10 days written notice, at the option of the Company,
at any time at an amount equal to the Make-Whole Amount plus accrued and unpaid
interest thereon to the redemption date.
"Make-Whole Amount" means, with respect to any Obligations to be redeemed,
an amount equal to, as determined by a Quotation Agent (as defined below), the
sum of (x) the present values of the scheduled payments of interest on the
Obligations through the Maturity Date (without duplication of any accrued and
unpaid interest) plus (y) the present value of the principal amount of the
Obligations at the Maturity Date, discounted, in each case, to the redemption
date on a semi-annual basis (assuming a 360-day year consisting of 30-day
months) at the Adjusted Treasury Rate.
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<PAGE>
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to the semi-annual bond equivalent yield to maturity of the
Comparable Treasury Issue (as defined below), assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price (as defined below) for such prepayment
date, plus one-half of one percent (.50%).
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the Maturity
Date that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of the Obligations.
"Quotation Agent" means the Reference Treasury Dealer (as defined below)
appointed by the Bridge Parties for this purpose after consultation with the
Company.
"Reference Treasury Dealer" means: (i) DLJSC; provided, however, that the
-------- -------
foregoing remain a primary United States government securities dealer in New
York City (a "Primary Treasury Dealer") and (ii) any other Primary Treasury
Dealer selected by the Bridge Parties after consultation with the Company.
"Comparable Treasury Price" means, with respect to any prepayment date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such prepayment date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations of US Government
Securities" or (ii) if such release (or any successor release) is not published
or does not contain such prices on such Business Day, (A) the average of the
Reference Treasury Dealer Quotations for such prepayment date, after excluding
the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the
Bridge Parties obtain fewer than three such Reference Treasury Dealer
Quotations, the average of all such Reference Treasury Dealer Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined by
the Bridge Parties, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Bridge Parties by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
(d) Mandatory Prepayments. To the extent permitted under the Senior
---------------------
Facilities, the Company shall, within five (5) days of receipt by any Credit
Party of the Net Cash Proceeds that is in excess of the amount thereof required
to be paid to the banks under the Senior Facilities of any Asset Sale (prior to
the Covenant Conversion Date), Debt Incurrence or Equity Issuance, prepay (to
the extent such Net Cash Proceeds equal or exceed the minimums set forth in
Section 2.7(e)) a principal amount of the Obligations equal to the amount of
such Net Cash Proceeds (less any amounts not required to be paid as a result of
the requirement in subsection (e) of this Section 2.7 that all such prepayments
be made in multiples of $1,000), at a redemption or prepayment price equal to
one hundred percent (100%) of the principal amount of the Obligations so prepaid
together with accrued interest to the date of prepayment (it being understood
that, to the extent such Net Cash Proceeds are not permitted to be used to
redeem or prepay Obligations, such Net Cash Proceeds may be used in any manner
that is permitted under the Senior Facilities); provided, that the redemption or
--------
prepayment price shall be one hundred three percent (103.00%) of par plus
accrued interest if the Obligations are redeemed or prepaid with or in
anticipation of funds raised by any means other than an Eligible Financing;
provided further, that the Obligations shall be redeemed or prepaid at one
- -------- -------
hundred percent (100%) of principal plus accrued interest (i) at any time with
the proceeds from any Eligible Financing or (ii) at any time after the First
Anniversary, unless (x)(i) prior to such First Anniversary the Underwriters have
delivered a Bona Fide Proposal to any Credit Party and (ii) such Credit Party
did not authorize the Underwriters to execute such Bona Fide Proposal, or (y)
the Company and the Underwriters have agreed in their reasonable judgment that
no such Bona Fide Proposal could be made.
(e) Minimum Amount. Any prepayment of the Obligations pursuant to Section
--------------
2.7(b) or (d) shall be in a minimum amount of at least $1,000,000, unless less
than $1,000,000 of the Obligations remain outstanding, in which case all of the
Obligations must be prepaid. Any prepayment of the Obligations pursuant to
Section 2.7(c) shall be in a minimum amount which is a multiple of $1,000 times
the number of Holders at the time of such prepayment. Any such prepayment shall
be made to the Holders pro rata.
--- ----
(f) Partial Prepayments. Any partial prepayment shall be made so that the
-------------------
Obligations then held by each Holder shall be prepaid in a principal amount
which shall bear the same ratio, as nearly as may be,
170
<PAGE>
to the total principal amount being prepaid as the principal amount of such
Obligations held by such Holder shall bear to the aggregate principal amount of
all Obligations then outstanding. In the event of a partial prepayment, upon
presentation of any Note the Company shall execute and deliver to or on the
order of the Holder, at the expense of the Company, a new Note in principal
amount equal to the remaining outstanding portion of such Note.
SECTION 2.8. Taxes. (a) For the purposes of this Section, the following
-----
terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings with respect to any payment by any Credit
Party pursuant to this Agreement or under any Obligations or any other Bridge
Financing Document, and all liabilities with respect thereto, excluding, in the
case of the Bridge Parties or any other Holder, taxes imposed on the net income
of the Bridge Parties or such Holder and franchise or similar taxes imposed on
the Bridge Parties or such Holder (all such excluded taxes being hereinafter
referred to as "Domestic Taxes").
"Other Taxes" means any present or future stamp or documentary taxes and
any other excise taxes, or similar charges or levies, which arise from any
payment made pursuant to this Agreement or under any Obligations or any other
Bridge Financing Document or from the execution, delivery, registration,
recordation or enforcement of this Agreement or any Obligations or any other
Bridge Financing Document.
(b) All payments by any Credit Party to or for the account of a
Bridge Party or any other Holder under any Bridge Financing Document shall be
made without deduction for any Taxes or Other Taxes; provided that, if any
--------
Credit Party shall be required by law to deduct any Taxes or Other Taxes from
any such payment, the sum payable shall be increased as necessary so that after
making all required deductions of Taxes and Other Taxes (including deductions
applicable to additional sums payable under this Section), such Bridge Party or
such Holder (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, the Credit Party shall make such
deductions, the Credit Party shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law and the
Company shall promptly furnish to such Bridge Party or such Holder (as the case
may be) the original or a certified copy of a receipt evidencing payment
thereof.
(c) The Company agrees to indemnify each Bridge Party and each
other Holder for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section) paid by such Bridge Party or such Holder (as
the case may be) with respect to any payment made by any Credit Party to, or for
the account of, a Bridge Party or any other Holder under any Bridge Financing
Document and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, unless such penalties or interest are
incurred solely as a result of any negligence or misconduct of such Bridge Party
or such Holder, as the case may be.
(d) The Company shall have no obligations for Taxes under Section
2.8(b) for or on account of:
(i) any Taxes (other than Other Taxes) imposed by way of
deduction or withholding that would not have been so imposed but for the
existence of any present or former connection between such Bridge Party, Holder
or beneficial owner and the jurisdiction imposing the Tax other than merely
holding such Obligation or any Bridge Financing Document, or the receipt of
payments in respect thereof, including, without limitation, such Bridge Party,
Holder or beneficial owner being or having been a citizen or resident thereof,
or being or having been engaged in a trade or business or having a permanent
establishment or other fixed base therein, or making or having made an election
to the effect of which is to subject such Bridge Party, Holder or beneficial
owner to such Tax;
(ii) any Taxes (other than (A) Other Taxes or (B) any Taxes
imposed by way of deduction or withholding) that would not have been so imposed
but for the existence of any present or former connection between the applicable
Bridge Party or Holder or beneficial owner (or between a fiduciary, settlor,
beneficiary, member or shareholder of, or possessor of a power over, such Bridge
Party, Holder or beneficial owner, if such Bridge Party, Holder or beneficial
owner is an estate, a trust, a partnership, a limited liability company or
corporation) and the jurisdiction imposing the Tax other than merely holding
such Obligation or any Bridge Financing Document, or the receipt of payments in
respect thereof, including, without limitation, such Bridge Party, Holder or
beneficial owner (or such fiduciary, settlor, beneficiary, member, shareholder,
or possessor) being or having been a citizen or resident thereof, or being or
having been engaged in a trade or business or having
171
<PAGE>
a permanent establishment or other fixed base therein, or making or having made
an election to the effect of which is to subject such Bridge Party, Holder or
beneficial owner (or such fiduciary, settlor, beneficiary, member, shareholder
or possessor) to such Taxes;
(iii) any Taxes in the nature of estate, inheritance or gift
taxes;
(iv) any Tax that is imposed or withheld by reason of the
failure of the applicable Bridge Party or Holder or beneficial owner of a Note
to comply with a written request by the Company addressed to such Bridge Party,
Holder or beneficial owner to provide (A) information concerning the
nationality, residence or identity of such Bridge Party, Holder or beneficial
owner that is required under a statute, treaty, regulation or administrative
practice of the jurisdiction imposing such Tax as a precondition to exemption
from all or part of such Tax or (B) the applicable signed form required to be
received by the Credit Parties to qualify for an exemption or reduction of such
Tax;
(v) in the case of a Holder other than a Bridge Party or a
person described in Section 8.3(a)(ii), any Taxes imposed on any payment on an
Obligation to a Holder that is a fiduciary or classified as an S corporation or
a partnership of such payment to the extent a beneficiary or settlor with
respect to such fiduciary or a member of such partnership or a shareholder of
such S corporation or a beneficial owner would not have been entitled to the
payment of taxes had such beneficiary, settlor, member, shareholder or
beneficial owner directly received its beneficial or distributive share of such
payment;
(vi) any Tax that is imposed or withheld, to the extent
that the applicable Bridge Party or Holder would have been subject to such Tax
at the time of the making of the Loan or the original purchase of the Notes upon
their original issuance if such Bridge Party or Holder had made the Loan or
purchased the Note at that time; and
(vii) any combination of items (i) through (vi) above.
(e) Notwithstanding anything in Section 2.8(d) to the contrary,
the Company agrees to indemnify each Bridge Party and each other Holder for all
Domestic Taxes of such Bridge Party or such other Holder (calculated based on a
hypothetical basis at the maximum marginal rate for a corporation) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, in each case to the extent that such Domestic Taxes result from
any payment or indemnification pursuant to this Section 2.8. This
indemnification shall be paid within 15 days after such Bridge Party or such
Holder (as the case may be) makes demand therefor.
(f) The Company agrees that the provisions of this Section 2.8
shall inure to the benefit of any transferee of any Obligation, provided that a
--------
transferee shall not be entitled to receive any greater payments under this
Section 2.8 than its transferor would have been entitled to receive with respect
to the Obligation so transferred, and provided further that a transferee shall
--------
comply with the provisions of this Section 2.8.
(g) Notwithstanding Section 9.3 and Section 9.4, this Section 2.8
sets forth the exclusive agreement of the parties hereto with respect to Taxes
and Other Taxes.
SECTION 2.9. Warrants.
--------
(a) On the date of the Takedown, the Warrants shall be placed in
escrow pursuant to the terms set forth in the Warrant Escrow Agreement.
(b) If the refinancing of 100% of the Obligations is not
completed within the periods following the First Anniversary set forth in Column
------
A below, Warrants representing the percentage of the Company's fully-diluted
- -
Equity Securities set forth in Column B shall be released from escrow (to the
--------
extent not previously released pursuant to Section 2.9(c)) by the Escrow Agent
to the Bridge Parties pro rata in accordance with their respective Commitments
--- ----
and the Bridge Parties shall be entitled to retain such released Warrants in
accordance with the Warrant Escrow Agreement.
Column A Column B
-------- --------
Period from Percentage
First Anniversary of Equity Securities
----------------- --------------------
172
<PAGE>
<TABLE>
<S> <C>
Up to 90 days 1.25%
91-180 days 1.25%
181-270 days 1.25%
271-360 days 1.25%
-----
5.00%
=====
</TABLE>
(c) On and after the Fixed Rate Sale Date, all of the Warrants shall
be released from escrow by the Escrow Agent to the Bridge Parties pro rata in
--- ----
accordance with their respective Commitments as and when the Bridge Parties may
request, provided that the Bridge Parties shall be entitled to such released
--------
Warrants only in order to facilitate such resale, transfer or assignment of the
Obligations.
(d) Any Warrants to which a Bridge Party is not entitled as set forth
above shall be returned for cancellation following a determination thereof. The
Company grants the holders of the Warrants registration rights with respect
thereto on the terms set forth in Exhibit B-2 attached hereto and made a part
-----------
hereof.
SECTION 2.10. Subordination. The obligations of the Company hereunder
-------------
are subordinate and junior in right of payment to all Designated Senior Debt, as
such term is defined in, and to the extent and in the manner set forth in
Exhibit E attached hereto.
- ---------
SECTION 2.11. Registration of Transfer; Register Evidence of Loans.
----------------------------------------------------
(a) The Obligations are transferable and assignable to one or more purchasers or
assignees (in minimum denominations of $2,500,000, measured by the amount
received by the transferee Holder from all transferor Holders on a given date)
subject to any applicable limitations set forth in Article VIII to the extent
the Securities Act applies. The Company agrees to issue from time to time new or
replacement Notes, within three (3) Business Days of request therefor, to
facilitate such transfers and assignments. The Company agrees to provide DLJ
Bridge with notice of any transfer or assignment of the Obligations within two
(2) Business Days of such transfer or assignment.
(b) The Company shall keep at its principal office a register (the
"Register") in which shall be entered the names and addresses of the Holders and
particulars of the respective Obligations held by them and of all transfers of
such Obligations. References to the "Holder" or "Holders" shall mean the Person
listed in the Register as the owner of any Obligation. No transfer of any
Obligation shall be effective except upon recordation in the Register.
(c) The Loans shall not be evidenced by any instruments. Each Holder,
however, at its option, shall be entitled to receive a Loan note, substantially
in the form set forth in Exhibit A attached hereto with conforming changes
---------
thereto, evidencing its portion of the Loan. Each Holder of a Loan shall
maintain in accordance with its usual practice an account or accounts evidencing
the indebtedness of the Company to such Holder resulting from the Loan held by
such Holder from time to time, including the amounts of principal and interest
payable and paid to such Holder from time to time under this Agreement. The
entries made in such accounts shall, to the extent permitted by applicable law,
be prima facie evidence of the existence and amounts of the obligations of the
----- -----
Company therein recorded; provided, however, that the failure of any Holder to
-------- -------
maintain such accounts or any error therein shall not in any manner affect the
obligations of the Company to repay (with the applicable interest) the Loans in
accordance with the terms of this Agreement.
(d) Each Holder of a Loan may at any time exchange such Loan for an
equivalent principal amount of Notes. Any Holder wishing to do so shall notify
the Company of the amount of Notes to be issued and the names and addresses to
be entered in the Register in respect thereof. The Company agrees to issue Notes
in exchange for Loans within three (3) Business Days of the request thereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to each Bridge Party and each
Holder as set forth below:
SECTION 3.1. Organization; Powers. Each of the Company and its
--------------------
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted (after giving effect to the
Transactions) and, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required.
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<PAGE>
SECTION 3.2. Authorization; Execution; Enforceability. The
----------------------------------------
Transactions to be entered into by each Credit Party are within such Credit
Party's corporate or other organization powers and have been duly authorized by
all necessary corporate or other organization and, if required, stockholder
action. This Agreement has been duly executed and delivered by the Company and
constitutes, and each other Bridge Loan Document to which any Credit Party is to
be a party, when executed and delivered by such Credit Party, will constitute, a
legal, valid and binding obligation of the Company or such Credit Party (as the
case may be), enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.
SECTION 3.3. Governmental Approvals; No Conflicts. The Transactions
------------------------------------
(a) do not require any consent or approval of, registration or filing with, or
any other action by, any Governmental Authority, except such as have been
obtained or made and are in full force and effect, (b) will not violate any
applicable law or regulation or the charter, by-laws or other organizational
documents of the Company or any of its Subsidiaries or any order of any
Governmental Authority, (c) will not violate or result in a default under any
indenture, agreement or other instrument binding upon the Company or any of its
Subsidiaries or its assets, or give rise to a right thereunder to require any
payment to be made by the Company or any of its Subsidiaries (other than in
respect of Existing Indebtedness (as defined in the Credit Agreement) that is
repaid on the Closing), and (d) will not result in the creation or imposition of
any Lien on any asset of the Company or any of its Subsidiaries, except Liens
created under the Loan Documents.
SECTION 3.4. Financial Condition; No Material Adverse Change. (a)
-----------------------------------------------
The Company has heretofore furnished to the Bridge Parties its consolidated
balance sheet and statements of income, stockholders equity and cash flows (i)
as of and for the fiscal year ended September 27, 1998, reported on by
PriceWaterhouseCoopers, LLP, independent public accountants, and (ii) as of and
for the fiscal quarter and the portion of the fiscal year ended June 27, 1999
certified by its chief financial officer. Such financial statements present
fairly, in all material respects, the financial position and results of
operations and cash flows of the Company and its Consolidated Subsidiaries as of
such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the statements
referred to in clause (ii) above.
(b) The Company has heretofore furnished to the Bridge Parties its
pro forma consolidated balance sheet as of June 27, 1999, prepared giving
- ---------
effect to the Transactions as if the Transactions had occurred on such date.
Such pro forma consolidated balance sheet (i) has been prepared in good faith
---------
based on assumptions believed by the Company to be reasonable), (ii) is based on
the best information available to the Company after due inquiry, (iii)
accurately reflects all adjustments necessary to give effect to the Transactions
and (iv) presents fairly, in all material respects, the pro forma financial
position of the Company and its Consolidated Subsidiaries as of June 27, 1999 as
if the Transactions had occurred on such date.
(c) Except as disclosed in the financial statements referred to above
or the notes thereto and except for the Disclosed Matters, after giving effect
to the Transactions, none of the Company or its Subsidiaries has, as of the
Closing, any material contingent liabilities, unusual long-term commitments or
unrealized losses.
(d) Since September 27, 1998, there has been no material adverse
change in the business, results of operations, properties or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole.
SECTION 3.5. Properties. (a) Each of the Company and its
----------
Subsidiaries has good title to, or valid leasehold interests in, all its real
and personal property material to its business (including its Mortgaged
Properties as defined in the Credit Agreement), free of all Liens, except for
Permitted Encumbrances (as defined in the Credit Agreement) and other Liens
permitted by or existing pursuant to or under the Credit Agreement and except
for minor defects in title that do not interfere with its ability to conduct its
business as currently conducted or to utilize such properties for their intended
purposes.
(b) Each of the Company and its Subsidiaries owns, or is licensed to
use, all trademarks, trade names, copyrights, patents and other intellectual
property material to its business, and the use thereof by the Company and its
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
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(c) Schedule 3.5 sets forth the address of each real property that is
------------
owned or leased by the Company or any of its Subsidiaries as of the Closing
after giving effect to the Transactions.
(d) As of the Closing, neither the Company nor any of its
Subsidiaries has received notice of, or has knowledge of, any pending or
contemplated condemnation proceeding affecting any Mortgaged Property (as
defined in the Credit Agreement) or any sale or disposition thereof in lieu of
condemnation. Neither any Mortgaged Property (as defined in the Credit
Agreement) nor any interest of any Credit Party therein is subject to any right
of first refusal, option or other contractual right to purchase such Mortgaged
Property (as defined in the Credit Agreement) or interest therein.
SECTION 3.6. Litigation and Environmental Matters. (a) There are
------------------------------------
no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters) or (ii) that involve any of the Bridge Financing Documents, Loan
Documents or the Transactions.
(b) Except for the Disclosed Matters indicated on Schedule 3.6
------------
neither the Company nor any of its Subsidiaries (i) has failed to comply with
any Environmental Law or to obtain, maintain or comply with any permit, license
or other approval required under any Environmental Law, except as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, (ii) has become subject to any Environmental Liability, except
as could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, (iii) has received notice of any claim with respect to
any Environmental Liability, except as could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect or (iv)
knows of any basis for any Environmental Liability, except as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.7. Compliance with Laws and Agreements. Each of the
-----------------------------------
Company and its Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. No Default has
occurred and is continuing.
SECTION 3.8. Investment Company Status. Neither the Company nor any
-------------------------
of its Subsidiaries is an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940.
SECTION 3.9. Governmental Regulation. No Credit Party is, or will
-----------------------
be upon the borrowing of the Loan and the issuance and sale of the Securities
and the use of the proceeds described herein, subject to regulation under the
Public Utility Holding Company Act of 1935 or the Federal Power Act (each, as
amended) or to any federal or state statute or regulation in a manner which
would limit its ability to issue the Notes (in the case of the Company) and
perform its obligations under any Bridge Financing Document.
SECTION 3.10. Taxes. Each of the Company and its Subsidiaries has
-----
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) any Taxes that are being contested in good faith by
appropriate proceedings and for which the Company or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
SECTION 3.11. ERISA. No ERISA Event has occurred or is reasonably
-----
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $1,000,000 the fair market value of the assets of such Plan, and the
present value of all accumulated
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benefit obligations of all underfunded Plans (based on the assumptions used for
purposes of Statement of Financial Accounting Standards No. 87) did not, as of
the date of the most recent financial statements reflecting such amounts, exceed
by more than $2,000,000 the fair market value of the assets of all such
underfunded Plans.
SECTION 3.12. Disclosure. The Company has disclosed to the Bridge
----------
Parties all agreements, instruments and corporate or other restrictions to
which, the Company or any of its Subsidiaries is subject, and all other matters
known to any of them, that, individually or in the aggregate, could reasonably
be expected to result in a Material Adverse Effect. As of the Closing none of
the reports, financial statements, certificates or other information furnished
by or on behalf of any Credit Party to the Bridge Parties in connection with the
negotiation of this Agreement or any other Bridge Financing Document contains
any material misstatement of fact or omits to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided that, with respect to projected
--------
financial information, the Company represents only that such information was
prepared in good faith based upon assumptions believed to be reasonable at the
time. None of the reports, financial statements, certificates or other
information furnished by or on behalf of any Credit Party to the Bridge Parties
or delivered hereunder or thereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that,
--------
with respect to projected financial information, the Company represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time.
SECTION 3.13. Subsidiaries. Schedule 3.13 sets forth the name of,
------------ -------------
and the ownership interest of the Company in, each Subsidiary of the Company and
identifies each Subsidiary that is a Credit Party, in each case as of the
Closing.
SECTION 3.14. Insurance. Schedule 3.14 sets forth a description of
--------- -------------
all insurance maintained by or on behalf of the Company and its Subsidiaries as
of the Closing. As of the Closing, all premiums in respect of such insurance
have been paid.
SECTION 3.15. Labor Matters. As of the Closing, there are no
-------------
strikes, lockouts or slowdowns against the Company or any Subsidiary pending or,
to the knowledge of the Company, threatened. The hours worked by and payments
made to employees of the Company and the Subsidiaries have not been in violation
of the Fair Labor Standards Act or any other applicable Federal, state, local or
foreign law dealing with such matters. All payments due from the Company or any
Subsidiary, or for which any claim may be made against the Company or any
Subsidiary, on account of wages and employee health and welfare insurance and
other benefits, have been paid or accrued as a liability on the books of the
Company or such Subsidiary. The consummation of the Transactions will not give
rise to any right of termination or right of renegotiation on the part of any
union under any collective bargaining agreement to which the Company or any
Subsidiary is bound.
SECTION 3.16. Solvency. Immediately after the consummation of the
--------
Transactions to occur on the Closing and immediately following the issuance of
the Notes and the making of each Loan made on the Closing and after giving
effect to the application of the proceeds thereof, (a) the fair value of the
assets of each Credit Party, at a fair valuation, will exceed its debts and
liabilities, subordinated, contingent or otherwise; (b) the present fair
saleable value of the property of each Credit Party will be greater than the
amount that will be required to pay the probable liability of its debts and
other liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured; (c) each Credit Party will be
able to pay its debts and liabilities, subordinated, contingent or otherwise, as
such debts and liabilities become absolute and matured; and (d) each Credit
Party will not have unreasonably small capital with which to conduct the
business in which it is engaged as such business is now conducted and is
proposed to be conducted following the Closing.
SECTION 3.17. Year 2000. Any reprogramming required to permit the
---------
proper functioning, in and following the year 2000, of (a) the computer systems
of the Company and its Subsidiaries and (b) equipment containing embedded
microchips (including systems and equipment supplied by others or with which the
Company's systems interface) and the testing of all such systems and equipment,
as so reprogrammed, has been completed. The cost to the Company and its
Subsidiaries of the reasonably foreseeable consequences of year 2000 to the
Company and its Subsidiaries (including reprogramming errors and the failure of
others' systems or equipment) will not result in a Default or a Material Adverse
Effect. The computer and management information systems of the Company and its
Subsidiaries are and, with ordinary course upgrading and maintenance, will
continue for the term of this Agreement to be, sufficient to permit the Company
to conduct its businesses without a Material Adverse Effect.
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<PAGE>
SECTION 3.18. Private Offering; Solicitation; Access to Information.
-----------------------------------------------------
The sale of the Notes hereunder is exempt from the registration and prospectus
delivery requirements of the Securities Act. The foregoing representation is
made in reliance upon and subject to the accuracy of the Purchasers'
representations in Section 4.1. No form of general solicitation or general
advertising was used by any Credit Party or, to the best of its knowledge, any
other Person acting on behalf of any Credit Party, in connection with the offer
and sale of the Notes or the Securities or the borrowing of the Loans. Neither
any Credit Party nor any Person acting on behalf of any Credit Party has, either
directly or indirectly, sold or offered for sale to any Person any of the Notes
or any other similar security of any Credit Party or the Securities or other
Obligations except as contemplated by this Agreement, and the Company represents
that neither it nor any Credit Party nor any person acting on its behalf other
than the Bridge Parties and their respective Affiliates will sell or offer for
sale to any Person any such security to, or solicit any offers to buy any such
security from, or otherwise approach or negotiate in respect thereof with, any
Person or Persons so as thereby to bring the issuance or sale of any of the
Notes or other Obligations within the provisions of Section 5 of the Securities
Act.
SECTION 3.19. Non-fungibility. When the Notes are issued and
---------------
delivered pursuant to this Agreement, the Notes will not be of the same class
(within the meaning of Rule 144A under the Securities Act) as securities which
are (i) listed on a national securities exchange registered under Section 6 of
the Exchange Act or (ii) quoted in a U.S. automated inter-dealer quotation
system.
SECTION 3.20. Permits. Except to the extent any of the following
-------
could not result in a Material Adverse Effect: (a) each Credit Party has all
Permits as are necessary for the conduct of their respective businesses as it
has been carried on; (b) all such Permits are in full force and effect, and each
Credit Party has fulfilled and performed all material obligations with respect
to such Permits; (c) no event has occurred which allows, or after notice or
lapse of time would allow, revocation or termination by the issuer thereof or
which results in any other impairment of the rights of the holder of any such
Permit; and (d) each Credit Party has no reason to believe that any governmental
body or agency is considering limiting, suspending or revoking any such Permit.
SECTION 3.21. Representations in Other Documents. Each of the
----------------------------------
representations and warranties of the Credit Parties set forth in any of the
Bridge Financing Documents, Senior Facilities Loan Documents and the
Recapitalization Agreement and the other documents related thereto is true and
correct in all material respects.
SECTION 3.22. No Violation of Regulations of Board of Governors of
----------------------------------------------------
Federal Reserve System. No Credit Party or any agent thereof acting on the
- ----------------------
behalf of a Credit Party has taken, and none of them will take, any action that
might cause this Agreement or the borrowing of the Loan and the issuance or sale
of the Securities or the application of proceeds thereof to violate Section 7 of
the Exchange Act or any regulation issued pursuant thereto, including, without
limitation, Regulation T, U or X of the Board of Governors of the Federal
Reserve System. No Credit Party is engaged or will engage, principally or as
one of its important activities, in the business of extending credit for the
purpose of "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under said Regulation U.
SECTION 3.23. Company Business. At any time after Closing, the
----------------
Company will not, and will not permit its Subsidiaries to, engage to any
material extent in any business other than the businesses of the type conducted
by the Company and its Subsidiaries on the Funding Date and businesses
reasonably related thereto.
SECTION 3.24. Capitalization. At the date of the Takedown and after
--------------
giving effect to the Transactions, the capitalization of the Company will be as
set forth on Schedule 3.24. Other than as set forth on Schedule 3.24, all of
------------- -------------
the issued and outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable and free and clear of any Lien or other
right or claim (except for those Liens permitted by or securing the Senior
Facilities) and the holders thereof are not entitled to any preemptive or other
similar rights. Other than as set forth on Schedule 3.24, there are no
-------------
subscriptions, options, warrants, rights, convertible securities, exchangeable
securities or other agreements or commitments of any character pursuant to which
the Company is required to issue any shares of its capital stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BRIDGE PARTIES
SECTION 4.1. Purchasers' Representations. Each Purchaser severally
---------------------------
represents and warrants to the Company and Chase that:
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(a) each Purchaser is an Accredited Investor within the meaning of
Rule 501(a) under the Securities Act and the Securities to be acquired by it
pursuant to this Agreement are being acquired for its own account and each
Purchaser will not offer, sell, transfer, pledge, hypothecate or otherwise
dispose of the Securities unless pursuant to a transaction either registered
under, or exempt from registration under, the Securities Act;
(b) the execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant hereto are within each Purchaser's corporate
powers and have been duly and validly authorized by all requisite corporate
action;
(c) this Agreement has been duly executed and delivered by each
Purchaser;
(d) this Agreement constitutes a valid and binding agreement of each
Purchaser enforceable in accordance with its terms; and
(e) each Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Securities and each Purchaser is capable of bearing the
economic risks of such investment.
SECTION 4.2. Chase Representations. Chase represents and warrants
---------------------
to the Company and the Purchasers that:
(a) Chase is making the Loan for its own account in the ordinary
course of its commercial banking business and will not offer, sell, transfer,
pledge, hypothecate or otherwise dispose of any Securities acquired by it
pursuant to the Bridge Financing Documents unless pursuant to a transaction
either registered under, or exempt from registration under, the Securities Act;
(b) the execution, delivery and performance of this Agreement and the
making of the Loan pursuant hereto are within Chase's corporate powers and have
been duly and validly authorized by all requisite corporate action;
(c) this Agreement has been duly executed and delivered by Chase and
does not contravene or conflict with the organizational documents of Chase;
(d) this Agreement constitutes a valid and binding agreement of Chase
enforceable in accordance with its terms; and
(e) Chase has such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of making the
Loan and acquiring any of the Securities or other Obligations and is capable of
bearing the economic risks of making the Loan and acquiring any of the
Securities or other Obligations.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.1. Conditions to Bridge Parties' Obligations. The
-----------------------------------------
obligation of each Purchaser to purchase the Notes to be issued and sold by the
Company hereunder and the obligation of Chase to make the Loan to be made by it
hereunder are each subject to the satisfaction of the following conditions
contemporaneously with the Takedown:
(a) each of the Bridge Financing Documents and the Company Corporate
Documents shall have been duly executed and delivered by the parties thereto and
shall be in full force and effect and no term or condition thereof shall have
been amended, waived or otherwise modified without the prior written consent of
each Bridge Party;
(b) the Company shall have entered into the Senior Facilities in
accordance with the terms of the Credit Agreement and the transactions
contemplated thereby, the terms and conditions of which shall be reasonably
satisfactory in all respects to the Bridge Parties and the Bridge Parties shall
have received evidence reasonably satisfactory to it of the foregoing. The
Company shall have received proceeds of not less than $260,000,000 from the
Senior Facilities and the revolver thereunder shall be available and drawn in a
maximum amount not to exceed $10,000,000 on the Funding Date;
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<PAGE>
(c) the Bridge Parties shall have received such documents and
certificates as the Bridge Parties or their counsel may reasonably request
relating to the organization, existence and good standing of each Credit Party,
the authorization of the Transactions and any other legal matters relating to
the Credit Parties, the Bridge Financing Documents or the Transactions, all in
form and substance reasonably satisfactory to the Bridge Parties and their
counsel;
(d) the Bridge Parties shall have received evidence reasonably
satisfactory to them that all governmental, shareholder and third party consents
and approvals (including Hart Scott Rodino clearance) necessary or desirable in
connection with the transactions contemplated by the Bridge Financing Documents,
the Senior Facilities and the Transactions have been received and all applicable
waiting periods shall have expired without any action being taken by any
competent authority that could restrain, prevent or impose any materially
adverse conditions on, or that could seek or threaten, any of the foregoing, and
no law or regulation shall be applicable which in the judgment of the Bridge
Parties could have any such effect;
(e) the Bridge Parties shall not have become aware since October 12,
1999, of any information or other matter which is inconsistent in a material and
adverse manner with any information or other material disclosed to Bridge
Parties prior to such date;
(f) the corporate, tax, capital and ownership structure (including
articles of incorporation, operating or member agreements and by-laws) and
stockholders agreements of the Credit Parties shall be reasonably satisfactory
to the Bridge Parties in all respects;
(g) absence of any material adverse change in the business, results
of operations, properties, assets or financial condition of any Credit Party,
taken as a whole, since the end of the most recently ended fiscal year for which
audited financial statements have been provided to the Bridge Parties or in the
facts and information as represented to the Bridge Parties by the Credit Parties
and Kelso to date;
(h) except as set forth on Schedule 3.6, there shall exist no pending
------------
or threatened material litigation, proceedings or investigations which (x) could
or purports to affect the transactions contemplated hereby or (y) could
reasonably be expected to have a material adverse effect on the business,
assets, liabilities (including environmental liabilities), financial condition
or operations of the Credit Parties, taken as a whole;
(i) the Bridge Parties shall have received reasonably satisfactory
opinions of counsel to the Credit Parties covering the items set forth in
Exhibit H attached hereto;
- ---------
(j) absence of any Default or Event of Default or event that, with
notice and/or the passage of time, is reasonably likely to result in an Event of
Default and the representations and warranties made herein being true and
correct in all material respects as of Closing and after giving effect to the
Transactions;
(k) the Bridge Parties shall have received the necessary consents
from lenders to the Credit Parties, if any, concerning the anticipated terms and
conditions of the Notes and the Permanent Financing, including the application
of the proceeds from any such financing for the purpose of repaying all of the
Obligations;
(l) the Bridge Parties shall be an addressee of the solvency opinion
delivered by Murray Devine & Co. pursuant to the Credit Agreement which shall be
in a form reasonably satisfactory to the Bridge Parties;
(m) all fees and expenses due and payable to Bridge Parties and the
Underwriters hereunder or under the Fee Letter in connection with the
transactions contemplated hereby, shall have been paid in full;
(n) the Bridge Parties shall be reasonably satisfied as to the amount
and nature of any environmental and employee health and safety exposures to
which the Company and its Subsidiaries may be subject after giving effect to the
Transactions, and with the plans of the Company or such Subsidiaries with
respect thereto, and, to the extent reasonably requested by the Bridge Parties
shall have received environmental assessments (including, if applicable, Phase I
reports) reasonably satisfactory to the Bridge Parties from an environmental
consulting firm reasonably satisfactory to the Bridge Parties;
(o) the Company shall have received the full amount of the gross cash
proceeds from the Equity Contribution and after giving effect to the
Transactions and the other transactions contemplated hereby,
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Kelso and certain other investors, including the Management Investors, shall
hold not less than 93% of the outstanding post-Merger common stock of the
Company; provided that Kelso shall hold not less than seventy-five percent (75%)
--------
of such post-Merger common stock;
(p) the Recapitalization shall have been consummated or shall be
consummated simultaneously with or immediately following the initial funding
hereunder on the Funding Date in accordance with applicable law, the
Recapitalization Agreement and all other related documentation. The Bridge
Parties shall be reasonably satisfied with all documentation related to the
Recapitalization (to the extent not delivered to the Bridge Parties for review
prior to October 12, 1999). There shall not have been any amendment,
modification or waiver of any of the terms or conditions of the Recapitalization
Agreement and all other related documentation without the prior written consent
of the Bridge Parties. The Cash Consideration shall not exceed $288,500,000;
(q) the Bridge Parties shall have received a pro forma
---------
consolidated balance sheet of the Company as of the Funding Date, after giving
effect to the Transactions and the other transactions contemplated hereby, which
balance sheet shall not be materially inconsistent with the forecasts previously
provided to Bridge Parties. After giving effect to the Transactions, neither the
Company nor any of its Subsidiaries shall have outstanding any shares of
preferred stock or any Indebtedness, other than (i) the Senior Facilities, (ii)
Indebtedness incurred hereunder and (iii) capitalized leases not in excess of
$3,600,000. The aggregate Transaction Costs, including deferred compensation,
shall not exceed $32,500,000;
(r) the Bridge Parties shall have received unaudited consolidated
balance sheets and related statements of income, stockholders' equity and cash
flows of the Company for (i) each fiscal quarter (other than the fourth fiscal
quarter) subsequent to the end of the 1998 fiscal year that ended at least 30
days before the Funding Date and (ii) each fiscal month after the most recent
1999 fiscal quarter for which financial statements were received by the Bridge
Parties as described above and that ended at least 30 days before the Funding
Date; and
(s) the tax position and contingent tax and other liabilities of
the Company and its Subsidiaries after giving effect to the Transactions shall
be reasonably satisfactory to the Bridge Parties.
ARTICLE VI
COVENANTS
The Company covenants and agrees (and covenants and agrees that it
shall cause each Credit Party to covenant and agree) that, from and after the
date of the Takedown and so long as the Commitment remains in effect or any
Obligations remain outstanding and unpaid or any other amount is owing to the
Bridge Parties or the Holders, and for the benefit of Bridge Parties and the
Holders, it will comply with the following:
SECTION 6.1. Incorporation by Reference. (a) Prior to the Covenant
--------------------------
Conversion Date, the Company will comply with each of the covenants contained in
Article V (except for Sections 5.03, 5.07(b), 5.12, 5.13 and 5.14 and references
thereto) and Article VI (except for Sections 6.07, 6.11(a), 6.12 and 6.13 and
references thereto) of the Credit Agreement, which such Sections (the
"Incorporated Sections"), are hereby incorporated by reference mutatis mutandis
- ------------- -------- ------- --------
as if set forth herein in their entirety; provided, that, unless the context
--------
otherwise requires, capitalized and other defined terms used in the Incorporated
Sections shall for the purpose of the Incorporated Sections, have the meanings
set forth in the Credit Agreement, modified as follows:
(i) all references to "Borrower" therein shall mean and be a
reference to "Company" herein;
(ii) all references to "Loan" or "Loans" therein shall mean and
be a reference to "Obligation" or "Obligations" herein;
(iii) all references to "Lender" or "Lenders" therein shall mean
and be a reference to "Bridge Party" or "Bridge Parties" herein (except for
Section 6.04(e) of the Credit Agreement);
(iv) all references to the "Agent" or "Administrative Agent"
therein shall mean and be a reference to "Bridge Parties" herein (except for
Section 6.01(xii) of the Credit Agreement);
(v) all references to the "Required Lenders" therein shall
mean and be a reference to "Majority Holders" herein;
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(vi) all referenced to "this Agreement", "herein", "hereunder"
and words of similar import therein shall mean and be a reference to this
Agreement;
(vii) all references to any exhibits or schedules therein shall
mean and be a reference to the specific exhibit or schedule to the Credit
Agreement herein; and
(viii) Section 6.01 of the Credit Agreement as incorporated
herein by reference shall include Indebtedness created under the Credit
Agreement or any refinancing thereof as permitted Indebtedness hereunder, so
long as the aggregate amount thereof is not increased above the aggregate
commitments under the Credit Agreement as in effect on the Funding Date.
In connection with any amendment, modification, waiver or supplement
to the Credit Agreement (excluding any amendment, modification, waiver or
supplement to the Credit Agreement with respect to financial covenants) which
will be incorporated herein by reference, the Company hereby authorizes the
Bridge Parties, in their sole discretion, to enter into an appropriate amendment
to this Agreement to reflect such amendment, modification, waiver or supplement.
(b) On or after the Fixed Rate Sale Date, if the Company is in
compliance with Sections 6.12 and 6.13 of the Credit Agreement as in effect on
the Funding Date and the Bridge Parties do not hold any Obligations (other than
any Obligations re-acquired after disposition thereof), the Company will comply
with each of the covenants set forth in Exhibit G attached hereto, which shall
---------
replace the covenants set forth in subsection (a) above and which shall at such
time then (and thereafter) be, upon notice to the Company from DLJ Bridge (but
without the need for any further action), hereby incorporated by reference
mutatis mutandis.
- ------- --------
SECTION 6.2. Monthly Reports. Prior to the Covenant Conversion
---------------
Date, the Company will deliver to each Bridge Party within 30 days after the end
of each of the first two fiscal months of each fiscal quarter of the Company,
its consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such fiscal month
and the then elapsed portion of the fiscal year, all certified by one of its
financial officers as presenting in all material respects the financial
condition and results of operations of the Company and its consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments and the absence of
footnotes.
SECTION 6.3. Notices Under the Credit Agreement. Until the Covenant
----------------------------------
Conversion Date, the Company will deliver copies of all notices given or
received by it in connection with the Credit Agreement to each Bridge Party on
the day that such notice is given by the Company or within three (3) Business
Day after such notice is received by it, as the case may be, in the manner set
forth in Section 9.1 (except that for notices of potential and actual defaults
or events of default given or received by the Company, the Company will deliver
copies of such notices to each Bridge Party on the day that such notice is given
by the Company or within one (1) Business Day after any such notice is received
by the Company).
SECTION 6.4. Permanent Financing. (a) The Company will, and will
-------------------
cause each Credit Party to, take all the actions which, in the reasonable
judgment of the Bridge Parties, are necessary or desirable to obtain Permanent
Financing as soon as practicable through the issuance of securities at such
interest rates and on other terms as are, in the reasonable opinion of the
Bridge Parties, prevailing for new issues of securities of comparable size and
credit rating in the capital markets at the time such Permanent Financing is
consummated and obtained in comparable transactions made on an arm's length
basis between unaffiliated parties, provided, that, if in the reasonable
--------
judgment of the Bridge Parties, equity securities of the Company need to be
provided for the consummation of the Permanent Financing on the terms and
conditions set forth above, the terms of the Permanent Financing shall provide
for the issuance of such equity securities (which may include warrants to
purchase such equity securities). The amount to be financed shall be in an
amount at least sufficient to repay or redeem the Obligations in full in
accordance with their terms. The Company hereby covenants and agrees that the
proceeds from the Permanent Financing shall be used to the extent required to
redeem in full the Obligations in accordance with their terms.
(b) The Company covenants that it will, and will cause each Credit
Party to, enter into such agreements as in the judgment of the Bridge Parties
are customary in connection with the Permanent Financing, make such filings
under the Securities Act, the Exchange Act, the Trust Indenture Act of 1939, as
amended, and state securities laws as in the reasonable judgment of the Bridge
Parties shall be required to permit consummation of the Permanent Financing and
take such steps as in the judgment of the Bridge Parties are necessary or
desirable
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to cause such filings to become effective or in the judgment of the
Bridge Parties are otherwise required to consummate the Permanent Financing.
SECTION 6.5. Subsidiary Guaranty. The Company will cause each
-------------------
Subsidiary that is not a guarantor under the Subsidiary Guaranty that becomes a
guarantor under the Guarantee Agreement (as defined in the Credit Agreement) to
enter into the Subsidiary Guaranty.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.1. Events of Default Defined; Acceleration of Maturity;
----------------------------------------------------
Waiver of Default. In case one or more of the following (each, an "Event of
- -----------------
Default"), whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation or any
administrative or governmental body, shall have occurred and be continuing:
(a) default in the payment of all or any part of the principal or
premium, if any, on any of the Obligations as and when the same shall become due
and payable either at maturity, upon any redemption, by declaration or
otherwise; or
(b) default in the payment of any installment of interest upon any of
the Obligations or any fees payable under this Agreement as and when the same
shall become due and payable, and continuance of such default for a period of
five (5) days; or
(c) failure on the part of the Company duly to observe or perform any
of the covenants contained in (i) Sections 5.02, 5.04 (with respect to the
existence of the Company) or 5.11 of the Credit Agreement, or in the
Incorporated Sections of Article VI of the Credit Agreement (in each case, as
incorporated herein by reference pursuant to Section 6.1) or (ii) Section 6.4 of
this Agreement and continuance of such default for a period of two (2) Business
Days after receipt by the Company of written notice thereof; or
(d) failure on the part of any Credit Party duly to observe or perform
any of the other covenants or agreements contained in the Bridge Financing
Documents, if such failure shall continue for a period of thirty (30) days after
the date on which written notice thereof shall have been given to the Company at
the option of and by a holder of an Obligation; or
(e) any Credit Party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect in any jurisdiction or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing; or
(f) an involuntary case or other proceeding shall be commenced against
any Credit Party seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days; or an order for relief shall
be entered against any Credit Party under the bankruptcy laws as now or
hereafter in effect in any jurisdiction; or
(g) there shall be a default in respect of any Debt of any Credit
Party in an aggregate principal amount in excess of $5,000,000 whether such Debt
now exists or shall hereafter be created (excluding the Obligations but
including Debt owing by any Credit Party) if such default results in
acceleration of the maturity of such Debt or (prior to the Covenant Conversion
Date) enables the holder of such Debt to accelerate the maturity thereof; or any
Credit Party shall fail to pay at maturity any such Debt whether such debt now
exists or shall hereafter be created; or
(h) final judgments for the payment of money which in the aggregate at
any one time exceed $5,000,000 shall be rendered against any Credit Party by a
court of competent jurisdiction and shall remain undischarged for a period
(during which execution shall not be effectively stayed) of sixty (60) days
after such judgment becomes final; or
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(i) any representation, warranty, certification or statement made or
deemed made by any Credit Party in any Bridge Financing Document or which is
contained in any certificate, document or financial or other statement furnished
at any time under or in connection with any Bridge Financing Document shall
prove to have been untrue in any material respect when made or deemed made; or
(j) any member of the ERISA Group has failed to pay when due an amount
or amounts aggregating in excess of $2,500,000 which it shall have become liable
to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan
has been filed under Title IV of ERISA by any member of the ERISA Group, any
plan administrator or any combination of the foregoing; or the PBGC has
instituted proceedings under Title IV of ERISA to terminate, to impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or to cause
a trustee to be appointed to administer any Material Plan; or a condition has
existed by reason of which the PBGC is entitled to obtain a decree adjudicating
that any Material Plan must be terminated; or there has occurred a complete or
partial withdrawal from, or a default, within the meaning of Section 4219(c)(5)
of ERISA, with respect to, one or more Multiemployer Plans which could cause one
or more members of the ERISA Group to incur a current payment obligation in
excess of $2,500,000; or
(k) a breach under the Engagement Letter has occurred and is
continuing for period of two (2) Business Days following notice thereof (other
than (i) due to non-payment of reimbursable expenses payable thereunder or (ii)
due to the unsolicited receipt by the Company of an offer on market terms of a
firmly underwritten transaction to refinance the Obligations which DLJ Bridge
approves); or
(l) any Subsidiary Guaranty shall have been disavowed thereunder, a
court of competent jurisdiction shall have determined that any Subsidiary
Guaranty is unenforceable or any guarantor thereunder shall default in the
performance of any of its obligations under any Subsidiary Guaranty; or
(m) prior to the Covenant Conversion Date, a Change of Control has
occurred;
then, and in each and every such case (other than under clauses (e) and (f) with
respect to the Company), unless the principal of all the Obligations shall have
already become due and payable, the Holders of not less than 33 1/3% in
aggregate outstanding principal amount of the Obligations (except that, for so
long as the Bridge Parties hold more than 50% in aggregate outstanding principal
amount of the Obligations, the Holders of more than 50% in aggregate outstanding
principal amount of the Obligations shall be required), by notice in writing to
the Company, may declare the entire principal amount of the Obligations together
with accrued interest thereon to be immediately due and payable. If an Event of
Default specified in clauses (e) or (f) with respect to the Company occurs, the
principal of and accrued interest on the Obligations will be immediately due and
payable without any declaration or other act on the part of the Holders.
ARTICLE VII
LIMITATION ON TRANSFERS
SECTION 8.1. Restrictions on Transfer. The Bridge Parties shall have
------------------------
the absolute and unconditional right to resell or otherwise transfer the
Securities or other Obligations in compliance with applicable law to any third
party at any time. Notwithstanding the foregoing, from and after the date of
the Takedown and their respective dates of issuance, as the case may be, none of
the Securities shall be transferable except upon the conditions specified in
Sections 8.2 and 8.3, which conditions are intended to ensure compliance with
the provisions of the Securities Act in respect of the Transfer of any of such
Securities or any interest therein. The Bridge Parties will cause any proposed
transferee of any Securities (or any interest therein) held by them to agree to
take and hold such Securities (or any interest therein) subject to the
provisions and upon the conditions specified in this Section 8.1 and in Sections
8.2 and 8.3.
SECTION 8.2. Restrictive Legends. (a) Each certificate for the
-------------------
Security issued to the Bridge Parties or to a subsequent transferee shall
(unless otherwise permitted by the provisions of Section 8.2(b) or Section 8.3)
include a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD,
UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND
THEN ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE
BRIDGE FINANCING AGREEMENT DATED AS OF DECEMBER 1, 1999, AS AMENDED, A
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COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER OF THIS SECURITY AT ITS
PRINCIPAL EXECUTIVE OFFICE.
(b) Any holders of Securities registered pursuant to the Securities
Act and qualified under applicable state securities laws may exchange such
Securities on transfer for new securities that shall not bear the legend set
forth in paragraph (a) of this Section 8.2.
SECTION 8.3. Notice of Proposed Transfers. (a) Five (5) Business
----------------------------
Days prior to any proposed Transfer (other than Transfers of Securities (i)
registered under the Securities Act, (ii) to an Affiliate of the Bridge Parties
or a general partnership in which the Bridge Parties or an Affiliate of the
Bridge Parties is one of the general partners or (iii) to be made in reliance on
Rule 144A under the Securities Act) of any Securities, the holder thereof shall
give written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (i) an opinion of counsel reasonably satisfactory
to the Company addressed to the Company to the effect that the proposed Transfer
of such Securities may be effected without registration under the Securities
Act, (ii) such representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (iii) such letters in form and substance reasonably
satisfactory to the Company from each such transferee stating such transferee's
agreement to be bound by the terms of this Agreement. Such proposed Transfer
may be effected only if the Company shall have received such notice of transfer,
opinion of counsel, representation letters and other letters referred to in the
immediately preceding sentence, whereupon the holder of such Securities shall be
entitled to Transfer such Securities in accordance with the terms of the notice
delivered by the holder. Each certificate evidencing the Securities transferred
as above provided shall bear the legend set forth in Section 8.2(a) except that
such certificate shall not bear such legend if the opinion of counsel referred
to above is to the further effect that neither such legend nor the restrictions
on Transfer in Sections 8.1 through 8.3 are required in order to ensure
compliance with the provisions of the Securities Act.
Five (5) Business Days prior to any proposed Transfer of any Notes to
be made in reliance on Rule 144A under the Securities Act ("Rule 144A"), the
holder thereof shall give written notice to the Company of such holder's
intention to effect such Transfer, setting forth the manner and circumstances of
the proposed Transfer and certifying that such Transfer will be made (i) in full
compliance with Rule 144A and (ii) to a transferee that (A) such holder
reasonably believes to be a "qualified institutional buyer" within the meaning
of Rule 144A and (B) is aware that such Transfer will be made in reliance on
Rule 144A. Such proposed Transfer may be effected only if the Company shall
have received such notice of transfer, whereupon the holder of such Securities
shall be entitled to Transfer such Securities in accordance with the terms of
the notice delivered by the holder. Each Certificate evidencing the Securities
transferred as above provided shall bear the legend set forth in Section 8.2(a).
SECTION 8.4. Registration Rights. The Company hereby grants each
-------------------
Purchaser and each Permitted Transferee registration rights with respect to the
Notes on the terms set forth in Exhibit B-1 attached hereto and made a part
-----------
hereof.
SECTION 8.5. Rule 144A Information. So long as any of the
---------------------
Obligations remain outstanding and, to the extent the Company becomes subject to
Section 13 or 15(d) of the Exchange Act, during any period in which the Company
is not subject to Section 13 or 15(d) of the Exchange Act, the Company shall
make available to any Holder in connection with any sale thereof and any
prospective purchaser of such Obligation from such Holder, the information
required by Rule 144A(d)(4) under the Securities Act.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Notice. All notices, demands and other communications
------
to any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereinafter
specify for the purpose. Each such notice, demand or other communication shall
be effective (i) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified on the signature page hereof, or (ii) if given by
overnight courier, addressed as aforesaid or, (iii) if given by any other means,
when delivered at the address specified in this Section.
SECTION 9.2. No Waivers; Amendments. (a) No failure or delay on the
----------------------
part of any party in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any
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other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to any party at law
or in equity or otherwise.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such agreement, supplement or waiver is in writing and
is signed by the Company and the Majority Holders; provided, that without the
--------
consent of each Holder of any Obligation affected thereby, an amendment,
supplement or waiver may not (a) reduce the aggregate principal amount of
Obligation whose Holders must consent to an amendment, supplement or waiver, (b)
reduce the rate or extend the time for payment of interest on any Obligation,
(c) reduce the principal amount of or extend the stated maturity of any
Obligation or alter the redemption provisions (other than the provisions
providing for the payment of a premium in connection with a redemption) with
respect thereto or (d) make any Obligation payable in money or property other
than as stated herein and in the Obligations. In determining whether the Holders
of the requisite principal amount of Obligations have concurred in any
direction, consent, or waiver as provided in this Agreement or in the Notes,
Securities, or Loans which are owned by the Company or any other obligor on or
guarantor of the Notes, or, by any Person controlling, controlled by, or under
common control with any of the foregoing, shall be disregarded and deemed not to
be outstanding for the purpose of any such determination; and provided further
-------- -------
that no such amendment, supplement or waiver which affects the rights of the
Bridge Parties and their respective Affiliates otherwise than solely in their
capacities as Holders shall be effective with respect to them without their
prior written consent.
SECTION 9.3. Indemnification. The Company and its Subsidiaries
---------------
(each, an "Indemnifying Party") agree to indemnify and hold harmless each Bridge
Party, its Affiliates, and each Person, if any, who controls a Bridge Party, or
any of its affiliates, within the meaning of the Securities Act or the Exchange
Act (a "Controlling Person"), and the respective partners, agents, employees,
officers and directors of each Bridge Party, its Affiliates and any such
Controlling Person (each an "Indemnified Party" and collectively, the
"Indemnified Parties"), from and against any and all losses, claims, damages,
liabilities and reasonable expenses (including, without limitation and as
incurred, reasonable costs of investigating, preparing or defending any such
claim or action, whether or not such Indemnified Party is a party thereto),
arising out of, or in connection with any activities contemplated by this
Agreement or any of the services rendered in connection herewith, including, but
not limited to, losses, claims, damages, liabilities or expenses arising out of
or based upon any untrue statement or any alleged untrue statement of a material
fact or any omission or any alleged omission to state a material fact in any of
the disclosure or offering or confidential information documents (the
"Disclosure Documents") pertaining to any of the transactions or proposed
transactions contemplated herein, including any eventual refinancing or resale
of the Securities or Loans, provided that the Indemnifying Party will not be
--------
responsible for any claims, liabilities, losses, damages or expenses that are
determined by final judgment of a court of competent jurisdiction to result
solely from such Bridge Party's gross negligence, willful misconduct or bad
faith (such Bridge Party a "Breaching Bridge Party") (it being understood that
the Indemnifying Party shall remain responsible for the claims, liabilities,
losses, damages or expenses of the Indemnified Parties which are not Breaching
Bridge Parties). The Indemnifying Party also agrees that the Bridge Parties
shall have no liability (except for breach of provisions of this Agreement) for
claims, liabilities, damages, losses or expenses, including legal fees, incurred
by the Indemnifying Party in connection with this Agreement unless they are
determined by final judgment of a court of competent jurisdiction to result
solely from such Bridge Party's gross negligence, willful misconduct or bad
faith (any such Bridge Party, a "Liable Bridge Party") (it being understood that
the Bridge Parties who are not Liable Bridge Parties shall not be liable to the
Indemnified Party for the gross negligence, willful misconduct or bad faith of
the Liable Bridge Party). The Bridge Parties shall in no event have any
liability to the Indemnifying Party or to any Credit Party on any theory of
liability for special, indirect, consequential or punitive damages (as opposed
to direct, actual damages) arising out of, in connection with, or as a result
of, this Agreement.
If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Indemnifying Party under
this Agreement, such Indemnified Party shall promptly notify the Indemnifying
Party in writing and the Indemnifying Party shall, if requested by such
Indemnified Party or if the Indemnifying Party desires to do so, assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such Indemnified Party and payment of all reasonable fees and expenses. The
failure to so notify the Indemnifying Party shall not affect any obligations the
Indemnifying Party may have to such Indemnified Party under this Agreement or
otherwise unless (and then only to the extent that) the Indemnifying Party is
materially adversely affected by such failure. Such Indemnified Party shall
have the right to employ separate counsel in such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party, unless: (i) the Indemnifying Party has failed
to assume the defense and employ counsel reasonably satisfactory to such
Indemnified Party or (ii) the named parties to any such action (including any
impleaded parties) include such Indemnified Party and the Indemnifying Party,
and such Indemnified Party shall have been advised by counsel that there may be
one or more legal defenses available to it which are different from
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or additional to those available to the Indemnifying Party, in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such action
or proceeding on behalf of such Indemnified Party, provided, however, that the
-------- -------
Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be responsible hereunder for the reasonable fees and expenses
of more than one such firm of separate counsel, in addition to any local
counsel, which counsel shall be designated by the Bridge Parties. The
Indemnifying Party shall not be liable for any settlement of any such action
effected without the written consent of the Indemnifying Party (which shall not
be unreasonably withheld) and the Indemnifying Party agrees to indemnify and
hold harmless each Indemnified Party from and against any loss or liability by
reasons of settlement of any action effected with the consent of the
Indemnifying Party. In addition, the Indemnifying Party will not, without the
prior written consent of the Bridge Parties, settle or compromise or consent to
the entry of any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect of which indemnification
or contribution may be sought hereunder (whether or not any Indemnified Party is
a party thereto) unless such settlement, compromise, consent, or termination
includes an express unconditional release of each Bridge Party and the other
Indemnified Parties, reasonably satisfactory in form and substance to each
Bridge Party, from all liability arising out of such action, claim, suit or
proceeding.
If for any reason the foregoing indemnity is unavailable (otherwise
than pursuant to the express terms of such indemnity) to an Indemnified Party or
insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying
the Indemnified Party, the Indemnifying Party shall contribute to the amount
paid or payable by such Indemnified Party as a result of such claims,
liabilities, losses, damages, or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Indemnifying Party
on the one hand and by each Bridge Party on the other from the transactions
contemplated by this Agreement or (ii) if the allocation provided by clause (i)
is not permitted under applicable law, in such proportion as is appropriate to
reflect not only the relative benefits received by the Indemnifying Party on the
one hand and each Bridge Party on the other, but also the relative fault of the
Indemnifying Party and each Bridge Party as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Section 9.3, the
aggregate contribution of all Indemnified Parties shall not exceed the amount of
fees actually received by such Bridge Party pursuant to this Agreement. It is
hereby further agreed that the relative benefits to the Indemnifying Party on
the one hand and each Bridge Party on the other with respect to the transactions
contemplated hereby shall be deemed to be in the same proportion as (i) the
total value of the transactions contemplated hereby bears to (ii) the fees paid
to such Bridge Party with respect to such transaction. The relative fault of
the Indemnifying Party on the one hand and each Bridge Party on the other with
respect to the transactions contemplated hereby shall be determined by reference
to, among other things, whether any untrue or alleged untrue statements of
material fact or the omission or alleged omission to state a material fact
related to information supplied by the Indemnifying Party or by such Bridge
Party and the party's relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No Indemnified
Party shall have any liability to the Indemnifying Party or any other person in
connection with the services rendered pursuant to this Agreement except for the
liability for claims, liabilities, losses or damages finally determined by a
court of competent jurisdiction to have resulted from action taken or omitted to
be taken by such Indemnified Party in bad faith or to be due to such Indemnified
Party's willful misconduct, or gross negligence. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
The indemnification, contribution and expense reimbursement
obligations set forth in this Section 9.3 shall (i) be in addition to any
liability the Indemnifying Party may have to any Indemnified Party at common law
or otherwise, (ii) survive the termination of this Agreement and the payment in
full of the Notes and (iii) remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Bridge Parties or
any other Indemnified Party.
SECTION 9.4. Expenses. The Company agrees to pay all reasonable
--------
out-of-pocket costs, expenses and other payments (in each case, other than
Domestic Taxes) in connection with the purchase and sale of the Notes and the
making of the Loan as contemplated by this Agreement including without
limitation (i) reasonable fees and disbursements of one firm of special counsel
and any local counsel for the Bridge Parties incurred in connection with the
preparation of this Agreement, (ii) all reasonable out-of-pocket expenses of the
Bridge Parties, including reasonable fees and disbursements of counsel, in
connection with any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder and (iii) if an Event of Default occurs,
all reasonable out-of-pocket expenses incurred by the Bridge Parties and each
Holder, including reasonable fees and disbursements of a single counsel (which
counsel shall be selected by the Bridge Parties if the Bridge
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Parties are Holders when such Event of Default occurs), in connection with such
Event of Default and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom.
SECTION 9.5. Payment. The Company agrees that, so long as the
-------
Bridge Parties shall hold any Notes or Loans, the Company will make payments to
the Bridge Parties of all amounts due thereon by wire transfer by 1:00 PM (New
York City time) on the date of payment to such account as is specified beneath
the Bridge Parties' name on the signature page hereof or to such other account
or in such other similar manner as the Bridge Parties may designate to the
Company in writing.
SECTION 9.6. Successors and Assigns. This Agreement shall be
----------------------
binding upon and shall inure to the benefit of the Company and the Bridge
Parties and their respective successors and assigns; provided that the Company
--------
may not assign or otherwise transfer its rights or obligations under this
Agreement to any other Person without the prior written consent of the Majority
Holders (except after the Covenant Conversion Date as may be permitted pursuant
to Article VI). Subject to the terms of Article VIII, each Bridge Party shall
have the absolute and unconditional right to resell, assign or otherwise
transfer the Obligations in compliance with applicable law to any third party at
any time. All provisions hereunder purporting to give rights to the Bridge
Parties and their respective Affiliates or to Holders are for the express
benefit of such Persons.
SECTION 9.7. Brokers. The Company represents and warrants that,
-------
except for the Bridge Parties, neither it nor any Credit Party has employed any
broker, finder, financial advisor or investment banker who might be entitled to
any brokerage, finder's or other fee or commission in connection with the sale
of the Notes or the making of the Loan.
SECTION 9.8. New York Law; Submission to Jurisdiction; Waiver of
---------------------------------------------------
Jury Trial. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
- ----------
BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY
FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 9.9. Severability. If any term, provision, covenant or
------------
restriction of the Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
SECTION 9.10. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be an original with the same effect
as if the signatures thereto and hereto were upon the same instrument.
SECTION 9.11. Entire Agreement. This Agreement and the other Bridge
----------------
Financing Documents represent the entire agreement of the Bridge Parties and the
Company with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Company or any other Credit
Party or any of the Bridge Parties relative to the subject matter hereof not
expressly set forth or referred to herein or in the other Bridge Financing
Documents.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
CITATION CORPORATION
By: /s/ Frederick F. Sommer
--------------------------------------
Name: Frederick F. Sommer
Title: President
Address:
2 Office Park Circle
Suite 204
Birmingham, Alabama 35223
Attention: Stanley B. Atkins
Phone: (205) 871-5731
Fax: (205) 871-5772
; and for purposes of the notice provisions
in Section 9.1
Kelso & Company
320 Park Avenue
New York, New York 10022
Attn: James J. Connors, II
Telephone: (212) 751-3939
Telecopy: (212) 223-2379
CITATION FUNDING, INC.
By: /s/ Richard Beaudoin
--------------------------------------
Name: Richard Beaudoin
Title: Senior Vice President
Address:
277 Park Avenue
New York, NY 10172
Attention:
Fax No.: (212) 892-7542
Account Number and Bank for Payments:
Account Name: DLJ Securities Corp.
Bank Name: Citibank
ABA Number: 021 000 089
Account Number: 3889-6041
For Further Credit to: Citation Funding, Inc.
Account Number: 275-005-239
Attn: Bill Spiro
Fax No.: (212) 892-4467
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FIRST UNION INVESTORS, INC.
By: /s/ Eric Lloyd
--------------------------------------
Name: Eric Lloyd
Title: Managing Director
Address:
Charlotte Plaza CP-23
201 South College Street
Charlotte, NC 28288-0680
Attention: Arion Skenderi
Telephone No.: (704) 383-3790
Fax No: (704) 383-0835
Account Number and Bank for Payments:
Account Name: First Union Investors, Inc.
Bank Name: First Union National Bank
ABA Number: 053 000 219
Account Number: 5000000002867
Attn: Arion Skenderi
Reference: Citation Corporation Bridge Loan
THE CHASE MANHATTAN BANK
By: /s/ Julie Long
---------------------------------------
Name: Julie Long
Title: Vice President
Address:
270 Park Avenue, 47/th/ Floor
New York, NY 10017
Attention: Julie Long
Fax No: 212-972-9854
Account Number and Bank for Payments:
Account Name: Commercial Loan Services
#7315
Bank Name: Chase Manhattan Bank
ABA Number: 021000021
Attn: Doug Catron
Ref: Citation Corp.
189
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Exhibit 4.14
FORM OF NOTE
190
<PAGE>
EXHIBIT A
---------
FORM OF
NOTE
----
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED OR SOLD, UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND
THEN ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE
BRIDGE FINANCING AGREEMENT DATED AS OF DECEMBER 1, 1999 (AS THE SAME MAYBE
AMENDED, RESTATED OR OTHERWISE MODIFIED FROM TIME TO TIME IN ACCORDANCE WITH ITS
TERMS, THE "AGREEMENT"), A COPY OF WHICH MAY BE OBTAINED FROM CITATION
CORPORATION AT ITS PRINCIPAL EXECUTIVE OFFICE.
THIS INSTRUMENT MAYBE ISSUED WITH ORIGINAL ISSUE
DISCOUNT. THE FOLLOWING PERSON MAY BE CONTACTED REGARDING INFORMATION WITH
RESPECT TO THE ORIGINAL ISSUE DISCOUNT: THOMAS W. BURLESON, VICE-PRESIDENT AND
ASSISTANT SECRETARY, CITATION CORPORATION, 2 OFFICE PARK CIRCLE, SUITE 204,
BIRMINGHAM, ALABAMA 35223.
THIS SECURITY IS SUBJECT TO THE SUBORDINATION
PROVISIONS SET FORTH IN SECTION 2.10 OF THE AGREEMENT.
No. ___ $[___________]
CITATION CORPORATION
Senior Subordinated Increasing Rate Note
CITATION CORPORATION, a Delaware corporation (and
its permitted successors and assigns) (the "Company"), for value received hereby
promises to pay to [____________]., a [________] corporation (the "Holder"), the
principal sum of [______________ ($__________)], in lawful money of the United
States of America and in immediately available funds, on the Maturity Date (as
defined in the Agreement) and to pay interest on the unpaid principal amount, in
like money and funds, for the period commencing on the date of this Note until
payment in full of the principal sum hereof has been made, at the rates per
annum and on the dates and in the manner provided in the Agreement.
This Senior Subordinated Increasing Rate Note is
one of a duly authorized issue of Senior Subordinated Increasing Rate Notes of
the Company (including any Additional Notes, the "Notes") referred to in the
Agreement. Capitalized terms used in this Note have the respective meanings
assigned to them in the Agreement.
The Notes are transferable and assignable to one
or more purchasers in accordance with the limitations set forth in the
Agreement. The Company agrees to issue from time to time replacement Notes in
the form hereof to facilitate such transfers and assignments.
The Company shall keep at its principal office a
register (the "Register") in which shall be entered the names and addresses of
the registered holders of the Notes and particulars of the respective Notes held
by them and of all transfers of such Notes. References to the "Holder" or
"Holders" shall mean the Person listed in the Register as the payee of any Note.
The ownership of the Notes shall be proven by the Register.
Upon the occurrence of an Event of Default, the
principal hereof and accrued interest hereon shall become, or may be declared to
be, forthwith due and payable in the manner, upon the conditions and with the
effect provided in the Agreement.
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The obligations of the Company hereunder are
subordinated in right of payment to all Designated Senior Debt of the Company,
as such term is defined in the Agreement, to the extent and manner provided for
in Section 2.10 of the Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. (WITHOUT GIVING EFFECT TO
THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW TO THE EXTENT SUCH
PRINCIPLES WOULD REQUIRE APPLICATION OF THE LAW OF A DIFFERENT JURISDICTION).
THE COMPANY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE.
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed.
Dated: December 1, 1999 CITATION CORPORATION
By: __________________________
Name:
Title:
192
<PAGE>
Exhibit 4.15
REGISTRATION RIGHTS AGREEMENT
(SENIOR SUBORDINATED INCREASING RATE NOTES)
193
<PAGE>
EXHIBIT B-1
-----------
REGISTRATION RIGHTS
-------------------
Senior Subordinated Increasing Rate Notes
Terms defined in the Bridge Financing Agreement dated as of December 1,
1999 (the "Agreement"), among Citation Corporation (the "Company") and Citation
Funding, Inc., a Delaware corporation, and First Union Investors, Inc., a North
Carolina corporation (each individually, a "Purchaser" and collectively, the
"Purchasers") and The Chase Manhattan Bank, a New York banking corporation
unless defined herein are used herein as therein defined.
10. Securities Subject
------------------
(a) Definitions.
"Holder" means the Purchasers or any assignee or transferee of a
------
Registrable Security.
"Notes"' means the Notes as defined in the Agreement.
-----
"Piggy-Back Registration" means a Piggy-Back Registration as defined
-----------------------
in Section 4.
"Registrable Security" means each Note until (i) a registration
--------------------
statement covering such Registrable Security has been declared effective by the
Commission and it has been disposed of pursuant to such effective registration
statement, (ii) it is or may be sold under circumstances in which all of the
applicable conditions of Rule 144 (or any similar provisions then in force)
under the Securities Act are met or may be sold pursuant to Rule 144(k) or (iii)
it has been otherwise transferred, the Company has delivered a new certificate
or other evidence of ownership for it not bearing the legend required pursuant
to the Agreement and it may be resold without subsequent registration under the
Securities Act.
"Required Holders" means the Holder(s) of (or any Underwriter for) 25%
----------------
or more in aggregate principal amount of the outstanding Notes.
"Selling Holder" means a Holder who is selling Registrable Securities
--------------
pursuant to a registration statement.
"Shelf Registration" means the shelf registration filed by the Company
------------------
in accordance with Section 2(a) hereof.
"Underwriter" means a securities dealer that purchases any Registrable
-----------
Securities as principal and not as part of such dealer's market-making
activities.
11. Shelf Registration
------------------
(a) The Company will use its reasonable best efforts to file and cause
the Commission to declare effective a "shelf" registration statement (the "Shelf
Registration") with respect to the Registrable Securities on an appropriate form
pursuant to Rule 415 (or any similar provision that may be adopted by the
Commission) under the Securities Act as soon as practicable after the First
Anniversary unless a registration statement with respect to the Permanent
Financing has been filed.
(b) The Company agrees to use its reasonable best efforts to have the
Shelf Registration declared effective as soon as practicable after the filing
thereof, and to keep the Shelf Registration continuously effective until all of
the Registrable Securities have been redeemed in full or resold pursuant to such
registration statement or, if earlier, the date on which another exemption
exists that permits the public sale of the Registerable Securities under the
Securities Act. The Company further agrees to supplement or amend any Shelf
Registration, if required by the Securities Act or by the Required Holders, and
the Company agrees to furnish to the Holders copies of any such supplement or
amendment promptly after its being filed with the Commission. The Company will
pay all Registration Expenses (as hereinafter defined) in connection with each
Shelf Registration, whether or
194
<PAGE>
not it becomes effective. In connection with any underwritten offering under a
Shelf Registration, the Purchasers or the Majority Holders, with the consent of
the Company, which shall not be unreasonably withheld (such consent not to be
required in the case where the Purchasers shall act as Underwriters) shall
designate the Underwriter or a group of Underwriters to be utilized in
connection with a public offering of the applicable issue of Registrable
Securities.
12. RESERVED
--------
13. Piggy-Back Registration
-----------------------
(a) If the Company proposes to file a registration statement under the
Securities Act with respect to an offering by the Company for its own account or
for the account of any of its security holders of any class of debt security
(other than a registration statement on Form S-4 or S-8 (or any substitute form
that may be adopted by the Commission), the Company's Shelf Registration, the
Company's registration statement with respect to the Permanent Financing or a
registration statement filed in connection with an exchange offer or offering of
securities solely to the Company's existing security holders) (provided that, in
--------
the case of a registration on demand of such security holders, the holders of a
majority in aggregate principal amount of any such debt securities consent in
writing), then the Company shall give written notice of such proposed filing to
the Holders of Registrable Securities as soon as practicable (but in no event
less than 10 days before the anticipated filing date), and such notice shall
offer such Holders the opportunity to register such principal amount of
Registrable Securities as each such Holder may request (a "Piggy-Back
Registration"); provided that the Holders of Registrable Securities shall not
--------
have any rights under this Section 4 if either of the Shelf Registration or the
registration statement with respect to the Permanent Financing, the proceeds of
which will be used to redeem the Registrable Securities in full, is effective.
(b) The Company shall use all reasonable efforts to cause the managing
Underwriter or Underwriters of a proposed underwritten offering to permit the
Registrable Securities requested to be included in the registration statement
for such offering to be included on the same terms and conditions as any similar
securities of the Company or of such other security holders included therein.
Notwithstanding the foregoing, if the managing Underwriter or Underwriters of
such offering deliver a written opinion to the Company that either because of
(i) the kind or combination of securities which the Holders, the Company and any
other persons or entities intend to include in such offering or (ii) the size of
the offering which the Holders, the Company and such other persons intend to
make, are such that the success of the offering would be materially and
adversely affected by inclusion of the Registrable Securities requested to be
included, then (a) in the event that the size of the offering is the basis of
such managing Underwriter's opinion, the amount of securities to be offered for
the accounts of Holders shall be reduced pro rata (according to the Registrable
Securities proposed for registration) to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing Underwriter or Underwriters; provided that if
--------
securities are being offered for the account of other persons or entities as
well as the Company, then with respect to the Registrable Securities intended to
be offered by Holders, the proportion by which the amount of such class of
securities intended to be offered by Holders is reduced shall not exceed the
proportion by which the amount of such class of securities intended to be
offered by such other persons or entities is reduced; and (b) in the event that
the kind (or combination) of securities to be offered is the basis of such
managing Underwriter's opinion, (x) the Registrable Securities to be included in
such offering shall be reduced as described in clause (a) above (subject to the
proviso in clause (a)) or, (y) if the actions described in clause (x) would, in
the judgment of the managing Underwriter, be insufficient to substantially
eliminate the adverse effect that inclusion of the Registrable Securities
requested to be included would have on such offering, such Registrable
Securities will be excluded from such offering.
14. Holdback Agreements
-------------------
(a) Restrictions on Public Sale by Holder of Registrable Securities.
---------------------------------------------------------------
Each Holder whose securities are included in a registration statement agrees not
to effect any public sale or distribution of the issue being registered or a
similar security of the Company or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144 under the Securities Act, during the 14 days prior to, and during the
120-day period beginning on, the effective date of such registration statement
(except as part of such registration), if and to the extent requested by the
Company in the case of a non-underwritten public offering or if and to the
extent requested by the managing Underwriter or Underwriters in the case of an
underwritten public offering.
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<PAGE>
(b) Restrictions on Public Sale by the Company. The Company agrees (i)
------------------------------------------
not to effect any public sale or distribution of any securities similar to those
being registered in accordance with Section 4 hereof, or any securities
convertible into or exchangeable or exercisable for such securities, during the
14 days prior to, and during the 120-day period (or such shorter period as the
managing Underwriter in any underwritten offering may agree) beginning on, the
effective date of any registration statement (except as part of such
registration statement (x) where the Holder or Holders of a majority of the
Registrable Securities to be included in such registration statement consent or
(y) where Holders are participating pursuant to Section 4 hereof in such
registration statement and such registration statement was filed by the Company
with respect to the sale of securities by the Company or the commencement of a
public distribution of Registrable Securities other than pursuant to a Shelf
Registration); and (ii) that any agreement entered into after the date of the
Agreement pursuant to which the Company issues or agrees to issue any privately
placed securities similar to the Registrable Securities shall contain a
provision under which holders of such securities agree not to effect any public
sale or distribution of any such securities during the periods described in (i)
above, in each case including a sale pursuant to Rule 144 under the Securities
Act (except as part of any such registration, if permitted); provided, however,
--------
that the provisions of this paragraph (b) shall not prevent the conversion or
exchange of any securities pursuant to their terms into or for other securities.
15. Registration Procedures
-----------------------
At or prior to the effectiveness of any registration pursuant to Section 2
or 4, the Company will use all reasonable efforts to qualify an indenture with
respect to the securities to be registered under the Trust Indenture Act of
1939, as amended. Whenever the Holders have requested that any Registrable
Securities be registered pursuant to Section 2 hereof, the Company will use all
reasonable efforts to effect the registration of such Registrable Securities in
accordance with the intended method of disposition thereof as promptly as
practicable, and in connection with any such request and with a Shelf
Registration, the Company will as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
on any form for which the Company then qualifies or which counsel for the
Company shall deem appropriate and which form shall be available for the
sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof, and use all
reasonable efforts to cause such filed registration statement to become
effective within the time period described in Section 2 hereof; provided
--------
that the Company shall be entitled to cause the registration statement to
be withdrawn and the effectiveness thereof to be terminated for a period of
up to 120 days if the Board of Directors determines in good faith that the
required financials are unavailable for reasons beyond the Company's
control or would require premature disclosure of any material corporate
development; and provided (i) that before filing a registration statement
--------
or prospectus or any amendments or supplements thereto, the Company will
furnish to one firm of counsel selected by the Holder or Holders of a
majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which
documents will be subject to the review of such counsel, and (ii) that
after the filing of the registration statement, the Company will promptly
notify each Selling Holder of Registrable Securities covered by such
registration statement of any stop order issued or threatened by the
Commission and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective in the case of a Shelf Registration, subject to the
provisions of Section 6(a) above, for the period specified in Section 2 and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
Selling Holders thereof set forth in such registration statement;
(c) furnish to each Selling Holder and Underwriter, prior to
filing the registration statement or prospectus or any amendment or
supplement thereto, if requested, copies of such registration statement as
proposed to be filed, and thereafter furnish to such Selling Holder and
Underwriter such number of copies of such registration statement, each
amendment and supplement thereto (in each case, if requested, including all
exhibits filed therewith), the prospectus included in such registration
statement
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<PAGE>
(including each preliminary prospectus) and such other documents as such
Selling Holder or Underwriter may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Selling Holder;
(d) use all reasonable efforts to register or qualify such
Registrable Securities under such securities or blue sky laws of such
jurisdictions in the United States as any Selling Holder or managing
Underwriter reasonably (in light of the intended plan of distribution)
requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Selling Holder or managing
Underwriter to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such Selling Holder; provided that the
--------
Company will not be required to (i) qualify generally to do business or to
qualify as a dealer in securities in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction;
(e) use all reasonable efforts to cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Company, any of its Affiliates or any of its Subsidiaries
to enable the Selling Holder or Selling Holders thereof to consummate the
disposition of such Registrable Securities;
(f) notify each Selling Holder of such Registrable Securities, at
any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and promptly make available to
each Selling Holder any such supplement or amendment;
(g) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such
Registrable Securities;
(h) make available for inspection by any Selling Holder of such
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement and any one firm of attorneys,
accountants or other professionals retained by any such Selling Holder or
underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company and
any Subsidiary (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise their due diligence responsibility,
and cause the officers, directors and employees of the Company and its
Subsidiaries to supply all information reasonably requested by any such
Inspectors in connection with such registration statement. Records which
the Company determines, in good faith, to be confidential and any Records
which it notifies the Inspectors are confidential shall not be disclosed by
the Inspectors unless (i) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in such registration statement
or (ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction. Each Selling Holder of
such Registrable Securities agrees that information obtained by it as a
result of such inspections shall be deemed confidential and shall not be
used by it as the basis for any market transactions in the securities of
the Company, its Affiliates or its Subsidiaries or otherwise unless and
until such information is made generally available to the public. Each
Selling Holder of such Registrable Securities further agrees that it will,
upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent disclosure of
the Records deemed confidential;
(i) in the event such sale is pursuant to an underwritten
offering, use all reasonable efforts to obtain a comfort letter or comfort
letters from the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by comfort
letters, as the Selling Holders of a majority in aggregate principal amount
of the Registrable Securities being sold or the managing Underwriter,
reasonably requests; and
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(j) otherwise use all reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as reasonably practicable, an
earnings statement covering a period of twelve months, beginning within
three months after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
The Company may require each Selling Holder of Registrable Securities
to promptly furnish in writing to the Company such information regarding the
distribution of the Registrable Securities as it may from time to time
reasonably request and such other information as may be legally required or
reasonably requested in connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 6(f)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 6(f) hereof, and, if
so directed by the Company, such Selling Holder will deliver to the Company all
copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice.
16. Registration Expenses
---------------------
In connection with any registration statement required to be filed
pursuant to Section 2 or 4 hereunder, the Company shall pay the following
registration expenses (the "Registration Expenses"): (i) all registration and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Registrable Securities), (iii) printing expenses,
(iv) internal expenses of the Company (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), (v) the fees and expenses incurred in connection with the
listing of the Registrable Securities if the Company shall choose to list such
Registrable Securities, (vi) fees and disbursements of counsel for the Company
and customary fees and expenses for independent certified public accountants
retained by the Company (including the expenses of any comfort letters or costs
associated with the delivery by independent certified public accountants of a
comfort letter or comfort letters requested pursuant to Section 6(i) hereof),
(vii) the fees and expenses of any special experts retained by the Company in
connection with such registration, and (viii) reasonable fees and expenses of a
single counsel for the Holders (which counsel shall be selected by the
Purchasers if the Purchasers are Holders) incurred in connection with the
registration hereunder. The Company shall not have any obligation to pay any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, or, except as otherwise provided in clause (viii) above,
any out-of-pocket expenses of the Holders (or any agents who manage their
accounts) or fees and disbursements of any counsel for any underwriter in any
underwritten offering.
17. Indemnification and Contribution
--------------------------------
(a) Indemnification by the Company. The Company agrees to indemnify
------------------------------
and hold harmless each Selling Holder of Registrable Securities, its officers,
directors and agents, each Person, if any, who controls such Selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act or any Affiliate of such Person, from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of, or are based upon, any such untrue statement or omission or allegation
thereof based upon information furnished in writing to the Company by such
Selling Holder or on such Selling Holder's behalf expressly for use therein;
provided that with respect to any untrue statement or omission or alleged untrue
- --------
statement or omission made in any preliminary prospectus, the indemnity
agreement contained in this paragraph shall not apply to the extent that any
such loss, claim, damage, liability or expense results from the fact that a
current copy of the prospectus was not sent or given to the person asserting any
such loss, claim, damage, liability or expense at or prior to the written
confirmation of the sale of the Registrable Securities concerned to such person
if it is determined that it was the responsibility of such Selling Holder or its
agents to provide such person with a current
198
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copy of the prospectus and such current copy of the prospectus would have cured
the defect giving rise to such loss, claim, damage, liability or expense. The
Company also agrees to enter into an underwriting agreement with the
Underwriters of the Registrable Securities which shall indemnify their officers,
directors and each person who controls such Underwriters on substantially the
same basis as that of the indemnification of the Selling Holders provided in
this Section 8.
(b) Indemnification by Holder of Registrable Securities. Each Selling
---------------------------------------------------
Holder agrees to indemnify and hold harmless the Company, its directors and
officers and agents and each Person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Selling
Holder, but only with respect to information furnished in writing by such
Selling Holder or on such Selling Holder's behalf expressly for use in any
registration statement or prospectus relating to the Registrable Securities, or
any amendment or supplement thereto, or any preliminary prospectus. In case any
action or proceeding shall be brought against the Company, or its directors or
officers or agents, or any such controlling person, in respect of which
indemnity may be sought against such Selling Holder, such Selling Holder shall
have the rights and duties given to the Company, and the Company or its
directors or officers or agents or such controlling person shall have the rights
and duties given to such Selling Holder, by the preceding paragraph. Each
Selling Holder also agrees to indemnify and hold harmless the Purchasers and any
Affiliate of the Purchasers, including DLJSC, and FUSI, if the Purchasers or any
Affiliate of the Purchasers, including DLJSC, and FUSI act as Underwriters of
the Registrable Securities on substantially the same basis as that of the
indemnification of the Company provided in this Section 8.
(c) Conduct of Indemnification Proceedings. If any action or
--------------------------------------
proceeding (including any governmental investigation) shall be brought or
asserted against any Person entitled to indemnification under clauses (a) or (b)
above (an "Indemnified Party") in respect of which indemnity may be sought from
any party who has agreed to provide such indemnification (an "Indemnifying
Party"), the Indemnified Party shall promptly notify the Indemnifying Party in
writing and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all expenses. Such Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the Indemnifying Party has agreed
to pay such fees and expenses or (ii) the named parties to any such action or
proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that there is a conflict of interest on the part of counsel employed
by the Indemnifying Party to represent such Indemnified Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such action
or proceeding on behalf of such Indemnified Party; it being understood, however,
that the Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for all
such Indemnified Parties, which firm shall be designated in writing by such
Indemnified Parties) and that such fees and expenses shall be reimbursed as they
are incurred. The Indemnifying Party shall not be liable for any settlement of
any such action or proceeding effected without its written consent, but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such proceeding.
(d) Contribution. If the indemnification provided for in this Section
------------
8 is unavailable to the Indemnified Parties in respect of any losses, claims,
damages, liabilities or judgments referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities and judgments (i) as between the
Company and its respective Indemnified Parties and the Selling Holders and their
respective Indemnified Parties on the one hand and the Underwriters and their
respective Indemnified Parties on the other, in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Holders on the one hand and the Underwriters on the other from the
offering of the Registrable Securities, or if such
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allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Holders on the one hand and of the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations and (ii) as between the Company and
its respective Indemnified Parties on the one hand and each Selling Holder and
their respective Indemnified Parties on the other, in such proportion as is
appropriate to reflect the relative fault of the Company and of each Selling
Holder in connection with such statements or omissions, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Selling Holders on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by the Company and the Selling Holders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the prospectus. The relative fault of
the Company and the Selling Holders on the one hand and of the Underwriters on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
and the Selling Holders or by the Underwriters. The relative fault of the
Company on the one hand and of each Selling Holder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, liabilities, or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8(d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and no
Selling Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities of such
Selling Holder were offered to the public exceeds the amount of any damages
which such Selling Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
18. Participation in Underwritten Registration
------------------------------------------
No Person may participate in any underwritten registration hereunder
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and these Registration Rights.
19. Rule 144
--------
If the Company is subject to the requirements of Section 13, 14 or
15(d) of the Exchange Act, the Company covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act so as
to enable Holders to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the Commission. Upon the
reasonable request of any Holder, the Company will deliver to such Holder a
written statement as to whether it has complied with such requirements.
20. Liquidated Damages
------------------
Notwithstanding anything herein to the contrary, for the express
benefit of each Holder the Company agrees that, if a Shelf Registration for the
Notes has either (i) not been filed within 30 days after the First Anniversary
or (ii) not been declared effective 90 days after the First Anniversary, the
Company will pay pro rata to the Holders liquidated damages equal to $0.192 per
full or partial week per $1,000 principal amount of Notes outstanding until such
time as such Shelf Registration has become effective. The Company will also pay
liquidated damages in an amount equal to $0.192 per full or partial week per
$1,000 principal amount of Notes following the effectiveness of the Shelf
Registration or the Permanent Financing Registration Statement, as the case may
be, for which the registration is not available for resales thereunder. Such
liquidated damages shall be payable on the dates and in the manner provided for
the payment of interest on the Notes.
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Exhibit 4.16
REGISTRATION RIGHTS AGREEMENT (WARRANTS)
202
<PAGE>
EXHIBIT B-2
-----------
REGISTRATION RIGHTS
-------------------
Warrants
Terms defined in the Bridge Financing Agreement dated as of December 1,
1999 (the "Agreement"), among Citation Corporation (the "Company") and Citation
Funding, Inc., a Delaware corporation, First Union Investors, Inc., a North
Carolina corporation (each individually, a "Purchaser" and collectively, the
"Purchasers") and The Chase Manhattan Bank, a New York banking corporation,
(together with the Purchasers, the "Bridge Parties"), unless defined herein are
used herein as therein defined.
21. Securities Subject
------------------
(a) Definitions.
"Demand Registration" means a Demand Registration, as defined in
-------------------
Section 3.
"Holder" means any registered owner from time to time of any
------
Obligation.
"Warrant Shares" means the shares of common stock of the Company
--------------
delivered pursuant to any Warrant.
"Piggy-Back Registration" means a Piggy-Back Registration as defined
-----------------------
in Section 4.
"Registrable Security" means each Warrant Share until (i) a
--------------------
registration statement covering such Registrable Security has been declared
effective by the Commission and it has been disposed of pursuant to such
effective registration statement, (ii) it is sold under circumstances in which
all of the applicable conditions of Rule 144 (or any similar provisions then in
force) under the Securities Act are met or may be sold pursuant to Rule 144(k)
or (iii) it has been otherwise transferred, the Company has delivered a new
certificate or other evidence of ownership for it not bearing the legend
required pursuant to the Agreement and it may be resold without subsequent
registration under the Securities Act.
"Required Holders" means the Holder(s) of (or any Underwriter for) 25%
----------------
or more in aggregate principal amount of the Registrable Securities.
"Selling Holder" means a Holder who is selling Registrable Securities
--------------
pursuant to a registration statement.
"Shelf Registration" means the shelf registration filed by the Company
------------------
with respect to the Warrant Shares.
"Underwriter" means a securities dealer that purchases any Registrable
-----------
Securities as principal and not as part of such dealer's market-making
activities.
"Warrant" means any Warrant issued by the Company pursuant to the
-------
Agreement.
22. RESERVED
23. Demand Registration
-------------------
(a) Request for Registration. If a Shelf Registration with respect to
------------------------
the Warrant Shares, is not effective under the Securities Act within 90 days of
each Release Date (as defined in the Escrow Agreement), the Required Holders may
after such 90-day period make a written request for registration under the
Securities Act ("Demand Registration'') of all or part of its or their
Registrable Securities; provided that the Company shall not be obligated to
--------
effect more than two (2) Demand Registrations in respect of the Warrant Shares
and provided, further that, in any case, no Demand Registration need be effected
-------- -------
if a Shelf Registration or other registration which includes such Registrable
Securities has become effective. Such request will specify the aggregate
principal amount
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<PAGE>
of Registrable Securities proposed to be sold and will also specify the intended
method of disposition thereof. Within 10 days after receipt of such request, the
Company will give written notice of such registration request to all other
Holders of the Registrable Securities and include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein from the Holders thereof within 15 Business Days
after receipt by the applicable Holder of the Company's notice. Each such
request will also specify the aggregate principal amount of Registrable
Securities to be registered and the intended method of disposition thereof.
Unless the Holder or Holders (the "Majority Holders") of a majority of the
Registrable Securities to be registered in such Demand Registration shall
consent in writing, no other party, including the Company (but excluding another
Holder of a Registrable Security), shall be permitted to offer securities under
any such Demand Registration. The Company shall use their best efforts to keep
the Shelf Registration discussed in this section 3(a) continuously effective,
supplemented and amended as required by and subject to the provisions of the
Agreement, and to ensure that it conforms with the requirements of the
Agreement, the Act and the polices, rules and regulations of the Commission as
announced from time to time, for a period of at least 180 days following the
date on which such Shelf Registration first becomes effective under the Act.
(b) Effective Registration and Expenses. A registration will not count
-----------------------------------
as a Demand Registration until it has become effective (unless the Holders
demanding such registration withdraw the Registrable Securities, in which case
such demand will count as a Demand Registration unless the Holders of such
Registrable Securities agree to pay all Registration Expenses (as hereinafter
defined)). Except as provided above, the Company will pay all Registration
Expenses in connection with any registration initiated as a Demand Registration,
whether or not it becomes effective.
(c) Priority on Demand Registrations. If the Holder or Majority
--------------------------------
Holders so elect, the offering of such Registrable Securities pursuant to such
Demand Registration shall be in the form of an underwritten offering. In such
event, if the managing Underwriter or Underwriters of such offering advise the
Company and the Holders in writing that in their opinion the aggregate principal
amount of Registrable Securities requested to be included in such offering is
sufficiently large to materially and adversely affect the success of such
offering, the Company will include in such registration the aggregate amount of
Registrable Securities which in the opinion of such managing Underwriter or
Underwriters can be sold without any such material adverse effect, and such
amount shall be allocated pro rata among the Holders of Registrable Securities
--- ----
on the basis of the amount of Registrable Securities requested to be included in
such registration by each such Holder. To the extent Registrable Securities so
requested to be registered are excluded from the offering, the Holders of such
Registrable Securities, as a group, shall have the right to one additional
Demand Registration under this section.
(d) Selection of Underwriters. If any Demand Registration is in the
-------------------------
form of an underwritten offering, the Bridge Parties or the Majority Holders
shall designate, with the approval of the Company, such approval not to be
unreasonably withheld or delayed, the Underwriter or a group of Underwriters to
be utilized in connection with a public offering of the applicable issue of
Registrable Securities.
24. Piggy-Back Registration
-----------------------
(a) If the Company proposes to file a registration statement under the
Securities Act with respect to an offering by the Company for its own account or
for the account of any of its security holders (provided that, in the case of a
--------
registration on demand of such security holders, the holders of a majority in
aggregate principal amount of any such equity securities consent in writing) of
any class of equity security (other than a registration statement on Form S-4 or
S-8 (or any substitute form that may be adopted by the Commission), the
Company's Shelf Registration or any Demand Registration), then the Company shall
give written notice of such proposed filing to the Holders of Registrable
Securities as soon as practicable (but in no event less than 10 days before the
anticipated filing date), and such notice shall offer such Holders the
opportunity to register such principal amount of Registrable Securities as each
such Holder may request (a "Piggy-Back Registration").
The Company shall use all reasonable efforts to cause the managing Underwriter
or Underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in the registration statement for such
offering to be included on the same terms and conditions as any similar
securities of the Company or of such other security holders included therein.
Notwithstanding the foregoing, if the managing Underwriter or Underwriters of
such offering deliver a written opinion to the Company that either because of
(i) the kind or combination of securities which the Holders, the Company and any
other persons or entities intend to include in such offering or (ii) the size of
the offering which the Holders, the Company and such other persons intend to
make,
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<PAGE>
are such that the success of the offering would be materially and adversely
affected by inclusion of the Registrable Securities requested to be included,
then (a) in the event that the size of the offering is the basis of such
managing Underwriter's opinion, the amount of securities to be offered for
the accounts of Holders shall be reduced pro rata (according to the Registrable
--- ----
Securities proposed for registration) to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing Underwriter or Underwriters; provided that if
--------
securities are being offered for the account of other persons or entities as
well as the Company, then with respect to the Registrable Securities intended to
be offered by Holders, the proportion by which the amount of such class of
securities intended to be offered by Holders is reduced shall not exceed the
proportion by which the amount of such class of securities intended to be
offered by such other persons or entities is reduced; and (b) in the event that
the kind (or combination) of securities to be offered is the basis of such
managing Underwriter's opinion, (x) the Registrable Securities to be included in
such offering shall be reduced as described in clause (a) above (subject to the
proviso in clause (a)) or, (y) if the actions described in clause (x) would, in
the judgment of the managing Underwriter, be insufficient to substantially
eliminate the adverse effect that inclusion of the Registrable Securities
requested to be included would have on such offering, such Registrable
Securities will be excluded from such offering.
25. Holdback Agreements
-------------------
(a) Restrictions on Public Sale by Holder of Registrable Securities.
---------------------------------------------------------------
Each Holder whose securities are included in a registration statement agrees not
to effect any public sale or distribution of the issue being registered or a
similar security of the Company or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144 under the Securities Act, during the 14 days prior to, and during the
120-day period beginning on, the effective date of such registration statement
(except as part of such registration), if and to the extent requested by the
Company in the case of a non-underwritten public offering or if and to the
extent requested by the managing Underwriter or Underwriters in the case of an
underwritten public offering.
(b) Restrictions on Public Sale by the Company. The Company agrees (i)
------------------------------------------
not to effect any public sale or distribution of any securities similar to those
being registered in accordance with Section 3 or Section 4 hereof, or any
securities convertible into or exchangeable or exercisable for such securities,
during the 14 days prior to, and during the 120-day period beginning on, the
effective date of any registration statement (except as part of such
registration statement (x) where the Holder or Holders of a majority of the
Registrable Securities to be included in such registration statement consent,
(y) where Holders are participating pursuant to Section 4 hereof in such
registration statement and such registration statement was filed by the Company
with respect to the sale of securities by the Company and no Holder is
simultaneously participating in a registration statement pursuant to Section 3
hereof or the commencement of a public distribution of Registrable Securities
other than pursuant to a Shelf Registration); and (ii) that any agreement
entered into after the date of the Agreement pursuant to which the Company
issues or agrees to issue any privately placed securities similar to the
Registrable Securities shall contain a provision under which holders of such
securities agree not to effect any public sale or distribution of any such
securities during the periods described in (i) above, in each case including a
sale pursuant to Rule 144 under the Securities Act (except as part of any such
registration, if permitted); provided, however, that the provisions of this
--------
paragraph (b) shall not prevent the conversion or exchange of any securities
pursuant to their terms into or for other securities.
26. Registration Procedures
-----------------------
Whenever the Holders have requested that any Registrable Securities be
registered pursuant to Section 3 hereof, the Company will use all reasonable
efforts to effect the registration of such Registrable Securities in accordance
with the intended method of disposition thereof as quickly as practicable, and
in connection with any such request and with a Shelf Registration, the Company
will as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
on any form for which the Company then qualifies or which counsel for the
Company shall deem appropriate and which form shall be available for the
sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof, and use all
reasonable efforts to cause such filed registration statement to become
effective within the time period described in Section 3 hereof; provided
--------
that if the Company shall furnish to the Holders making a request pursuant
to Section 3 a certificate signed by the Chief Executive Officer of the
Company stating that in his good-faith judgment it would be
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<PAGE>
significantly disadvantageous to the Company or its shareholders for such a
registration statement to be filed as expeditiously as possible, the
Company shall have a period of not more than 120 days within which to file
such registration statement measured from the date of receipt of the
request in accordance with Section 3; and provided (i) that before filing a
--------
registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to counsel selected by the Holder or
Majority Holders copies of all such documents proposed to be filed, which
documents will be subject to the review of such counsel, and (ii) that
after the filing of the registration statement, the Company will promptly
notify each Selling Holder covered by such registration statement of any
stop order issued or threatened by the Commission and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective (i) in the case of a Shelf Registration, for the period
until the Notes have been redeemed in full and (ii) in connection with a
registration pursuant to Section 3 for a period of not less than 270 days
or such shorter period which will terminate when all Registrable Securities
covered by such registration statement have been sold (but not before the
expiration of the 90-day period referred to in Section 4(3) of the
Securities Act and Rule 174 thereunder, if applicable) and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Selling Holders
thereof set forth in such registration statement;
(c) furnish to each Selling Holder and Underwriter, prior to
filing the registration statement or prospectus or any amendment or
supplement thereto, if requested, copies of such registration statement as
proposed to be filed, and thereafter furnish to such Selling Holder and
Underwriter such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such Selling
Holder or Underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Selling Holder;
(d) use all reasonable efforts to register or qualify such
Registrable Securities under such securities or blue sky laws of such
jurisdictions in the United States as any Selling Holder or managing
Underwriter reasonably (in light of the intended plan of distribution)
requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Selling Holder or managing
Underwriter to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such Selling Holder; provided that the
--------
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
(e) use all reasonable efforts to cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Company, any Affiliate or any Subsidiary to enable the
Selling Holder or Selling Holders thereof to consummate the disposition of
such Registrable Securities;
(f) notify each Selling Holder of such Registrable Securities, at
any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and promptly make available to
each Selling Holder any such supplement or amendment;
(g) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such
Registrable Securities;
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<PAGE>
(h) make available for inspection by any Selling Holder of such
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or
other professional retained by any such Selling Holder or underwriter
(collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company and any
Subsidiary (collectively, the "Records") as shall be reasonably necessary
to enable them to exercise their due diligence responsibility, and cause
the officers, directors and employees of the Company and its Subsidiaries
to supply all information reasonably requested by any such Inspectors in
connection with such registration statement. Records which the Company
determines, in good faith, to be confidential and any Records which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in such registration statement or
(ii) the release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction. Each Selling Holder of such
Registrable Securities agrees that information obtained by it as a result
of such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the
Company, its Affiliates or its Subsidiaries or otherwise unless and until
such information is made generally available to the public. Each Selling
Holder of such Registrable Securities further agrees that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company at its
expense, to undertake appropriate action to prevent disclosure of the
Records deemed confidential;
(i) in the event such sale is pursuant to an underwritten
offering, use all reasonable efforts to obtain a comfort letter or comfort
letters from the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by comfort
letters, as the Selling Holders of a majority in aggregate principal amount
of the Registrable Securities being sold or the managing Underwriter,
reasonably requests; and
(j) otherwise use all reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as reasonably practicable, an
earnings statement covering a period of twelve months, beginning within
three months after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
The Company may require each Selling Holder to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities as it may from time to time reasonably request and such
other information as may be legally required or reasonably requested in
connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 6(f)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 6(f) hereof, and, if
so directed by the Company, such Selling Holder will deliver to the Company all
copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such registration
statement shall be maintained effective (including the period referred to in
Section 6(b) hereof) by the number of days during the period from and including
the date of the giving of notice pursuant to Section 6(f) hereof to and
excluding the date when the Company shall make available to the Selling Holders
of Registrable Securities covered by such registration statement copies of the
prospectus supplemented or amended to conform with the requirements of Section
6(f) hereof.
27. Registration Expenses
---------------------
In connection with any registration statement required to be filed
pursuant to Section 3 or 4 hereunder, the Company shall pay the following
registration expenses (the "Registration Expenses"): (i) all registration and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Registrable Securities), (iii) printing expenses,
(iv) internal expenses of the Company (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), (v) the fees and expenses
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<PAGE>
incurred in connection with the listing of the Registrable Securities if the
Company shall choose to list such Registrable Securities, (vi) fees and
disbursements of counsel for the Company and customary fees and expenses for
independent certified public accountants retained by the Company (including the
expenses of any comfort letters or costs associated with the delivery by
independent certified public accountants of a comfort letter or comfort letters
requested pursuant to Section 6(i) hereof), (vii) the fees and expenses of any
special experts retained by the Company in connection with such registration,
and (viii) fees and expenses of a single counsel for the Holders (which counsel
shall be selected by the Bridge Parties if the Bridge Parties are Holders)
incurred in connection with the registration hereunder. The Company shall not
have any obligation to pay any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities, or, except as otherwise
provided in clause (viii) above, any out-of-pocket expenses of the Holders (or
any agents who manage their accounts) or fees and disbursements of any counsel
for any underwriter in any underwritten offering.
28. Indemnification: Contribution
-----------------------------
(a) Indemnification by the Company. The Company agrees to indemnify
------------------------------
and hold harmless each Selling Holder, its officers, directors and agents, each
Person, if any, who controls such Selling Holder within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act or any Affiliate of
such Person, from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by such Selling Holder or on
such Selling Holder's behalf expressly for use therein; provided that with
--------
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus, the indemnity agreement contained
in this paragraph shall not apply to the extent that any such loss, claim,
damage, liability or expense results from the fact that a current copy of the
prospectus was not sent or given to the person asserting any such loss, claim,
damage, liability or expense at or prior to the written confirmation of the sale
of the Registrable Securities concerned to such person if it is determined that
it was the responsibility of such Selling Holder to provide such person with a
current copy of the prospectus and such current copy of the prospectus would
have cured the defect giving rise to such loss, claim, damage, liability or
expense. The Company also agrees to enter into an underwriting agreement with
the Underwriters of the Registrable Securities which shall indemnify their
officers, directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Selling
Holders provided in this Section 8.
(b) Indemnification by Holder of Registrable Securities. Each Selling
---------------------------------------------------
Holder agrees to indemnify and hold harmless the Company, its directors and
officers and agents and each Person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Selling
Holder, but only with respect to information furnished in writing by such
Selling Holder or on such Selling Holder's behalf expressly for use in any
registration statement or prospectus relating to the Registrable Securities, or
any amendment or supplement thereto, or any preliminary prospectus. In case any
action or proceeding shall be brought against the Company, or its directors or
officers or agents, or any such controlling person, in respect of which
indemnity may be sought against such Selling Holder, such Selling Holder shall
have the rights and duties given to the Company, and the Company or its
directors or officers or agents or such controlling person shall have the rights
and duties given to such Selling Holder, by the preceding paragraph. Each
Selling Holder also agrees to indemnify and hold harmless the Bridge Parties and
any Affiliate of the Bridge Parties, including DLJSC, CSI and FUSI, if the
Bridge Parties or any Affiliate of the Bridge Parties, including DLJSC, CSI and
FUSI, acts as Underwriter of the Registrable Securities on substantially the
same basis as that of the indemnification of the Company provided in this
Section 8.
(c) Conduct of Indemnification Proceedings. If any action or
--------------------------------------
proceeding (including any governmental investigation) shall be brought or
asserted against any Person entitled to indemnification under clauses (a) or (b)
above (an "Indemnified Party'') in respect of which indemnity may be sought from
any party who has agreed to provide such indemnification (an "Indemnifying
Party"), the Indemnified Party shall promptly notify the Indemnifying Party in
writing and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all expenses. Such Indemnified Party shall have the
right to employ separate counsel in any such action and to
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participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the Indemnifying
Party has agreed to pay such fees and expenses or (ii) the named parties to any
such action or proceeding (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party, and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on the part of
counsel employed by the Indemnifying Party to represent such Indemnified Party
(in which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense of such action or proceeding on behalf of such Indemnified Party; it
being understood, however, that the Indemnifying Party shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all such Indemnified Parties, which firm shall be
designated in writing by such Indemnified Parties) and that such fees and
expenses shall be reimbursed as they are incurred. The Indemnifying Party shall
not be liable for any settlement of any such action or proceeding effected
without its written consent, but if settled with its written consent, or if
there be a final judgment for the plaintiff in any such action or proceeding,
the Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Party is or
could have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability on claims that are the subject matter
of such proceeding.
(d) Contribution. If the indemnification provided for in this Section
------------
8 is unavailable to the Indemnified Parties in respect of any losses, claims,
damages, liabilities or judgments referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities and judgments (i) as between the
Company and its respective Indemnified Parties and the Selling Holders and their
respective Indemnified Parties on the one hand and the Underwriters and their
respective Indemnified Parties on the other, in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Holders on the one hand and the Underwriters on the other from the
offering of the Registrable Securities, or if such allocation is not permitted
by applicable law, in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Selling
Holders on the one hand and of the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable considerations
and (ii) as between the Company and its respective Indemnified Parties on the
one hand and each Selling Holder and their respective Indemnified Parties on the
other, in such proportion as is appropriate to reflect the relative fault of the
Company and of each Selling Holder in connection with such statements or
omissions, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Holders on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by the Company and the Selling Holders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
prospectus. The relative fault of the Company and the Selling Holders on the one
hand and of the Underwriters on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Selling Holders or by the
Underwriters. The relative fault of the Company on the one hand and of each
Selling Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
- --- ----
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, liabilities, or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8(d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and no
Selling Holder shall be required to contribute any
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amount in excess of the amount by which the total price at which the Registrable
Securities of such Selling Holder were offered to the public exceeds the amount
of any damages which such Selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
9. Participation in Underwritten Registration
------------------------------------------
No Person may participate in any underwritten registration
hereunder unless such Person (a) agrees to sell such Person's securities on the
basis provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and these Registration Rights.
10. Rule 144
--------
If the Company is subject to the requirements of Section 13, 14
or 15(d) of the Exchange Act, the Company covenants that it will file any
reports required to be filed by it under the Securities Act and the Exchange Act
so as to enable Holders to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided by (a)
Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or (b) any similar rule or regulation hereafter adopted by the Commission.
Upon the request of any Holder, the Company will deliver to such Holder a
written statement as to whether it has complied with such requirements.
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Exhibit 4.17
FORM OF WARRANT ESCROW AGREEMENT
211
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EXHIBIT C
---------
FORM OF
WARRANT ESCROW AGREEMENT
------------------------
WARRANT ESCROW AGREEMENT, dated as of December 1, 1999, among Citation
Corporation, a Delaware corporation (the "Company"), Citation Funding, Inc., a
Delaware corporation and First Union Investors, Inc., a North Carolina
corporation (each individually a "Purchaser" and collectively, the
"Purchasers"), The Chase Manhattan Bank, a New York banking corporation
("Chase", and together with the Purchasers, the "Bridge Parties") and Snoga,
Inc. (together with its successors and assigns as escrow agent hereunder, the
"Escrow Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company and Citation Funding, Inc., First Union
Investors, Inc. and The Chase Manhattan Bank have entered into a Bridge
Financing Agreement dated as of December 1, 1999 (as the same may be amended
from time to time, the "Bridge Financing Agreement") pursuant to which the
Company has agreed, inter alia, to sell, and the Purchasers have agreed to
----- ----
purchase, up to $101,250,000 aggregate principal amount of Senior Subordinated
Increasing Rate Notes, and the Company has agreed to borrow and Chase has agreed
to make, a single loan in the principal amount of $33,750,000, in each case,
subject to the terms and conditions set forth in the Bridge Financing Agreement;
and
WHEREAS, pursuant to the Bridge Financing Agreement, it is a condition
to the Bridge Parties' obligations to provide the aforesaid financing that,
contemporaneously with the Takedown, this Agreement shall have been executed and
delivered by the parties hereto, and the Warrants shall have been delivered to
the Escrow Agent;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. Terms defined in the Bridge Financing Agreement and
-----------
not otherwise defined herein are used herein with the same meanings. The terms
set forth below have the following respective meanings:
"Common Stock Equivalents" means the Warrants issuable under this
Agreement. The number of Common Stock Equivalents refers to the number of
shares of Capital Stock of the Company issuable upon exercise of such Warrants.
"Release Date" means either (i) the first date falling within each
time period listed in Column A of the table set forth in Schedule I hereto which
-------- ----------
falls on or prior to the date (if any) on which the Escrow Agent shall have
received the Termination Certificate or (ii) on or after the Fixed Rate Sale
Date as and when the Bridge Parties may request, provided that the Bridge
--------
Parties shall be entitled to such released Warrants only in order to facilitate
such resale, transfer or assignment of the Obligations (or, if any such date is
not a Business Day, the next succeeding Business Day).
"Termination Certificate" means a certificate of a duly authorized
officer of the Company to the effect that (i) the Obligations have been repaid
or refinanced in their entirety on or prior to the date of such certificate and
(ii) the Company has given the holders of the Obligations not less than five
Business Days' written notice of its intention to deliver such certificate.
"Warrant Shares" has the meaning set forth in the Warrant.
2. Delivery of Escrow Securities; Reservation of Shares. (a) On the
----------------------------------------------------
date of the Closing, the Company shall deliver to the Escrow Agent ____ duly
executed, undated Warrants, _____ Warrants registered in the name of Citation
Funding, Inc., _____ Warrants registered in the name of First Union Investors,
Inc. and ______ Warrants registered in the name of Chase, and each such Warrant
will be blank as to share amount. The Warrants collectively shall represent five
percent (5%) of the Fully-Diluted Common Stock of the Company (the "Maximum
Amount"). All such Warrants delivered to the Escrow Agent pursuant to this
Agreement shall be held in escrow upon the terms and conditions set forth
herein. Notwithstanding the foregoing, until delivered by the
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Escrow Agent pursuant to Section 3 hereof, the Warrants shall not be deemed
issued or outstanding for any purpose.
(b) Upon each transfer of an Obligation (including for this purpose
the designation of different registered holders of the Obligations by the Bridge
Parties in accordance with Section 2.2(c) of the Bridge Financing Agreement),
the Company shall promptly notify the Escrow Agent in writing of such transfer,
of the registered name and address of the transferee and the Company shall
promptly (and in any event prior to next Release Date) deliver to the Escrow
Agent in the case of any such transfer prior to the Fixed Rate Sale Date,
additional executed Warrants, in each case registered in the name of such
transferee and otherwise completed in accordance with Section 2(a) hereof and
the Warrants previously delivered to the Bridge Parties or other holders of the
Obligations shall be adjusted so that the number of Warrant Shares registered by
the Warrants and delivered to the Escrow Agent under Section 2 hereof shall at
no time exceed the Maximum Amount.
(c) The Company shall at all times duly reserve for issuance all
shares of its common stock that could become deliverable from time to time under
the Warrants.
(d) Without the prior written consent of (i) for so long as any of
the Obligations are outstanding, the Majority Holders thereof and (ii)
thereafter, for so long as any Warrants issued hereunder remain outstanding, the
holders of a majority of the Common Stock Equivalents represented thereby, the
Company shall not take or suffer to be taken any corporate action, including
without limitation any amendment to its corporate documents or any merger,
consolidation or similar restructuring transaction, which (A) adversely affects
the rights, powers and privileges of its common stock, provided, however, that
--------
such prior written consent shall not be required for the Company to approve a
transaction resulting in a Change of Control, as defined under the Bridge
Financing Agreement or (B) increases by more than $1,000 the aggregate Exercise
Price (as defined in the Warrant) due upon exercise of the Warrants.
3. Release of Escrow Securities. (a) Upon the occurrence of either
----------------------------
(i) the refinancing of one hundred percent (100%) of the Obligations is not
completed following the First Anniversary of each Release Date set forth in
Column A of Schedule I hereto, the holder of a Warrant shall be entitled to
- -------- ----------
receive, on each Release Date, a Warrant representing its ratable share,
determined in accordance with the relationship between the aggregate principal
amount of such holder's Obligations and the aggregate principal amount of all
Obligations then outstanding, of the aggregate number of Common Stock
Equivalents determined as set forth in Column B of Schedule I hereto and
-------- ----------
adjusted, if required, in accordance with the provisions of Section 4 hereof; or
(ii) on and after the Fixed Rate Sale Date as and when the Bridge Parties may
request, provided that the Bridge Parties shall be entitled to such released
--------
Warrants only in order to facilitate such resale, transfer or assignment of the
Obligations, the holder of a Warrant shall be entitled to receive, on such
Release Date, a Warrant representing its ratable share, determined in accordance
with the relationship between the aggregate principal amount of such holder's
Obligations and the aggregate principal amount of all Obligations then
outstanding, of the aggregate number of Common Stock Equivalents determined as
set forth in Schedule II hereto and adjusted, if required, in accordance with
-----------
the provisions of Section 4 hereof in order to facilitate the resale of the
Obligations.
Within 10 days following the date hereof, the Company shall deliver to
the Escrow Agent (with a copy to each Bridge Party) a certificate setting forth
the number of shares of Fully Diluted Common Stock as of the date hereof after
giving effect to consummation of the Transactions. On each Release Date, the
Escrow Agent shall calculate the number of Common Stock Equivalents to be
released to the Holder on such Release Date in accordance with Schedule I or
----------
Schedule II hereto, as applicable and shall furnish to the Company and to the
- -----------
Holders a copy of the calculations made by it.
(b) In addition to notice of transfers of Obligations to be given by
the Company to the Escrow Agent in accordance with Section 2(b) hereof, the
Company shall promptly, and in any event not less than six Business Days prior
to the first Release Date on or after the date of any such transaction, notify
the Escrow Agent in writing of any redemption or repayment of any of the
Obligations. In the absence of notice from the Company at least five Business
Days prior to any Release Date of any of the foregoing transactions, the Escrow
Agent may assume for the purpose of releases of Warrants on such Release Date
that no such transaction has occurred.
(c) On each Release Date the Escrow Agent shall complete one of the
Warrants held by it registered in the name of each registered holder of
Obligations by filling in the number of Common Stock
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Equivalents to which such holder is entitled on such Release Date in accordance
with subsection (a) of this Section 3 (rounded upwards, if necessary, to the
next whole number) and by dating such Warrant as of such Release Date. The
Escrow Agent shall deliver each Warrant so completed to the Bridge Parties for
the account of such holders or, if so instructed in writing by the Bridge
Parties not less than five Business Days prior to such Release Date, shall mail
each such Warrant to the registered holder thereof at the address for such
holder most recently notified to the Escrow Agent by the Company.
(d) Promptly upon the Escrow Agent's receipt of the Termination
Certificate, the Escrow Agent shall return the Warrants then held by it to the
Company thereof.
(e) The Company will provide, or cause to be provided, to the Escrow
Agent all information necessary to perform the calculations set forth in
Schedule I and Schedule II hereto or otherwise required hereunder and such other
- ---------- -----------
information as the Escrow Agent may from time to time reasonably request.
4. Anti-Dilution Provisions. (a) Adjustments. The number of Common
------------------------ -----------
Stock Equivalents deliverable from escrow hereunder shall be subject to
adjustment from time to time but without duplication in the same manner as the
number of Warrant Shares purchasable upon exercise of the Warrants would have
been adjusted in accordance with the terms thereof had the Warrants been issued
on the date hereof. In addition, if and to the extent that holders of Warrants
would then have been entitled upon exercise thereof to receive shares of stock
or other securities or property in addition to or in lieu of Warrant Shares, the
holders of the Obligations shall be similarly entitled on any Release Date, to
the same extent as if they had exercised on such date Warrants for a number of
Warrant Shares equal to the number of Common Stock Equivalents to which each
such holder is entitled hereunder on such Release Date.
(b) Notice of Certain Actions. In the event that at any time:
-------------------------
(A) the Company shall authorize the issuance of convertible
securities to all holders of its common stock; or
(B) the Company shall authorize the distribution to all holders of
its common stock of evidences of its indebtedness or assets (other than
dividends paid in or distributions of the Company's capital stock for which
the number of Warrant Shares purchasable hereunder shall have been adjusted
pursuant to subsection (a) of this Section 4 or regular cash dividends or
distributions payable out of earnings or surplus and made in the ordinary
course of business); or
(C) the Company shall authorize any capital reorganization or
reclassification of the common stock (other than a subdivision or
combination of the outstanding common stock and other than a change in par
value of the common stock) or of any consolidation or merger to which the
Company is a party and for which approval of any stockholders of the
Company is required (other than a consolidation or merger in which the
Company is the continuing corporation and that does not result in any
reclassification or change of the common stock outstanding), or of the
conveyance or transfer of the properties and assets of the Company
substantially as an entirety; or
(D) there shall be a voluntary or involuntary dissolution, suspension
of payments, liquidation or winding-up of the Company; or
(E) the Company shall propose to take any other action that would
require an adjustment of the number of Common Stock Equivalents deliverable
hereunder pursuant to this Section 4;
then the Company shall cause to be mailed by certified mail to the Escrow Agent,
at least 30 days (or 20 days in any case specified in clause (A) or (B) above)
prior to the applicable record or effective date hereinafter specified, a notice
describing such issuance, distribution, reorganization, reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation, winding-
up or other action and stating (x) the date as of which the holders of common
stock of record entitled to receive any such convertible securities or
distributions are to be determined or (y) the date on which any such
consolidation, merger, conveyance, transfer, dissolution, liquidation, winding-
up or other action is expected to become effective and the date as of which it
is expected that holders of common stock of record shall be entitled to exchange
their shares of common stock for securities or other property, if any,
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deliverable upon such reorganization, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation, winding-up or other action.
5. Responsibility of the Escrow Agent. The Company and the Bridge
----------------------------------
Parties hereby appoint and designate the Escrow Agent as escrow agent for the
purposes set forth herein and the Escrow Agent owes no duty to any other person
or entity by reason of this Agreement. The Escrow Agent hereby accepts the
duties expressly set forth in this Agreement and undertakes to perform only such
duties relating thereto as are specifically set forth herein. The parties hereto
agree that the following terms and conditions shall govern and control with
respect to the rights, duties, liabilities and immunities of the Escrow Agent
hereunder.
(a) The duties and obligations of the Escrow Agent shall be
determined solely by the express provisions of this Agreement, and no implied
covenants, duties or obligations (including without limitation any duty to
solicit the delivery of any Warrants) shall be read into this Agreement against
the Escrow Agent, nor shall it have, or be deemed to have, any duties or
responsibilities under the provisions of any other agreements (including without
limitation the Bridge Financing Agreement) between the other parties hereto or
any other Person.
(b) The Escrow Agent shall not be liable for any error of judgment,
or any action taken, suffered or omitted by it in good faith, or mistake of fact
or law, or for anything it may do or refrain from doing in connection herewith
or therewith, except its own gross negligence, wilful misconduct or bad faith.
(c) The Escrow Agent may rely and shall be authorized and protected
in acting or refraining from acting in good faith in reliance upon any written
instruction, communication, notice, request, resolution, direction, certificate,
statement, approval, appraisal, promissory note, share or warrant certificate or
other paper or document, not only as to its due execution and the validity and
effectiveness of its provision, but also as to the truth of any information
therein contained, which it in good faith believes to be genuine and to have
been presented by the proper party.
(d) The Escrow Agent may consult with counsel, auditors and other
experts of its own choice and any opinion or advice of counsel or opinion or
advice of such auditors or other experts shall be full and complete
authorization and protection with respect to any action taken or suffered or
omitted by the Escrow Agent hereunder in good faith and in accordance with such
opinion or advice of counsel or opinion or advice of such auditors or other
experts within the area of their respective expertise.
(e) The Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either directly or
by or through its agents or attorneys.
(f) The Escrow Agent shall not be responsible for and shall not be
under a duty to examine into or pass upon, the validity, binding effect,
execution or sufficiency of this Agreement, the Warrants, the Obligations or of
any agreement amendatory or supplemental hereto or thereto or the absence or
presence of any liens or encumbrances on the property held in escrow hereunder.
(g) The Escrow Agent shall be under no duty to prepare, conduct or
monitor any filing, recording or registration, re-filing, re-recording or re-
registration of this Agreement or of any agreement amendatory hereof or of any
instrument or assignment, conveyance or further assurance, or to the payment of
any taxes, fees or charges in connection therewith, or to give any notice with
respect thereto or to pay, inquire into or prepare, conduct or monitor the
payment of, or be under any duty in respect of or arising out of, any tax or
assessment or other governmental charge which may be levied or assessed on the
property held in escrow hereunder or any part thereof or any confiscation of
such property, except for liens, assessments and other charges relating to
compensation for services of the Escrow Agent hereunder or which result from
acts or claims against the Escrow Agent which are not related to administration
of its duties under, or pursuant or incidental to, this Agreement. The Escrow
Agent shall be under no other obligation to pay, inquire into or prepare,
conduct or monitor the payment or discharge of any liens upon such property. No
property held in escrow by the Escrow Agent hereunder shall be subject to any
set-off, counterclaim, recoupment or other right which the Escrow Agent may have
against any of the parties hereto (except with respect to any payments to be
made to the Escrow Agent hereunder) or against any other Person for any reason
whatsoever.
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(h) Except as otherwise specifically provided herein, the Escrow
Agent may deal with the Company, the Bridge Parties or their respective
affiliates, in the same manner and to the same extent and with like effect as if
it were not the Escrow Agent hereunder.
(i) If any controversy arises between the parties hereto or with any
third person with respect to the subject matter of the escrow described herein,
the Escrow Agent shall not be required to determine the same or take any action
in the premises, but may await the settlement of any such controversy by final
appropriate legal proceedings or otherwise as the Escrow Agent may require,
notwithstanding anything in the foregoing instructions to the contrary, and in
such event the Escrow Agent shall not be liable for interest or damages, except
that the Escrow Agent shall not deliver the amounts held in escrow hereunder in
any manner other than in accordance with Section 3 hereof, except in accordance
with a final unappealable order of a court of competent jurisdiction.
(j) If the Escrow Agent shall be uncertain as to its duties or rights
hereunder or shall receive instructions, claims or demands from any party hereto
which, in its opinion, conflict with any of the provisions of this Agreement, it
shall be entitled to refrain from taking any action and its sole obligation
shall be to keep safely all property held in escrow until it shall be directed
otherwise in writing by all of the other parties hereto or by a final order or
judgment of a court of competent jurisdiction.
(k) Without limiting and in furtherance of the foregoing, the Escrow
Agent shall not be liable or responsible for any of the provisions of the
Obligations or the Warrants except for those expressly referred to herein.
6. Removal and Resignation. The Escrow Agent and any successor
-----------------------
Escrow Agent may at any time be removed at the written direction of the Majority
Holders and the Company. The Escrow Agent or any successor Escrow Agent may at
any time resign and be discharged of its obligations hereunder by giving written
notice to the Company and each holder of an Obligation specifying the date upon
which it desires that such resignation shall take effect. Such removal or
resignation shall take effect on the date specified in the notice of removal or
resignation, which date shall not be earlier than 60 days after the giving of
the notice of removal or resignation unless previously a successor Escrow Agent
shall have been appointed pursuant to Section 7 hereof and shall have accepted
such appointment, in which event such removal or resignation shall take effect
immediately upon the acceptance by such successor Escrow Agent. The Company
agrees to take prompt steps to have a successor Escrow Agent appointed in the
manner hereinafter provided.
7. Appointment of Successor Agent. If at any time the Escrow Agent
------------------------------
shall resign or be removed or otherwise become incapable of acting or if at any
time a vacancy shall occur in the office of the Escrow Agent for any other
cause, a successor Escrow Agent shall be appointed by the Company with the
consent of the Majority Holders by an instrument in writing delivered to the
Escrow Agent within the time specified below. Upon delivery of said instrument
to and acceptance of said instrument by the successor Escrow Agent, the
resignation or removal of the Escrow Agent shall become effective and such
successor Escrow Agent shall become vested with all the rights, powers, duties
and obligations of its predecessor hereunder. If no successor Escrow Agent shall
have been appointed at the effective date of resignation, the Escrow Agent, any
other party hereto or the Majority Holders may petition a court of competent
jurisdiction for the appointment of a successor.
8. Compensation, Reimbursement and Indemnification of Escrow Agent.
---------------------------------------------------------------
The Escrow Agent shall be entitled to compensation from the Company from time to
time for all services rendered by it hereunder, as well as reimbursement from
the Company for all reasonable expenses, disbursements, advances and liabilities
incurred or made by the Escrow Agent hereunder (including the reasonable fees
and disbursements of the Escrow Agent's counsel).
The Company hereby agrees to indemnify the Escrow Agent for, and to
hold it harmless from and against, any loss, liability, claims, actions, damages
or expenses (including reasonable expenses and disbursements of its agents and
counsel) incurred without gross negligence, wilful misconduct or bad faith on
the part of the Escrow Agent arising out of or in connection with its entering
into this Agreement and carrying out its duties hereunder, including the costs
and expenses of defending itself against any claim or liability in the premises.
9. Termination. This Agreement shall terminate on the later of (i)
-----------
if the Obligations are refinanced or repaid in their entirety prior to the First
Anniversary, on the date the Escrow Agent shall have received a certificate from
the Company to such effect, (ii) if the Bridge Parties do not elect to exercise
the
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Warrants in satisfaction of the outstanding Obligations in accordance with the
terms of this Agreement or (iii) if the Warrants are so issued, on the last
Release Date; provided that the provisions of Sections 2(c), 2(d), 5 and 8
hereof shall survive termination of this Agreement and resignation or removal of
the Escrow Agent.
10. Notices. Except as otherwise expressly provided herein, all
-------
demands, notices, consents, requests and other documents authorized or required
to be given to any party to this Agreement shall be given in writing and either
personally served on an officer of such party or mailed by registered or
certified first class mail, postage prepaid, return receipt requested, or sent
by telecopier (with a copy sent by first class mail promptly thereafter),
addressed as follows:
if to the Escrow Agent:
Snoga, Inc.
140 Broadway
New York, New York 10005-1285
Attention: Claire Power
Telephone: 212-504-3000
Telecopy No.: 212-540-4991
217
<PAGE>
if to the Company:
Citation Corporation
2 Office Park Circle
Suite 204
Birmingham, Alabama 35223
Attention: Stanley B. Atkins
Telephone: (205) 871-5731
Telecopy: (205) 871-5772
; and
Kelso & Company
320 Park Avenue
New York, New York 10022
Attention: James J. Connors, II
Telephone: (212) 751-3939
Telecopy: (212) 223-2379
if to the Bridge Parties:
(a) Citation Funding, Inc.
c/o Donaldson, Lufkin & Jenrette, Inc.
277 Park Avenue
New York, New York 10172
Attention: Rick Beaudoin
Telephone: (212) 892-3669
Telecopy No.: (212) 892-7542
(b) The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Attention: Julie Long
Telephone: (212) 270-1053
Telecopy No.: (212) 972-9854
(c) First Union Investors, Inc.
c/o First Union Capital Markets
One First Union
301 South College Street, 5/th/ Floor
Charlotte, NC 28288
Attention: Arion Skenderi
Telephone: (704) 383-3791
Telecopy No.: (704) 383-6228
Any party may change its address by specifying in writing a new
address for such notices to each of the other parties hereto.
11. Successors and Assigns; Amendments and Modifications. This
----------------------------------------------------
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and assigns and shall not inure to the benefit
of any third party except for any holders of the Obligations who are not parties
to this Agreement. This Agreement may not be amended or modified in any respect
without the express written consent of the Company, the Escrow Agent and the
Majority Holders.
12. Severability. In case any one or more provisions contained in
------------
this Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be in any way affected or impaired thereby.
218
<PAGE>
13. New York Law; Submission to Jurisdiction; Waiver of Jury Trial.
--------------------------------------------------------------
This Warrant Escrow Agreement and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of New York without regard to principles of conflicts of laws. Each
party hereto hereby submits to the jurisdiction of the United States District
Court for the Southern District of New York of any New York state court sitting
in New York City and of any court located in its own corporate domicile for
purposes of all legal proceedings arising out of or relating to this Warrant
Escrow Agreement. Each party hereto irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum. Each party hereto hereby irrevocably waives any and all right to trial
by jury in any legal proceeding arising out of or relating to this Warrant
Escrow Agreement. The Company agrees (i) that service of process in any such
proceeding may be effected by mailing a copy thereof by registered or certified
mail (of any substantially similar form of mail), postage prepaid, to the
Company at 2 Office Park Circle, Suite 204, Birmingham, Alabama 35223, (ii)
agrees that nothing herein shall affect service of process in any other manner
permitted by law or shall limit the right to sue in any other jurisdiction and
(iii) waives, to the maximum extent not prohibited by law, any right it may have
to claim or recover in any such proceeding any special, exemplary, punitive or
consequential damages.
14. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.
15. No Waiver. No course of dealing, nor any delay on the part of any
---------
party hereto in exercising any rights hereunder, or any failure to exercise the
same, shall operate as a waiver of such or any other rights.
16. Descriptive Headings. The descriptive headings of the several
--------------------
sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers, as of the date first
above written.
CITATION CORPORATION
By:____________________________________
Name:
Title:
SNOGA, INC., as Escrow Agent
By:______________________________________
Name:
Title:
CITATION FUNDING, INC.
By:_____________________________________
Name:
Title:
THE CHASE MANHATTAN BANK
By:_____________________________________
Name:
Title:
FIRST UNION INVESTORS, INC.
By:_____________________________________
Name:
Title:
220
<PAGE>
Exhibit 4.18
FORM OF WARRANTS
222
<PAGE>
EXHIBIT F
---------
FORM OF
WARRANT
-------
- --------------------------------------------------------------------------------
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND MAY NOT BE OFFERED OR SOLD, UNLESS THEY HAVE BEEN REGISTERED UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE AND THEN ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON
TRANSFER SET FORTH IN THE BRIDGE FINANCING AGREEMENT DATED AS OF DECEMBER 1,
1999, AS AMENDED, A COPY OF THE BRIDGE FINANCING AGREEMENT MAY BE OBTAINED FROM
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE.
- --------------------------------------------------------------------------------
CITATION CORPORATION
Warrant for the Purchase of Shares of Common Stock
--------------------------------------------------
No. ____ [__] Shares
FOR VALUE RECEIVED, CITATION CORPORATION (the "Company"), a Delaware
corporation, hereby certifies that _________________________________________
(the "Purchaser"), (together with any permitted subsequent holder of warrants
subject hereto, the "Holder") is entitled, subject to the provisions of this
Warrant, to purchase from the Company, at any time or from time to time during
the Exercise Period (as hereinafter defined) an aggregate of Eight Hundred
Thousand Four Hundred Fifty Two (800,452) fully paid and nonassessable Warrant
Shares (as hereinafter defined), at an aggregate purchase price equal to the
Exercise Price (as hereinafter defined). The number of Warrant Shares to be
received upon the exercise of this Warrant is subject to adjustment from time to
time as hereinafter set forth.
29. Definitions Terms defined in the Bridge Financing Agreement dated as of
-----------
December 1, 1999 among the Company, Citation Funding, Inc., First Union
Investors, Inc. and The Chase Manhattan Bank, unless otherwise defined
herein are used herein as therein defined. The following additional terms,
as used herein, have the following respective meanings:
"Additional Shares" means any shares of Common Stock other than Common
Stock issued upon the exercise of any Warrant.
"Appraiser" has the meaning set forth in Section 7(d)(iii).
"Common Stock" means the authorized Capital Stock, par value $.01 per
share of the Company, and any stock into which such Capital Stock may thereafter
be converted or changed.
"Convertible Securities" means rights to subscribe for, or any rights
or options to purchase, shares of Common Stock, or any stock or other securities
convertible into or exchangeable for shares of Common Stock.
"Current Market Price" means for shares of Common Stock the current
market price of such Common Stock as determined in accordance with subsection
7(d).
"Exercise Period" means the period from and including the date the
Warrants are released in accordance with the terms of the Warrant Escrow
Agreement, dated as of December 1, 1999, among the Company,
223
<PAGE>
the Purchaser and Snoga, Inc., the escrow agent, to and including 5:00 p.m. (New
York City time) on the seventh (7/th/) anniversary of the date thereof (or if
such day is not a Business Day, the next succeeding Business Day).
"Exercise Price" means, with respect to any Warrant Share, an amount
equal to $0.01 per share for such Warrant Share.
"Fully Diluted Common Stock" means, at any time, the then outstanding
Common Stock plus (without duplication) all shares of Common Stock issuable,
whether at such time or upon the passage of time or the occurrence of future
events, upon the exercise, conversion or exchange of all then-outstanding
rights, warrants, options, convertible securities or exchangeable securities or
indebtedness, or other rights exercisable for or convertible or exchangeable
into, directly or indirectly, Common Stock, and securities convertible or
exchangeable into Common Stock, whether at the time of issuance or upon the
passage of time or the occurrence of some future event.
"Kelso Holder" means any Affiliate or designee of Kelso
"Non-Kelso Holder" means any Holder that is not a Kelso Holder.
"Warrant Shares" means the shares of Common Stock of the Company
deliverable upon exercise of this Warrant, as adjusted from time to time.
30. Exercise of Warrant. This Warrant may be exercised in whole or in part, at
-------------------
any time or from time to time, during the Exercise Period, by presentation
and surrender hereof to the Company at its principal office at the address
set forth on the signature page hereof (or at such other address as the
Company may hereafter notify the Holders in writing), or at the office of
Escrow Agent with the Purchase Form annexed hereto duly executed and
accompanied by proper payment of that portion of the Exercise Price
represented by the number of Warrant Shares specified in such form being
exercised. Such payment may be made, at the option of the Holders, either
(a) by cash, certified or bank cashier's check or wire transfer in an
amount equal to the product of (i) the Exercise Price times (ii) the number
of Warrant Shares as to which this Warrant is being exercised or (b) by
receiving from the Company the number of Warrant Shares equal to (i) the
number of Warrant Shares as to which this Warrant is being exercised minus
(ii) the number of Warrant Shares having a value, based on the Current
Market Price on the trading day immediately prior to the date of such
exercise, equal to the product of (x) the Exercise Price times (y) the
number of Warrant Shares as to which this Warrant is being exercised. If
this Warrant should be exercised in part only, the Company shall, upon
surrender of this Warrant, execute and deliver a new Warrant evidencing the
rights of the Company thereof to purchase the balance of the Warrant Shares
purchasable hereunder. Upon receipt by the Company or Escrow Agent of this
Warrant and such Purchase Form, together with the applicable portion of the
Exercise Price, at such office, in proper form for exercise, the Holder
shall be deemed to be the holder of record of the Warrant Shares,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shall not then
be actually delivered to the Holder. The Company shall pay any and all
documentary stamp or similar issue taxes payable in respect of the issue of
the Warrant Shares. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the
issuance or delivery of certificates representing Warrants or Warrant
Shares in a name other than that of the Holder at the time of surrender for
exercise, and, until the payment of such tax, shall not be required to
issue such Warrant Shares.
31. Due Authorization; Reservation of Shares. (a) The Company represents and
--------------------------------- ------
warrants that this Warrant has been duly authorized, executed and delivered
by the Company and is a valid and binding agreement of the Company and
entitles the Holder hereof or its assignees to purchase Warrant Shares upon
payment to the Company of the Exercise Price applicable to such shares.
The Company hereby agrees that at all times there shall be reserved for
issuance and delivery, upon exercise of this Warrant, all shares of its
Common Stock or other shares of capital stock of the Company from time to
time issuable or deliverable upon exercise of this Warrant. All such
shares shall be duly authorized (and, if newly-issued, when issued upon
such exercise), shall be validly issued, fully paid and nonassessable, free
and clear of all liens, security interests, charges and other encumbrances
or restrictions on sale and free and clear of all preemptive rights
(including without limitation, any encumbrances or rights in favor of the
Company).
224
<PAGE>
Any Common Stock held by the Company and subject to this Warrant shall be
marked with a legend stating that such shares are subject to this Warrant.
(c) The Company represents and warrants that the execution and
delivery by it of this Warrant does not require any action by or in respect of,
or filing with, any governmental body, agency or official and does not
contravene or constitute a default under or violation of (i) any provision of
applicable law or regulation, (ii) the certificate of incorporation or (iii)
bylaws of the Company, or any material agreement, judgment, injunction, order,
decree or other instrument binding upon the Company.
32. Fractional Shares. No fractional shares or scrip representing fractional
-----------------
shares shall be issued upon the exercise of this Warrant. With respect to
any fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction multiplied
by the Current Market Price of such fractional share.
33. Exchange, Transfer, Assignment or Loss of Warrant. This Warrant is
-------------------------------------------------
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company for other Warrants of
different denominations, entitling the Holder or Holders thereof to
purchase in the aggregate the same number of Warrant Shares. Subject to
Section 10 hereof, the Holder of this Warrant shall be entitled to assign
its interest in this Warrant in whole or in part to any person or persons.
Upon surrender of this Warrant to the Company by the Holder, with the
Assignment Form annexed hereto duly executed and funds sufficient to pay
any transfer tax, the Company shall, without charge, execute and deliver a
new Warrant or Warrants in the name set forth in such assignment form and,
if the Holder's entire interest is not being assigned, in the name of the
Holder, and this Warrant shall promptly be cancelled. In the event of any
assignment in part, the Exercise Price shall be apportioned between the
Warrant to be issued to the Holder with respect to that portion not
transferred and the Warrant to be issued to the transferee based on their
respective interests. This Warrant may be divided or combined with other
Warrants that carry the same rights upon presentation hereof at the office
of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the
Holder hereof. The term "Warrant" as used herein includes any Warrants
into which this Warrant may be divided or for which it may be exchanged.
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and in
the case of mutilation, upon surrender and cancellation of this Warrant the
Company shall execute and deliver a new Warrant of like tenor and date.
34. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled
--------------------
to any rights of a stockholder in the Company, either at law or equity, and
the rights of the Holder are limited to those expressed in this Warrant.
35. Anti-dilution Provisions and Other Adjustments; Purchase Right. The number
--------------------------------------------------------------
of Warrant Shares which may be purchased upon the exercise hereof shall be
subject to change or adjustment as follows:
(a) Stock Dividends, Splits, Combinations, Reclassifications, etc. If
-------------------------------------------------------------
the Company at any time (i) shall declare a dividend or make a distribution on
its Common Stock payable in shares of its capital stock (whether shares of
Common Stock or of capital stock of any other class), (ii) shall subdivide
shares of its Common Stock into a greater number of shares, (iii) shall combine
or have combined its outstanding Common Stock into a smaller number of shares or
(iv) shall issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), other securities of the Company the
Holder shall be entitled to purchase pursuant to this Warrant the aggregate
number and kind of shares of capital stock and other securities which, if such
Holder's Warrant had been exercised immediately prior to such event, such Holder
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, distribution, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) Additional Issuances. If the Company at any time shall issue any
--------------------
Additional Shares at a price less than the Current Market Price per share of
Common Stock or any Convertible Securities (excluding any such issuance for
which the number of Warrant Shares purchasable hereunder shall have been
adjusted pursuant to subsection (a) of this Section 7 and excluding (i) any
issuance of Warrants pursuant to the Escrow Agreement
225
<PAGE>
and (ii) any options granted to employees of the Company or any subsidiary of
the Company), which are exercisable or convertible for Additional Shares at an
exercise or conversion price less than the Current Market Price per share of
Common Stock, the number of Warrant Shares purchasable hereunder after such
issuance shall be determined by multiplying the number of Warrant Shares
purchasable hereunder immediately prior to such issuance by a fraction, (i) the
denominator of which shall be the number of shares of Fully Diluted Common Stock
immediately prior to such issuance plus the number of shares that the aggregate
consideration for the total number of such Additional Shares (including the
issue price of any such Convertible Securities) would purchase at the Current
Market Price per share of Common Stock and (ii) the numerator of which shall be
the number of shares of Fully Diluted Common Stock immediately after such
issuance. No further adjustment to the number of Warrant Shares purchasable
hereunder shall be made upon the actual issue of Common Stock upon exercise of
such Convertible Securities. Shares of Common Stock owned by or held for the
account of the Company or any Subsidiary on such date shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall
become effective immediately after such issuance. Such adjustment shall be made
successively whenever any such event shall occur.
If the Company at any time shall issue two or more securities as a
unit and one or more of such securities shall be Additional Shares or
Convertible Securities subject to this subsection (b), the consideration
allocated to each such security shall be determined in good faith by the board
of directors of the Company; provided that if the aggregate issue price of all
--------
such units exceeds $10,000,000, then such allocation shall be determined by an
independent nationally recognized investment banking firm experienced in valuing
securities.
(c) Distribution of Evidences of Indebtedness or Assets. If the
---------------------------------------------------
Company at any time shall fix a record date for the making of a distribution to
all holders of its Common Stock (including any such distribution to be made in
connection with a consolidation or merger in which the Company is to be the
continuing corporation) of evidences of its indebtedness or assets (excluding
dividends or distributions of the Company paid in capital stock for which the
number of Warrant Shares purchasable hereunder shall have been adjusted pursuant
to subsection (a) of this Section 7 or regular cash dividends or distributions
payable out of earnings or surplus and made in the ordinary course of business)
the number of Warrant Shares purchasable hereunder after such record date shall
be determined by multiplying the number of Warrant Shares purchasable hereunder
immediately prior to such record date by a fraction, of which the denominator
shall be the Current Market Price per share of Common Stock on such record date,
less the fair market value (as determined in the reasonable judgment of the
Board of Directors of the Company and described in a statement delivered to the
Holder) of the portion of the assets or evidences of indebtedness so to be
distributed to a holder of one share of Common Stock, and the numerator shall be
the Current Market Price per share of Common Stock. Such adjustment shall
become effective immediately after such record date. Such adjustment shall be
made whenever such a record date is fixed; and in the event that such
distribution is not so made, the number of Warrant Shares purchasable hereunder
shall again be adjusted to be the number that was in effect immediately prior to
such record date.
(d) Determination of Market Price. (A) For the purpose of any
-----------------------------
computation under subsection (b) or (c) of this Section 7, the Current Market
Price per share of Common Stock on any record date shall be the average of the
current market value, determined as set forth below, of Common Stock for the 20
Business Days prior to the date in question.
(i) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such an exchange, the current
market value shall be the last reported sale price of the Common Stock on such
exchange on such Business Day or if no such sale is made on such day, the mean
of the closing bid and asked prices for such day on such exchange; or
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the mean of the last bid
and asked prices reported on such Business Day (A) by the National Association
of Securities Dealers, Inc. Automatic Quotation System or (B) if reports are
unavailable under clause (A) above by the National Quotation Bureau
Incorporated; or
(iii) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be such value as agreed upon by the Company and the Majority
Holders or, if the Company and the Majority Holders cannot otherwise agree, (i)
the current market value shall be determined by the most recent appraisal of the
Company, which was made by Houlihan,
226
<PAGE>
Lokey, Howard & Zukin pursuant to the Stockholder's Agreement of the Company, or
(ii) if such appraisal is dated more than 3 months prior to the date the Current
Market Price is being determined by an independent nationally recognized
investment banking firm experienced in valuing businesses (an "Appraiser")
jointly chosen by the Majority Holders and the Company or, if the Majority
Holders and the Company cannot agree on the selection of an Appraiser within 10
Business Days, then each of the Company and the Majority Holders shall choose an
Appraiser within 10 Business Days of the end of such first 10-day period, and
the current market value shall be the value agreed upon by such Appraisers or,
if the two Appraisers cannot so agree, the value of a third Appraiser, which
third Appraiser shall be chosen by the two Appraisers. If there is only one
Appraiser, all expenses of the Appraiser shall be paid by the Company. If there
are two Appraisers, the Majority Holders and the Company shall pay all expenses
of the Appraiser chosen by it.
(B) For the purposes of any computation under Sections 2 or 4, the
Current Market Price shall be determined by (i) the most recent appraisal of the
Company, which was made by Houlihan, Lokey, Howard & Zukin pursuant to the
Stockholder's Agreement of the Company, or (ii) if such appraisal is dated more
than 3 months prior to the date the Current Market Price is being determined by
an independent nationally recognized investment banking firm experienced in
valuing businesses (an "Appraiser") jointly chosen by the Majority Holders and
the Company or, if the Majority Holders and the Company cannot agree on the
selection of an Appraiser within 10 Business Days, then each of the Company and
the Majority Holders shall choose an Appraiser within 10 Business Days of the
end of such first 10-day period, and the current market value shall be the value
agreed upon by such Appraisers or, if the two Appraisers cannot so agree, the
value of a third Appraiser, which third Appraiser shall be chosen by the two
Appraisers. If there is only one Appraiser, all expenses of the Appraiser shall
be paid by the Company. If there are two Appraisers, the Majority Holders and
the Company shall pay all expenses of the Appraiser chosen by it.
(e) Stock Other Than Common Stock. In the event that at any time, as
-----------------------------
a result of an adjustment made pursuant to subsection (a) of this Section 7, the
Holder shall become entitled to receive any shares of the capital stock of the
Company other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of this Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Section 7, and the
provisions of this Warrant with respect to the Common Stock shall apply on like
terms to any such other shares.
(f) Notice of Certain Actions. In the event that at any time:
-------------------------
the Company shall authorize the issuance of Convertible
Securities to all holders of its Common Stock; or
the Company shall authorize the distribution to all holders of
its Common Stock of evidences of its indebtedness or assets (other than
dividends paid in or distributions of the Company, capital stock for which the
number of Warrant Shares purchasable hereunder shall have been adjusted pursuant
to subsection (a) of this Section 7 or regular cash dividends or distributions
payable out of earnings or surplus and made in the ordinary course of business);
or
the Company shall authorize any capital reorganization or
reclassification of the Common Stock (other than a subdivision or combination of
the outstanding Common Stock and other than a change in par value of the Common
Stock) or of any consolidation or merger to which the Company is a party and for
which approval of any stockholders of the Company is required (other than a
consolidation or merger in which the Company is the continuing corporation and
that does not result in any reclassification or change of the Common Stock
outstanding), or of the conveyance or transfer of the properties and assets of
the Company substantially as an entirety; or
there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
the Company shall propose to take any other action that would
require an adjustment of the number of Warrant Shares purchasable hereunder
pursuant to this Section 7;
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<PAGE>
then the Company shall or shall cause to be mailed by certified mail to the
Holder, at least 30 days (or 20 days in any case specified in clause (A) or (B)
above) prior to the applicable record or effective date hereinafter specified, a
notice describing such issuance, distribution, reorganization, reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation, winding-
up or other action and stating (x) the date as of which the holders of Common
Stock of record entitled to receive any such Convertible Securities or
distributions are to be determined or (y) the date on which any such
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding-up is expected to become effective and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property, if any,
deliverable upon such reorganization, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up.
(g) Common Stock Defined. Whenever reference is made in this Section
--------------------
7 to the issue of shares of Common Stock, the term "Common Stock" shall include
any equity securities of any class of the Company hereinafter authorized which
shall not be limited to a fixed or determinable amount in respect of the right
of the holders thereof to participate in dividends or distributions of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company. However, subject to the provisions of Section 9 hereof, shares
issuable upon exercise of this Warrant shall include only Common Stock existing
as of the date hereof or shares of any class or classes resulting from any
reclassification or reclassifications thereof or as a result of any corporate
reorganization as provided for in Section 9 hereof.
36. Tag-Along and Drag-Along Rights
-------------------------------
(a) Tag-Along Rights
----------------
(A) In the event that at any time Kelso proposes to sell shares
of Common Stock owned by it to any Person (a "Proposed Purchaser"), other than
any sale, assignment, transfer or other disposal (i) pursuant to a registration
statement or Rule 144 or (ii) to a Kelso Holder, and the shares proposed to be
sold, together with all shares of Common Stock previously sold by Kelso, would
represent more than 25% of the aggregate number of shares of Common Stock owned
by Kelso immediately after the Closing, then Kelso will promptly provide each
Non-Kelso Holder written notice (a "Sale Notice") of such proposed sale (a
"Proposed Sale") and the material terms of the Proposed Sale as of the date of
such Sale Notice (the "Material Terms"). If within 30 days of the receipt of the
Sale Notice, Kelso receives a written request (a "Sale Request") to include
Warrant Shares or Warrants, as the case may be, held by one or more Non-Kelso
Holder in the Proposed Sale, the Warrant Shares or Warrants, as the case may be,
so held by such Non-Kelso Holder shall be so included as provided therein;
provided, however, that any Sale Request shall be irrevocable unless (x) there
- --------
shall be a material adverse change in the Material Terms or (y) otherwise
mutually agreed to in writing by such Non-Kelso Holder and Kelso.
(B) The number of Warrant Shares or Warrants, as the case may
be, that each Non-Kelso Holder will be permitted to include in a Proposed Sale
pursuant to a Sale Request will be the product of (i) the number of Warrant
Shares or Warrants, as the case may be, then held by such Non-Kelso Holder and
(ii) a fraction, the numerator of which shall be the number of Warrant Shares or
Warrants, as the case may be, which Kelso and the Kelso Holders propose to sell
in the Proposed Sale and the denominator of which shall be the number of shares
of Common Stock then held by Kelso and the Kelso Holders.
(C) Warrant Shares or Warrants, as the case may be, subject to a
Sale Request will be included in a Proposed Sale pursuant hereto and to any
agreement with the Proposed Purchaser relating thereto, on the same terms and
subject to the same conditions applicable to the shares of Common Stock which
Kelso and the Kelso Holders propose to sell in the Proposed Sale. Such terms and
conditions shall include, without limitation, (i) the sale consideration (which
shall be reduced by the fees and expenses incurred by Kelso and the Company in
connection with the Proposed Sale), (ii) the provision of information,
representations, warranties, covenants and requisite indemnifications; provided,
--------
however, that any representations and warranties relating specifically to any
Holder shall only be made by that Holder and any indemnification provided by the
Holder shall be based on the number of Warrant Shares or Warrants, as the case
may be, being sold by each Holder in the Proposed Sale, either on a several, not
joint, basis or solely with recourse to an escrow established for the benefit of
the Proposed Purchaser; provided further, however, that in connection with any
-------- -------
Proposed Sale in which the Non-Kelso Holders receive all cash for the Warrant
Shares or Warrants, as the case may be, to be sold by them in such sale, Kelso
or any Kelso Holder may elect to receive a form of
228
<PAGE>
consideration consisting, in whole or in part, of non-cash consideration so long
as the per share value of the consideration to be received by Kelso or any Kelso
Holder is the same or less than that to be received by the Non-Kelso Holders (as
reasonably determined by the Board in good faith).
(D) Upon delivering a Sale Request, each Non-Kelso Holder (other
than DLJ, FUI or Chase) will, if requested by Kelso (or any Kelso Holder),
execute and deliver a custody agreement and power of attorney in form and
substance satisfactory to Kelso (or any such Kelso Holder) (a "Custody Agreement
and Power of Attorney") with respect to the Warrant Shares or Warrants, as the
case may be which are to be included in the Proposed Sale pursuant to this
Section 8(a). The Custody Agreement and Power of Attorney will provide, among
other things, that the Non-Kelso Holders executing such Custody Agreement and
Power of Attorney will deliver to and deposit in custody with the custodian and
attorney-in-fact named therein a certificate or certificates representing such
Warrant Shares or Warrants, as the case may be (duly endorsed in blank by the
registered owner or owners thereof or accompanied by duly executed stock powers
in blank), and irrevocably appoint said custodian and attorney-in-fact as such
Non-Kelso Holder's agent and attorney-in-fact with full power and authority to
act under a custody agreement and power of attorney on behalf of such Non-Kelso
Holders with respect to the matters specified therein.
(E) Each Non-Kelso Holder agrees that he or she will execute
such other agreements as Kelso (or any Kelso Holder) may reasonably request in
connection with the consummation of a Proposed Sale and Sale Request and the
transactions contemplated thereby, including, without limitation, any purchase
agreement, proxies, written consents in lieu of meetings or waiver of appraisal
rights.
(b) Drag Along Rights
-----------------
(A) In the event that any time Kelso proposes to sell shares of
Common Stock owned by it to any Proposed Purchaser other than any sale,
assignment, transfer or other disposal (i) pursuant to a registration statement
or Rule 144, or (ii) to a Kelso Holder, and the shares proposed to be sold,
together with all shares of Common Stock previously sold by Kelso would
represent all of the Common Stock owned by Kelso immediately after the Closing,
then Kelso may provide each Non-Kelso Holder written notice (a "Drag-Along
Notice") of such Proposed Sale and the Material Terms thereof not less than 25
business days prior to the proposed closing date of the Proposed Sale and each
of the Non-Kelso Holder hereby agrees to sell to such Proposed Purchaser that
number of Warrant Shares or Warrants, as the case may, owned by such Non-Kelso
Holder.
(B) Warrant Shares or Warrants, as the case may be, subject to a
Drag-Along Notice will be included in the Proposed Sale pursuant hereto and to
any agreement with the Proposed Purchaser relating thereto, on the same terms
and subject to the same conditions applicable to the sale of shares of Common
Stock which Kelso and the Kelso Holders propose to sell in the Proposed Sale.
Such terms and conditions shall include, without limitation, (i) the sale
consideration (which shall be reduced by the fees and expenses incurred by Kelso
and the Company in connection with the Proposed Sale); (ii) the provision of
information, representations, warranties, covenants and requisite
indemnifications, provided, however, that any representations and warranties
--------
relating specifically to any Holder shall only be made by that Holder and any
indemnification provided by the Holders shall be on a several, not joint, basis
(or by recourse to an escrow provided for the benefit of the Proposed Purchaser)
based on the number of Warrant Shares or Warrants, as the case may be, being
sold by each Holder in the Proposed Sale; provided, further, however, that the
--------
form of consideration to be received by Kelso or any Kelso Holder in connection
with the Proposed Sale may be different from that received by the Non-Kelso
Holders so long as the value of the consideration to be received by Kelso or any
Kelso Holder is the same or less than that to be received by the Non-Kelso
Holders (as reasonably determined by the Board of Directors of the Company in
good faith). No Non-Kelso Holders shall exercise any dissenter's or like rights
with respect to, or otherwise object in any way to, the consummation of any such
Proposed Sale pursuant to this Section 8(b).
(C) Each Non-Kelso Holder (other than DLJ, FUI or Chase) will,
if requested by Kelso (or any Kelso Holder), execute and deliver a Custody
Agreement and Power of Attorney in form and substance satisfactory to Kelso (or
any such Kelso Holder) with respect to the Warrant Shares or Warrants, as the
case may be, which are to be included in the Proposed Sale pursuant to this
Section 8(b). The Custody Agreement and Power Attorney will provide, among other
things, that the Non-Kelso Holders executing such Custody Agreement and Power of
Attorney will deliver to and deposit in custody with the custodian and
229
<PAGE>
attorney-in-fact named therein a certificate or certificates representing such
Warrant Shares or Warrants, as the case may be, (duly endorsed in blank by the
registered owner or owners thereof or accompanied by duly endorsed stock powers
in blank) and irrevocably appoint said custodian and attorney-in-fact as such
Non-Kelso Holder's agent and attorney-in-fact with full power and attorney to
act under a custody agreement and power of attorney on behalf of such Non-Kelso
Holder with respect to the matters specified therein.
(D) Each Non-Kelso Holder agrees that he or she will execute such
other agreements as Kelso (or any Kelso Holder) may reasonably request in
connection with the consummation of a Proposed Sale and Drag-Along Notice and
the transactions contemplated thereby, including, without limitation, any
purchase agreement, proxies, written consents in lieu of meetings or waiver of
appraisal rights.
37. Officers' Certificate. Whenever the number of Warrant Shares purchasable
---------------------
hereunder shall be adjusted as required by the provisions of Section 7, the
Company shall forthwith file in the custody of its Secretary or an
Assistant Secretary at its principal office an officers' certificate
showing the adjusted number of Warrant Shares purchasable hereunder
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment and the manner of computing such adjustment.
Each such officers' certificate shall be signed by the chairman, president
or chief financial officer of the Company and by the secretary or any
assistant secretary of the Company. Each such officers' certificate shall
be made available at all reasonable times for inspection by the Holder or
any holder of a Warrant executed and delivered pursuant to Section 4 hereof
and the Company shall, forthwith after each such adjustment, mail a copy,
by certified mail, of such certificate to the Holder or any such holder.
38. Reclassification, Reorganization, Consolidation or Merger. In case of any
---------------------------------------------------------
Reorganization Transaction (as hereinafter defined), the Company shall, as
a condition precedent to such transaction, cause effective provisions in
the documentation relating to the Reorganization Transaction and otherwise,
to be made so that the Holder shall have the right thereafter, by
exercising this Warrant, to purchase the kind and amount of shares of stock
and other securities and property receivable upon such Reorganization
Transaction by a holder of the number of shares of Common Stock that would
have been received upon exercise of this Warrant immediately prior to such
Reorganization Transaction. Any such provision shall include provision for
adjustments in respect of such shares of stock and other securities and
property that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section 9 shall similarly apply to successive Reorganization Transactions.
For purposes of this Section 9, "Reorganization Transaction" shall mean any
reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the Company (other than a subdivision or
combination of the outstanding Common Stock and other than a change in the
par value of the Common Stock) or any consolidation or merger of the
Company with or into another corporation (other than a merger with a
subsidiary in which merger the Company is the continuing corporation and
that does not result in any reclassification, capital reorganization or
other change of outstanding shares of Common Stock of the class issuable
upon exercise of this Warrant) or any sale, lease, transfer or conveyance
to another corporation of all or substantially all of the assets of the
Company. Notwithstanding the foregoing, if a transaction that might
otherwise be deemed a Reorganization Transaction for the purposes of
Section 7, it shall not be deemed a Reorganization Event for such purposes.
39. Transfer Restrictions. The Holder by its acceptance hereof, represents and
---------------------
warrants that it is acquiring the Warrants and any Warrant Shares for its
own account and not with an intent to sell or distribute the Warrants or
any Warrant Shares except in compliance with applicable United States
federal and state securities law in a manner which would not result in the
issuance of the Warrants hereby being treated as a public offering.
Neither this Warrant nor any of the Warrant Shares, nor any interest in
either, may be sold, assigned, pledged, hypothecated, encumbered or in any
other manner transferred or disposed of, in whole or in part, except in
compliance with applicable United States federal and state securities laws
and the applicable terms and conditions of the Securities Purchase
Agreement.
40. Listing on Securities Exchanges; Registration Rights. If any shares of
----------------------------------------------------
Common Stock required to be reserved for purposes of exercise of this
Warrant require registration with or approval of any governmental authority
under any federal or state law (other than the Securities Act) before such
shares
230
<PAGE>
may be issued upon exercise, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved prior to such issuance, as the case may be. The
shares of Common Stock (and other securities) issuable upon exercise of
this Warrant (or upon conversion of any shares of Common Stock issued upon
such exercise) shall constitute Registrable Securities (as such term is
defined in the Registration Rights Agreement). Each holder of this Warrant
shall be entitled to all of the benefits afforded to a holder of any such
Registrable Securities under the Registration Rights Agreement and such
holder, by its acceptance of this Warrant, agrees to be bound by and to
comply with the terms and conditions of the Registration Rights Agreement
applicable to such holder as a holder of such Registrable Securities. At
any such time as Common Stock is listed on any national securities
exchange, the Company will, at its expense, obtain promptly and maintain
the approval for listing on each such exchange, upon official notice of
issuance, the shares of Common Stock issuable upon exercise of the then
outstanding Warrants and maintain the listing of such shares after their
issuance; and the Company will also list on such national securities
exchange, will register under the Exchange Act and will maintain such
listing of, any other securities that at any time are issuable upon
exercise of the Warrants, if and at the time that any securities of the
same class shall be listed on such national securities exchange by the
Company.
41. Availability of Information. (a) The Company shall comply with the
---------------------------
reporting requirements of Sections 13 and 15(d) of the Exchange Act to the
extent, if at all, it is required to do so under the Exchange Act. The
Company shall also cooperate with each Holder of any Warrants and holder of
any Warrant Shares in supplying such information as may be necessary for
such holder to complete and file any information reporting forms currently
or hereafter required by the Securities and Exchange Commission as a
condition to the availability of an exemption from the Securities Act for
the sale of any Warrants or Warrant Shares. The provisions of this Section
12 shall survive termination of this Warrant, whether upon exercise of this
Warrant in full or otherwise.
(b) If at any time the Company is not subject to the requirements of
Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish at
its expense, upon request, for the benefit of Holders from time to time of
Warrants and holders from time to time of Warrant Shares, to Holders of
Warrants, holders of Warrant Shares and prospective purchasers of Warrants and
Warrant Shares information satisfying the requirements of subsection (d)(4)(i)
of Rule 144A under the Securities Act.
42. Governing Law. This Warrant and the rights and obligations of the parties
-------------
hereunder shall be construed in accordance with and governed by the laws of
the State of New York without regard to principles of conflicts of laws.
Each party hereto hereby submits to the jurisdiction of the United States
District Court for the Southern District of New York, of any New York state
court sitting in New York City and of any court located in its own
corporate domicile for purposes of all legal proceedings arising out of or
relating to this Warrant. Each party hereto irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court
has been brought in an inconvenient forum. Each party hereto hereby
irrevocably waives any and all right to trial by jury in any legal
proceeding arising out of or relating to this Warrant. The Company agrees
(i) that service of process in any such proceeding may be effected by
mailing a copy thereof by registered or certified mail (of any
substantially similar form of mail), postage prepaid, to the Company at 2
Office Park Circle, Suite 204, Birmingham, Alabama 35223, (ii) agrees that
nothing herein shall affect service of process in any other manner
permitted by law or shall limit the right to sue in any other jurisdiction
and (iii) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any such proceeding any special, exemplary,
punitive or consequential damages.
231
<PAGE>
IN WITNESS WHEREOF, the Company has duly caused this Warrant to be
executed by and attested by their duly authorized officers and to be dated as of
December 1, 1999.
CITATION CORPORATION
By______________________________ By:____________________________
Attest: Name:
Title: Title:
Address: 2 Office Park Circle
Suite 204
Birmingham, AL 35223
Attention: Stanley B. Atkins
Telecopy: (205) 871-5772
232
<PAGE>
PURCHASE FORM
-------------
Dated ____________, ____
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing ______ shares of Common Stock and hereby
makes payment of ________ in payment of the exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
--------------------------------------
Name____________________________________________________________
(please typewrite or print in block letters)
Address__________________________________________________________
Signature___________________________________________________
____________________
ASSIGNMENT FORM
---------- ----
FOR VALUE RECEIVED, _____________________ hereby sells, assigns and
transfers unto
Name____________________________________________________________
(please typewrite or print in block letters)
Address__________________________________________________________
its right to purchase _____________ shares of Common Stock represented by this
Warrant and does hereby irrevocably constitute and appoint ___________ Attorney,
to transfer the same on the books of Company, with full power of substitution in
the premises.
Date________________, _____
Signature____________________
233
<PAGE>
Exhibit 21
Subsidiaries of Citation Corporation State of Organization
Berlin Foundry Corporation Wisconsin
Bohn Aluminum, Inc. Indiana
Camden Casting Center, Inc. Tennessee
Castwell Products, Inc. Illinois
Citation Automotive Sales Corp. Michigan
Citation Precision, Inc. California
Citation Castings, Inc. Alabama
Custom Products Corporation Wisconsin
Dycast, Inc. Delaware
Hi-Tech, Inc. Indiana
Interstate Southwest, Ltd. Texas
Interstate Forging Industries, Inc. Wisconsin
Iroquois Foundry Corporation Wisconsin
ISW Texas Corporation (subsidiary of Interstate Delaware
Forging Industries, Inc.)
Mabry Foundry Company, Ltd. Texas
Mansfield Foundry Corporation Ohio
OBI Liquidating Corp. New York
Southern Aluminum Castings Company Alabama
Texas Foundries, Ltd. Texas
Texas Steel Corporation Texas
TSC Texas Corporation Delaware
234
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-93630, No. 33-93652, No.333-4206, No. 333-4026,
No. 333-43461, and No. 333-65239) of Citation Corporation and subsidiaries of
our reports dated December 1, 1999 relating to the consolidated financial
statements and financial statement schedules, which appear in this Form 10-K.
We also consent to the reference to us under the heading "Selected Consolidated
Financial Data" in this Form 10-K. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Consolidated Financial Data" in this Form 10-K.
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-4 (No. 333-86763 and No. 333-89431) of Citation
Corporation and subsidiaries of our reports dated December 1, 1999 relating to
the consolidated financial statements and financial statement schedules, which
appear in this Form 10-K. We also consent to the references to us under the
headings "Independent Accountants" and "Selected Consolidated Financial Data" in
such registration statements. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Consolidated Financial Data" in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Birmingham, Alabama
December 29, 1999
235
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-END> OCT-01-1995
<CASH> 0<F1>
<SECURITIES> 0<F2>
<RECEIVABLES> 0<F3>
<ALLOWANCES> 0<F4>
<INVENTORY> 0<F5>
<CURRENT-ASSETS> 94,591
<PP&E> 143,425
<DEPRECIATION> 0<F6>
<TOTAL-ASSETS> 271,871
<CURRENT-LIABILITIES> 56,015
<BONDS> 0<F7>
0<F8>
0<F9>
<COMMON> 0<F10>
<OTHER-SE> 0<F11>
<TOTAL-LIABILITY-AND-EQUITY> 0<F12>
<SALES> 307,681
<TOTAL-REVENUES> 0<F13>
<CGS> 243,493
<TOTAL-COSTS> 0<F14>
<OTHER-EXPENSES> (581)
<LOSS-PROVISION> 0<F15>
<INTEREST-EXPENSE> 3,974
<INCOME-PRETAX> 28,098
<INCOME-TAX> 11,019
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,079
<EPS-BASIC> 1.27
<EPS-DILUTED> 1.25
<FN>
<F1>Cash is zero, gross profit is $64,188.
<F2>Securities are zero, selling, general and administrative expenses are $32,697.
<F3>Receivables are zero, FAS 121 Impairment Charge is zero.
<F4>Allowances are zero, operating income is $31,491.
<F5>Inventory is zero, weighted average number of shares outstanding - basic is
13,438.
<F6>Depreciation is zero, weighted average number of shares outstanding - diluted is
13,652.
<F7>Bonds are zero, backlog is $78,262.
<F8>Preferred Mandatory is zero, capital expenditures are $29,844.
<F9>Preferred is zero, depreciation and amortization is $10,638.
<F10>Common is zero, EBITDA is $42,129.
<F11>Other SE is zero, gross margin is 20.95%.
<F12>Total liability and equity is zero, working capital is $38,576.
<F13>Total revenues is zero, short-term debt is $6,553.
<F14>Total costs are zero, long-term debt is $71,254.
<F15>Loss provision is zero, stockholder's equity is $132,476.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-28-1997 SEP-29-1996
<PERIOD-START> SEP-30-1996 OCT-02-1995
<PERIOD-END> SEP-28-1997 SEP-29-1996
<CASH> 0<F1> 0<F16>
<SECURITIES> 0<F2> 0<F17>
<RECEIVABLES> 0<F3> 0<F18>
<ALLOWANCES> 0<F4> 0<F19>
<INVENTORY> 0<F5> 0<F20>
<CURRENT-ASSETS> 160,503 135,539
<PP&E> 282,991 199,367
<DEPRECIATION> 0<F6> 0<F21>
<TOTAL-ASSETS> 493,296 383,557
<CURRENT-LIABILITIES> 93,957 72,855
<BONDS> 0<F7> 0<F22>
0<F8> 0<F23>
0<F9> 0<F24>
<COMMON> 0<F10> 0<F25>
<OTHER-SE> 0<F11> 0<F26>
<TOTAL-LIABILITY-AND-EQUITY> 0<F12> 0<F27>
<SALES> 648,961 487,753
<TOTAL-REVENUES> 0<F13> 0<F28>
<CGS> 538,502 404,961
<TOTAL-COSTS> 0<F14> 0<F29>
<OTHER-EXPENSES> (14) 1,178
<LOSS-PROVISION> 0<F15> 0<F30>
<INTEREST-EXPENSE> 14,433 7,866
<INCOME-PRETAX> 37,974 27,904
<INCOME-TAX> 14,810 11,162
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 23,164 16,742
<EPS-BASIC> 1.31 .95
<EPS-DILUTED> 1.29 .94
<FN>
<F1>CASH IS ZERO, GROSS PROFIT IS $110,459.
<F2>SECURITIES ARE ZERO, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ARE $58,066.
<F3>RECEIVABLES ARE ZERO, FAS 121 IMPAIRMENT CHARGE IS ZERO.
<F4>ALLOWANCES ARE ZERO, OPERATING INCOME IS $52,393.
<F5>INVENTORY IS ZERO, WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC IS
17,733.
<F6>DEPRECIATION IS ZERO, WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED
IS 17,918.
<F7>BONDS ARE ZERO, BACKLOG IS $156,880.
<F8>PREFERRED MANDATORY IS ZERO, CAPITAL EXPENDITURES ARE $40,531.
<F9>PREFERRED IS ZERO, DEPRECIATION AND AMORTIZATION IS $30,489.
<F10>COMMON IS ZERO, EBITDA IS $82,882.
<F11>OTHER SE IS ZERO, GROSS MARGIN IS 17.0%.
<F12>TOTAL LIABILITY AND EQUITY IS ZERO, WORKING CAPITAL IS $66,546.
<F13>TOTAL REVENUES IS ZERO, SHORT-TERM DEBT IS $2,994.
<F14>TOTAL COSTS ARE ZERO, LONG-TERM DEBT IS $181,239.
<F15>LOSS PROVISION IS ZERO, STOCKHOLDER'S EQUITY IS $172,639.
<F16>CASH IS ZERO, GROSS PROFIT IS $82,792.
<F17>SECURITIES ARE ZERO, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ARE $45,844.
<F18>RECEIVABLES ARE ZERO, FAS 121 IMPAIRMENT CHARGE IS ZERO.
<F19>ALLOWANCES ARE ZERO, OPERATING INCOME IS $36,948.
<F20>INVENTORY IS ZERO, WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC IS
17,694.
<F21>DEPRECIATION IS ZERO, WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED
IS 17,866.
<F22>BONDS ARE ZERO, BACKLOG IS $84,596.
<F23>PREFERRED MANDATORY IS ZERO, CAPITAL EXPENDITURES ARE $31,166.
<F24>PREFERRED IS ZERO, DEPRECIATION AND AMORTIZATION IS $20,151.
<F25>COMMON IS ZERO, EBITDA IS $57,099.
<F26>OTHER SE IS ZERO, GROSS MARGIN IS 17.0%.
<F27>TOTAL LIABILITY AND EQUITY IS ZERO, WORKING CAPITAL IS $62,504.
<F28>TOTAL REVENUES IS ZERO, SHORT-TERM DEBT IS $2,654.
<F29>TOTAL COSTS ARE ZERO, LONG-TERM DEBT IS $140,946.
<F30>LOSS PROVISION IS ZERO, STOCKHOLDER'S EQUITY IS $149,319.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> OCT-03-1999 SEP-27-1998
<PERIOD-START> SEP-28-1998 SEP-29-1997
<PERIOD-END> OCT-03-1999 SEP-27-1998
<CASH> 0<F1> 0<F16>
<SECURITIES> 0<F2> 0<F17>
<RECEIVABLES> 0<F3> 0<F18>
<ALLOWANCES> 0<F4> 0<F19>
<INVENTORY> 0<F5> 0<F20>
<CURRENT-ASSETS> 217,597 183,673
<PP&E> 339,966 307,008
<DEPRECIATION> 0<F6> 0<F21>
<TOTAL-ASSETS> 688,890 569,265
<CURRENT-LIABILITIES> 116,050 99,056
<BONDS> 0<F7> 0<F22>
0<F8> 0<F23>
0<F9> 0<F24>
<COMMON> 0<F10> 0<F25>
<OTHER-SE> 0<F11> 0<F26>
<TOTAL-LIABILITY-AND-EQUITY> 0<F12> 0<F27>
<SALES> 830,521 724,017
<TOTAL-REVENUES> 0<F13> 0<F28>
<CGS> 704,370 612,035
<TOTAL-COSTS> 0<F14> 0<F29>
<OTHER-EXPENSES> 8,130 2,155
<LOSS-PROVISION> 0<F15> 0<F30>
<INTEREST-EXPENSE> 22,359 15,254
<INCOME-PRETAX> 22,952 20,920
<INCOME-TAX> 9,940 8,178
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 13,012 12,792
<EPS-BASIC> .73 .72
<EPS-DILUTED> .72 .71
<FN>
<F1>CASH IS ZERO, GROSS PROFIT IS $126,151.
<F2>SECURITIES ARE ZERO, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ARE $72,710.
<F3>RECEIVABLES ARE ZERO, FAS 121 IMPAIRMENT CHARGE IS ZERO.
<F4>ALLOWANCES ARE ZERO, OPERATING INCOME IS $53,441.
<F5>INVENTORY IS ZERO, WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC IS
17,885.
<F6>DEPRECIATION IS ZERO, WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED
IS 17,968.
<F7>BONDS ARE ZERO, BACKLOG IS $187,346.
<F8>PREFERRED MANDATORY IS ZERO, CAPITAL EXPENDITURES ARE $44,167.
<F9>PREFERRED IS ZERO, DEPRECIATION AND AMORTIZATION IS $45,286.
<F10>COMMON IS ZERO, EBITDA IS $98,727.
<F11>OTHER SE IS ZERO, GROSS MARGIN IS 15.2%.
<F12>TOTAL LIABILITY AND EQUITY IS ZERO, WORKING CAPITAL IS $101,547.
<F13>TOTAL REVENUES IS ZERO, SHORT-TERM DEBT IS $2,331.
<F14>TOTAL COSTS ARE ZERO, LONG-TERM DEBT IS $321,002.
<F15>LOSS PROVISION IS ZERO, STOCKHOLDER'S EQUITY IS $199,323.
<F16>CASH IS ZERO, GROSS PROFIT IS $111,982.
<F17>SECURITIES ARE ZERO, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ARE $63,603.
<F18>RECEIVABLES ARE ZERO, FAS 121 IMPAIRMENT CHARGE IS $10,000.
<F19>ALLOWANCES ARE ZERO, OPERATING INCOME IS $38,379.
<F20>INVENTORY IS ZERO, WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC IS
17,838.
<F21>DEPRECIATION IS ZERO, WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED
IS 18,042.
<F22>BONDS ARE ZERO, BACKLOG IS $196,677.
<F23>PREFERRED MANDATORY IS ZERO, CAPITAL EXPENDITURES ARE $47,679.
<F24>PREFERRED IS ZERO, DEPRECIATION AND AMORTIZATION IS $36,275.
<F25>COMMON IS ZERO, EBITDA IS $84,654.
<F26>OTHER SE IS ZERO, GROSS MARGIN IS 15.2%.
<F27>TOTAL LIABILITY AND EQUITY IS ZERO, WORKING CAPITAL IS $102,104.
<F28>TOTAL REVENUES IS ZERO, SHORT-TERM DEBT IS $6,316.
<F29>TOTAL COSTS ARE ZERO, LONG-TERM DEBT IS $237,525.
<F30>LOSS PROVISION IS ZERO, STOCKHOLDER'S EQUITY IS $186,034.
</FN>
</TABLE>
<PAGE>
Exhibit 99.1
Report of Independent Accountants on Financial Statement Schedules
To the Stockholders
Citation Corporation and Subsidiaries
Our audits of the consolidated financial statements referred to in our report
dated December 1, 1999 appearing in the Annual Report on Form 10-K of Citation
Corporation and subsidiaries also included an audit of the financial statement
schedules listed in Item 14 of this Form 10-K. In our opinion, these financial
statement schedules present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Birmingham, Alabama
December 1, 1999
236
<PAGE>
EXHIBIT 99.2
Valuation and Qualifying Accounts
For the Years Ended September 28, 1997, September 27, 1998 and October 3, 1999
<TABLE>
<CAPTION>
1999
Balance at the Opening Charged Charged Balance at
Beginning of Balances of to to the End of
Period Acquisitions Expense Assets Deductions Period
-------------- ------------ ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Description
Allowance for
doubtful accounts $ 2,860,214 $ 334,686 $1,910,310 $(750,869) $ (811,431) $3,542,910
Reserve for obsolete
inventory $ 761,844 $ 400,334 $ (2,640) $1,159,538
Reserve on sales and
returns $ 1,081,936 $ 26,100 $3,073,744 $(434,527) $(1,205,949) $2,541,304
Deferred tax valuation
allowance $ 3,055,000 $1,804,000 $4,859,000
<CAPTION>
1998
Balance at the Opening Charged Charged Balance at
Beginning of Balances of to to the End of
Period Acquisitions Expense Assets Deductions Period
-------------- ------------ ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Description
Allowance for
doubtful accounts $ 1,366,692 $ 647,477 $1,248,596 $ 73,601 $ (476,317) $2,860,049
Reserve for obsolete
inventory $ 971,543 $ 7,040 $ (216,739) $ 761,844
Reserve on sales and
returns $ 1,066,517 $4,008,502 $(3,993,083) $1,081,936
Deferred tax valuation
allowance $ 918,000 $2,137,000 $3,055,000
<CAPTION>
1997
Balance at the Opening Charged Charged Balance at
Beginning of Balances of to to the End of
Period Acquisitions Expense Assets Deductions Period
------------- ------------ ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Description
Allowance for
doubtful accounts $ 1,421,027 $ 63,766 $ 319,216 $ (437,317) $1,366,692
Reserve for obsolete
inventory $ 490,988 $ 397,543 $ 300,000 $ (216,988) $ 971,543
Reserve on sales and
returns $ 1,075,236 $3,009,944 $ 439,846 $(3,458,509) $1,066,517
Deferred tax valuation
allowance $ 370,000 $ 918,000 $ (370,000) $ 918,000
</TABLE>
237
