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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NO. 1-13394
CHASE INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 51-0328047
(State of Incorporation) (I.R.S. Employer Identification No.)
14212 COUNTY ROAD M-50
MONTPELIER, OHIO 43543
(Address of principal executive offices) (Zip Code)
(419) 485-3193
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Parts I, II, III, and IV of this Form
10-K or any amendment to this Form 10-K. [ ]
AGGREGATE MARKET VALUE OF OUTSTANDING COMMON STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT, AS OF MARCH 20, 1998 . . . . . . . . $120,603,732
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF
MARCH 20, 1998 . . . . . . . . . . . . . . . . . . . . . 6,030,516
NUMBER OF SHARES OF NONVOTING COMMON STOCK OUTSTANDING
AS OF MARCH 20, 1998 . . . . . . . . . . . . . . . . . 4,100,079*
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* The Registrant's Nonvoting Common Stock is convertible, on a
share-for-share basis, into Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II, and IV - Portions of Registrant's Annual Report for the
year ended December 31, 1997.
Part III - Registrant's definitive proxy statement to be filed pursuant
to Regulation 14A for the Annual Meeting of Shareholders to be held May 26,
1998.
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CHASE INDUSTRIES INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . . 13
PART II
Item 5. Market for Registrant's Common Stock . . . . . . . . . 13
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . 14
Item 8. Financial Statements and Supplementary Data . . . . . . 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . 14
PART III
Item 10. Directors and Executive Officers of the Registrant . . 14
Item 11. Executive compensation . . . . . . . . . . . . . . . . 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . 14
Item 13. Certain Relationships and Related Transactions . . . . 15
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . 15
Note: The responses to Items 6 through 8, Items 10 through 13, and portions of
Item 3 are included in the Company's Annual Report to Shareholders for
the year ended December 31, 1997, or the Company's definitive proxy
statement to be filed pursuant to Regulation 14A for the Annual Meeting
of Shareholders to be held May 26, 1998. The required information is
incorporated into this Form 10-K by reference to those documents and is
not repeated herein.
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PART I
ITEM 1. BUSINESS
GENERAL
Chase Industries Inc. (the "Company"), through its wholly owned
subsidiaries Chase Brass & Copper Company, Inc. ("CBCC"), and Leavitt Tube
Company, Inc. ("Leavitt"), is a leading manufacturer of free-machining and
forging brass rod and structural and mechanical steel tubing. The Company's
principal executive offices are located at 14212 County Road M-50, Post Office
Box 152, Montpelier, Ohio 43543, and its telephone number is (419) 485-3193.
The Company's business strategy is to increase profitability through
capital investment and continuous productivity improvement programs, maintain
its low-cost position while retaining high standards of quality, on-time
delivery and service and expand its product offerings into complementary as
well as other industries through acquisitions and joint ventures that
capitalize on the Company's operating strengths, management experience and
entrepreneurial philosophy. The objectives of the Company's strategy are to
enable the Company to maximize operating profitability, respond to increased
demand for its products, strengthen its leading industry position and enhance
and capitalize on its strong reputation for high-quality products and extensive
customer service.
CBCC. CBCC is an ISO 9002 certified manufacturer and supplier of
free-machining and forging brass rod in the United States and Canada.
Free-machining and forging brass rod, which CBCC estimates represent
approximately 80% and 12%, respectively, of annual copper alloy rod shipments
by U.S. mills, are the two primary types of copper alloy rod used in the United
States and Canada. CBCC is one of the largest manufacturers and suppliers in
the United States and Canada of free-machining brass rod, which accounted for
approximately 95% of CBCC's total shipments and net sales in 1997 and 1996.
CBCC's diverse customer base of more than 250 companies uses its "Blue Dot"
trademark brass rod to produce a variety of products, such as faucets, plumbing
fittings, heating and air conditioning components, industrial valves,
automotive parts, and numerous hardware components.
CBCC traces its roots to a brass button-making business started in 1837
in Waterbury, Connecticut ("Old Chase"), which began brass rod operations in
1917. The Company was formed in 1990 by Martin V. Alonzo, the Company's
Chairman, President and Chief Executive Officer, and Citicorp Venture Capital
Ltd. ("CVC") and certain affiliates of CVC for the purpose of acquiring the
assets and operations of the brass rod division of Old Chase, then a subsidiary
of BP America, Inc. (the "CBCC Acquisition"). The CBCC Acquisition was
consummated August 24, 1990, at which time the Company began operations.
Leavitt. On August 30, 1996, the Company acquired, through Leavitt, the
assets and operations of the steel tube division ("Old Leavitt") of UNR
Industries, Inc. ("UNR"), (the "Leavitt Acquisition"). Upon consummation of
the Leavitt Acquisition, Leavitt continued operations in the manufacture and
sale of structural and mechanical steel tubing and is a leading producer and
supplier in the United States. Structural steel tubing is used in farm
equipment, non-residential construction and other commercial applications.
Mechanical steel tubing is used in a broad range of consumer and commercial
products, including furniture and fixtures, lawn-care products, storage racks,
exercise equipment, bicycles and machine tools.
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PRODUCTS
CBCC. CBCC principally produces round and hexagonal shaped brass rod in
sizes ranging from 5/16 inch to 4 inches in diameter, which are the primary
shapes and sizes used by consumers of free-machining and forging brass rod. The
main attributes of copper alloy rod are its excellent corrosion resistance, the
ease with which it can be machined or forged into a variety of shapes and its
moderate strength. Free-machining brass rod is used to produce brass products,
such as valves and fittings, by a machining process during which the brass rod
is formed, drilled and cut. Forging brass is used to produce brass products by
a process during which a heated slug cut from a rod is pressed into an
impression die and then machined.
Leavitt. Leavitt produces structural and mechanical electric resistance
welded steel tubing in square, rectangular and round shapes in sizes ranging
from 3/8 inch to 12 3/4 inches in outer diameter for round sizes and 1/2 inch
to 10 inch squares and equivalent rectangles. Leavitt's structural steel
tubing is used in farm equipment, non- residential construction and other
commercial applications. The advantages of structural steel tubing over other
structural products such as beams and channels include its high
strength-to-weight ratio, low surface area, low wind resistance, hollow
interior, good aesthetics and ease of fabrication. Mechanical steel tubing is
used in a broad range of consumer and commercial products, including furniture
and fixtures, lawn-care products, storage racks, exercise equipment, bicycles
and machine tools.
BUSINESS STRATEGY
The Company's business strategy is to increase profitability and
shareholder value through internal growth as well as through acquisitions.
Internal growth strategies focus on capital investment and continuous
productivity improvement programs and maintaining the Company's low-cost
position while retaining high standards of quality, on-time delivery and
service. The Company's acquisition strategy focuses on continually expanding
its product offerings into complementary as well as other industries through
acquisitions and joint ventures that capitalize on the Company's operating
strengths, management experience and entrepreneurial philosophy in becoming an
engineered materials company.
Capital Investment and Continuing Productivity Improvement Programs
CBCC. CBCC is committed to identifying and implementing programs
designed to increase plant utilization, productivity and profitability. Since
the CBCC Acquisition, certain aspects of the manufacturing process have been
improved through reallocation of employee responsibilities and in-house
modifications of the manufacturing operations. The Company also has completed
capital improvements which have improved the reliability and enhanced the
production capacity and productivity of CBCC's manufacturing facility.
In 1996, CBCC launched the "Project 400" capital expansion project. The
project is designed to increase foundry, extrusion and finishing capabilities
with an ultimate goal of increasing finished brass rod production capability by
one-third to approximately 400 million pounds annually by the end of the year
2000. The first phase of the project was completed in early 1998 with the
installation of three new billet heaters that increase finished brass rod
capacity by about 17 percent. The new billet heaters will also increase
productivity and quality. The total cost of the first phase of the project was
approximately $12 million and was financed through a six-year operating lease
as described in Note 11 of Notes to Consolidated Financial Statements included
in Item 8. During 1998, the focus of the second phase of the expansion will
involve project planing and establishing specifications for and ordering long-
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lead-time equipment. The Company anticipates that future capital project costs
will be paid for with cash flow provided by operating activities.
Leavitt. In second half 1997, a key cost saving measure was consolidating
Leavitt's Hammond, IN, facility into the nearby Chicago headquarters location
and transferring some of the production to the Jackson, MS, plant. This
consolidation will improve customer service and contribute to improved earnings
in 1998. Additionally, management continues to review the manufacturing
processes at each plant in order to identify capital improvement projects that
will improve the efficiency and productivity of the facilities and the
operations of Leavitt as a whole. Leavitt's 1998 capital investment plan
includes replacement of older manufacturing equipment, purchase of new material
handing equipment and various sustaining projects.
ISO 9002 Certification
CBCC and Leavitt have significant quality procedures and controls in
place in all aspects of its operations. Effective February 11, 1996, CBCC
became the first U.S. brass rod mill to receive an ISO 9002 quality system
certification. Leavitt has established a production-management steering
committee that is overseeing the process of obtaining ISO 9002 certification.
ISO 9002 is a quality system standard for manufacturers that has been adopted
by at least 74 nations. The ISO 9002 quality system certification signifies a
quality system's adherence to the internationally recognized ISO standards.
Acquisitions
The Leavitt Acquisition was the Company's first step in its strategy to
further grow earnings by becoming an engineered materials company. The Company
has reviewed and continues to search for additional acquisition opportunities
that will further increase its product offerings and capitalize on the
Company's management skills. The Company intends to pursue acquisitions and
joint ventures within its current as well as related products manufacturing
industries, as well as in other manufacturing industries, that utilize the
Company's operating strengths, management experience and entrepreneurial
philosophy. In recent years the Company has investigated several domestic and
international acquisition opportunities. However, future acquisitions will be
consummated only if the opportunities investigated have the specific operating
and financial characteristics which management believes are essential to
further the Company's business strategy and increase shareholder value.
MARKETING AND DISTRIBUTION
The Company markets its products through a direct sales force whose
territory covers the United States and Canada. Management believes that its
experienced sales force provides an important link with its customers and
increases the quality of its service. The Company distributes its products to
a diverse customer base of over 700 companies in the United States and Canada.
The Company's customers include original equipment manufacturers, independent
fabricators, distributors and service centers. CBCC's original equipment
manufacturing customers primarily are in the construction and remodeling,
industrial machinery and equipment, electrical and electronic, transportation
and consumer durable goods industries. Leavitt's original equipment
manufacturing customers are in the farm equipment, non-residential construction
and consumer and commercial products industries. Independent fabricators
produce products for sale to original equipment manufacturers, while
distribution
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and service centers supply products to original equipment manufacturers and
independent fabricators. The Company's products are distributed either by
direct shipment from the manufacturing facilities or, in the case of brass rod,
by shipment from CBCC's warehouse in Los Angeles. See "Item 2. Properties."
COMPETITION
The industries in which the Company operates are highly competitive.
Based on available industry data, the Company estimates that it supplied
approximately 33% of copper alloy rod and 9% of structural steel tubing shipped
by U.S. mills in 1997. In addition to CBCC, there currently are six U.S.
companies operating a total of seven U.S. copper alloy rod mills, all of which
produce both free-machining and forging brass rod. These competitors are Cerro
Metal Products Company, Inc., Mueller Brass Co., Inc., Extruded Metals Inc.,
Chicago Extruded Metals Company, Ansonia Copper & Brass, Inc., and Olin
Corporation. The steel tubing industry's capacity exceeds demand, primarily
due to the many new market entrants in recent years. Leavitt's primary
competitors in steel tubing include Welded Tube of America, Copperweld
Corporations' Tube Division and Bull Moose Tube Company. Although the Company
competes with other manufacturers, the Company is unable to determine the
extent to which its competitors' product lines compete directly with the
Company's products because the competitors also produce products that the
Company does not produce.
The Company also is subject to competition from imported products and
alternative materials, such as, with respect to CBCC, ceramics, plastics and
steel and, with respect to Leavitt, steel I-beams, channels and pre-cast
concrete. The principal competitive factors in the Company's business are
price, quality, on-time delivery and service. The Company believes that it is
an industry leader as a result of its ability to consistently provide a broad
range of high-quality products, on-time delivery and superior service at
competitive prices. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General -- General Economic
and Industry Conditions."
RAW MATERIALS AND SUPPLIES
The principal raw materials used by the Company are brass scrap and
carbon steel coils. The Company believes adequate supplies of these raw
materials are available to the Company. The Company does not rely on any one
supplier of raw materials and it does not believe that the loss of any one
source would have a material impact on its business. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
General -- Operations."
CUSTOMERS
Neither CBCC nor Leavitt depends on any single customer or group of
customers, the loss of any one or more of which would have a material adverse
effect on CBCC or Leavitt, respectively. Also, during 1997, no customer or any
affiliated group of customers accounted for more than 10% of the Company's net
sales, and the Company does not anticipate that any customer or affiliated
group of customers will account for more than 10% of the Company's net sales in
1998.
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BACKLOG ORDERS
As of February 20, 1998, the Company had backlog orders totaling $44
million. As of February 19, 1997, the Company had backlog orders totaling $60
million. The decrease from 1997 to 1998 is attributed primarily to shorter
order-to-shipment lead times throughout the brass rod industry and a 13%
reduction in CBCC's Metal Selling Price. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- General --
General Economic and Industry Conditions." The Company anticipates that all
current backlog orders will be filled during 1998, but is unable to estimate
the amount of backlog that will exist as of year end 1998.
TRADEMARKS
The Company owns the registered trademarks CHASE and a centaur design
(which is CBCC's logo) in the United States and Canada, and the registered
trademark "BLUE DOT" and its design in the United States and Mexico, for use in
connection with CBCC's products. The Company also owns the registered
trademarks CHASE BRASS & COPPER CO. and a centaur design in Mexico. The
Company also owns, and has registrations pending in the United States, Canada
and Mexico for, the trademarks LEAVITT and a steel tube design. Because of the
recognition of these trademarks in the industries in which CBCC and Leavitt
operate, the Company considers these intellectual property rights important to
its business.
EMPLOYEES
At December 31, 1997, the Company had approximately 700 full-time
employees, of whom approximately 250 were salaried and approximately 450 were
hourly. The Company believes that its relations with its employees are good
and currently does not anticipate any work stoppages.
REGULATION
Regulation of Lead in Drinking Water
Effective August 6, 1996, amendments to the Safe Drinking Water Act were
enacted to regulate lead leachate and the lead content of plumbing fittings and
fixtures. The legislation called for the establishment of a voluntary lead
leaching standard within one year of the effective date of the statute. On
August 22, 1997, the U.S. Environmental Protection Agency (the "U.S. EPA")
accepted a performance-based lead leaching standard. Plumbing fittings must be
in compliance with this new standard by August 1998. Several CBCC customers
who have begun testing under the new standard already have demonstrated the
ability of their products manufactured with CBCC brass rod to meet the
performance requirements of the new standard, and the Company does not believe
that the new standard will have a material adverse effect on its business.
Environmental Regulation
The Company's operations are subject to federal, state and local
pollution control laws and regulations relating to the discharge of hazardous
or regulated materials into the environment, the transport and sale of
hazardous materials and the disposal of certain materials and wastes. These
laws and related regulations are changing constantly and, as a consequence, are
subject to differing interpretations by the agencies that administer them.
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Moreover, increasingly stringent regulations often result in the mandatory
implementation of additional and/or modified pollution control procedures and
processes which may result in material increases in compliance costs.
For the above reasons, the Company cannot predict with certainty its
aggregate future capital expenditures for pollution control. However, the
Company currently estimates that it will incur capital expenditures for
pollution control of approximately $500,000 in 1998, a portion of which may be
subject to reimbursement by certain affiliates of BP America, Inc., as the
owners of the assets of the brass rod division of Old Chase prior to the CBCC
Acquisition (collectively, "BP") under the Remediation Agreement and the CBCC
Purchase Agreement discussed below. In addition, in connection with the
implementation of phase two of the proposed capacity expansion project at CBCC
(see "Business Strategy -- Capital Investment and Continuing Productivity
Improvement Programs -- CBCC"), the Company may be required to spend an
additional approximately $500,000 for related pollution control devices.
Estimates of capital expenditures for pollution control purposes beyond 1998
are even more uncertain. However, assuming no significant manufacturing
process changes and no significant changes in applicable laws or regulations,
the Company currently anticipates that its capital expenditures for pollution
control purposes for 1999 will be approximately $500,000, and during the period
of 2000-2002 will aggregate approximately $1 million. These estimates are
exclusive of expenditures associated with on- site remediation activities,
which the Company anticipates will be paid for by BP as more fully discussed
below, and pollution control devices that may be required in connection with
additional phases of the capacity expansion program. The Company believes that
expenditures for pollution control equipment will continue to be required in
the future for continued compliance with applicable environmental laws and
regulations.
Any capital expenditures for pollution control will affect earnings to
some degree since funds expended for this purpose generally provide minimal, if
any, monetary return on investment and may divert capital from income-producing
activities. However, the Company does not believe that the current anticipated
capital expenditures for this purpose will have a material impact on the
Company's earnings or consolidated financial position.
CBCC. In connection with the CBCC Acquisition, the Company and BP entered
into a remediation agreement (the "Remediation Agreement"). Under the terms of
the Remediation Agreement, BP is responsible for certain remediation activities
attributable to environmental releases which occurred prior to the CBCC
Acquisition at CBCC's manufacturing facility and the construction of a waste
water treatment plant to enable CBCC to comply with its waste water discharge
permit (the "Permit"). BP also is obligated under the CBCC Purchase Agreement
to indemnify the Company for liabilities arising out of certain environmental
conditions that existed as of the CBCC Acquisition date. BP has performed
certain activities in this regard and has acknowledged liability for certain
releases of regulated substances into the environment which occurred prior to
the CBCC Acquisition.
While CBCC's waste water treatment plant has been in operation since May
1993, CBCC is still experiencing occasional exceedances to certain limitations
contained in the Permit, resulting in violations of the Clean Water Act. The
Ohio Environmental Protection Agency ("Ohio EPA") has not initiated any
enforcement action against CBCC for prior exceedances, but has indicated that
it may do so if violations of the Permit limits continue. In early 1997, CBCC
identified certain conditions it believed to be contributing to the Permit
limit exceedances and undertook corrective measures that have reduced
significantly the Permit exceedances. Although certain Permit exceedances are
still being experienced on occasion, precluding
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CBCC's routine compliance with the Permit, CBCC has identified certain
additional conditions that may be contributing to the exceedances and is
actively working to correct these conditions.
Preliminary studies conducted immediately prior to the CBCC Acquisition
indicated that the site upon which CBCC's manufacturing facility is located has
been contaminated by certain volatile organic compounds, including
trichloroethylene, as well as total petroleum hydrocarbons and certain metals
from historical operating practices. BP conducted initial site investigation
activities in an effort to determine the extent of contamination and
appropriate cleanup methods. After reviewing the results of that
investigation, CBCC determined that additional sampling was necessary to more
fully delineate the extent and magnitude of contamination and to identify
appropriate cleanup standards. In October 1997, CBCC initiated additional
sampling that it believes is necessary to establish appropriate cleanup
standards and to identify available remedial methods and potential regulatory
constraints related to specific remedial methodologies. The results of the
initial sampling conducted by BP, the additional sampling conducted by CBCC,
and input from the Ohio EPA will be used to develop a comprehensive remediation
plan for the site. The investigation is being conducted on a voluntary basis
with the concurrence of the Ohio EPA, and the Company anticipates that the
results of its sampling will be available in the late second quarter or early
third quarter of 1998. Until the completion of additional investigatory
activities that are necessary and the development of a remediation plan for the
site, the Company will be unable to estimate with any degree of certainty the
extent of contamination or the amount of cleanup costs associated therewith.
Leavitt. Prior to the Leavitt Acquisition, five underground storage
tanks ("UST's") were removed from Leavitt's facility in Hammond, Indiana.
Prior to removal, one or more of the UST's released petroleum and other
chemical constituents into the environment. Some contamination of groundwater
and soil at the Hammond facility remains in place. Prior to the Leavitt
Acquisition, Old Leavitt had conducted sampling and had requested the Indiana
Department of Environment Management ("IDEM") to "close" the UST removal
project. The IDEM has not yet issued a closure letter, and, in February 1997,
notified Leavitt that additional groundwater sampling will be required prior to
the IDEM considering closure. Additional groundwater sampling was conducted in
fourth quarter 1997, and the final test results were submitted to the IDEM for
review. Upon review of those test results, the IDEM has indicated that levels
of certain contaminants in the groundwater exceeded permissible limits and,
therefore, the IDEM would not issue a closure letter until four consecutive
quarterly monitoring cycles demonstrate no exceedances to the required limits.
The Company currently intends to engage a consultant to evaluate appropriate
actions to be taken with regard to the groundwater at Hammond in order to
receive a closure letter from the IDEM. Until Leavitt's consultant has
completed its review and analysis of the Hammond facility and provided
available information regrading available options to Leavitt, the Company is
unable to determine what, if any, remedial activities may be required.
However, based on final test results from the sampling conducted in fourth
quarter 1997 and the contractual obligation of UNR to indemnify the Company for
pre-closing environmental conditions, the Company does not believe that the
cleanup costs associated with the environmental conditions at the Hammond
facility will have a material adverse effect on the Company's financial
position, results of operations or liquidity. See Note 12 of Notes to
Consolidated Financial Statements included in Item 8.
The Company is involved in certain environmental legal proceedings as
described in "Item 3. Legal Proceedings" and Note 12 of Notes to Consolidated
Financial Statements included in Item 8.
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The Company does not believe that costs that may be incurred in
connection with the investigation and cleanup associated with the environmental
matters discussed above will have a material adverse effect on the Company's
financial position, results of operations or liquidity. For additional
information regarding the environmental matters referenced above, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Environmental Matters" and Note 12 of Notes to Consolidated
Financial Statements included in Item 8.
ITEM 2. PROPERTIES
The Company owns all of its facilities except as indicated below. The
Company believes its plants are suitable for their purposes, are well
maintained and are adequately insured.
CBCC. CBCC's manufacturing facility and the Company's executive and
general offices are located on a 55-acre site owned by the Company in
Montpelier, Ohio, near the Indiana and Michigan borders. CBCC's manufacturing
facility in Montpelier consists of one plant of approximately 140,000 square
feet. The plant was constructed in 1965 expressly for the purpose of producing
free-machining brass rod and the Company believes that it is the most modern
brass rod facility in the United States.
CBCC also leases a warehouse in Los Angeles, California, that contains
approximately 47,000 square feet of storage space. The Los Angeles warehouse
lease expires in 2001. The Los Angeles warehouse lease does not contain any
express renewal provisions, but the Company believes that the lease can be
renewed or comparable facilities can be obtained on terms acceptable to the
Company.
CBCC manufactures substantially all of the brass rod it ships. CBCC's
manufacturing facility has operated seven days a week, 24 hours a day, since
1981 (except for downtime relating to regular maintenance, capital improvements
and minor mechanical failures). CBCC's "Project 400" capital expansion program
began in 1997 and is designed to further increase finished brass rod capacity
by one-third to about 400 million pounds annually. See "Item 1. Business --
Business Strategy -- Capital Investment and Continuing Productivity Improvement
Programs -- CBCC."
Leavitt. Leavitt operates three manufacturing facilities, two in
Chicago, Illinois, and one in Jackson, Mississippi. The three facilities have a
total of over 900,000 square feet of manufacturing and office space. The
facilities contain a total of 13 tube mills and four steel coil slitters.
Leavitt's production capacity is in excess of 1 billion pounds annually.
Leavitt's facilities are currently operating between one and three shifts daily
with utilization at approximately fifty percent of capacity. All of Leavitt's
facilities are owned except for the Jackson facility which is leased. In
second half 1997, Leavitt's Hammond, Indiana, facility was consolidated into
the Chicago headquarters and some production was transferred to the Jackson
plant. See "Item 1. Business Strategy -- Capital Investment and Continuing
Productivity Improvement Programs -- Leavitt."
The following table sets forth information concerning size, location, use
and nature of the principal manufacturing facilities owned or leased by
Leavitt.
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<TABLE>
<CAPTION>
Location Square Feet No. of Mills No. of Slitters Owned/Leased
- -------- ----------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Chicago, IL 450,000 6 mechanical 2 owned
North Plant 2 structural
Chicago, IL 240,000 1 structural 1 owned
South Plant
Jackson, MS 256,000 4 mechanical 1 leased
</TABLE>
The Jackson leases expire in 2001. Under the leases, Leavitt may
purchase the land and facility based on the appraised value of the land at the
time of purchase and a scheduled payout for the facility and the improvements.
Upon expiration of the leases, the scheduled payout for the facility and
improvements (but not the land) is reduced to one dollar.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain claims and litigation as described
in Note 12, Commitments and Contingencies and Note 13, Subsequent Event, of
Notes to Consolidated Financial Statements included in "Item 8. Financial
Statements and Supplementary Data."
Note 13 of Notes to Consolidated Financial Statements discusses a
lawsuit entitled Ken-Chas Reserve Company and BP Exploration (Alaska) Inc. and
The Standard Oil Company v. Chase Industries Inc. and Chase Brass & Copper
Company, Inc. filed January 7, 1998. In supplement to such information, by
letter dated March 23, 1998, based on the Company's failure to pay amounts
alleged in the Petition to be due and payable under the BP Note, BP has
declared the entire principal amount of the $20 million promissory note issued
to BP in conjunction with the CBCC Acquisition (the "BP Note") due and payable.
Also, on March 24, 1998, BP amended the Petition to seek, in addition to the
relief originally requested therein, a judgment in the amount of the
$20,000,000 principal amount of the BP Note. As indicated in Note 13, the
Company disputes the allegations by BP regarding the BP Note, and believes the
lawsuit is without merit.
In addition to the items discussed in Notes 12 and 13 of Notes to
Consolidated Financial Statements, in March 1998 CBCC received a notice from
the U.S. EPA of its potential identification as a PRP at two sites, one in
Kansas City, Kansas, and one in Kansas City, Missouri. According to the
notice, the sites were operated by waste disposal companies from 1982 until
1987, during which time over 1500 parties sent materials containing
polychlorinated biphenyls ("PCB's") to the site. Based on information provided
by the notice, it appears that a third party firm employed by Old Chase to
dispose of PCB-containing materials delivered PCB-containing materials to these
sites for treatment and/or disposal, and certain of such materials came from
Old Chase. Pursuant to an Administrative Order on Consent with the U.S. EPA, a
group of PRP's at the sites are performing an Engineering Evaluation/Cost
Analysis ("EE/CA") to evaluate and compare different cleanup alternatives at
these sites. In addition to the EE/CA, the notice indicates that the U.S. EPA
is planning to conduct removal activities at both facilities, which activities
may include a range of possibilities from cleaning up the contamination inside
the buildings and in the surrounding soils to demolition of the buildings, and
to perform follow-through activities to monitor, operate and maintain the
completed removal action. As noted above, the alleged activities with respect
to these sites occurred between 1982 and 1987 and, therefore, CBCC has had no
contact with these sites. Based on information provided with the notice, the
Company believes that the brass rod
11
<PAGE> 12
division of Old Chase may have generated waste materials that were treated
and/or disposed of at these sites, and BP has been notified and has agreed to
assume the defense of this matter.
The Company believes that CBCC has no liability for the cleanup costs
related to the sites described above because (a) such liability is attributable
to Old Chase, and (b) such liability arose from acts that occurred prior to the
CBCC Acquisition and, therefore, BP retained such liability under the CBCC
Purchase Agreement and is contractually obligated to indemnify the Company for
such liabilities. To the extent CBCC incurs any cleanup costs with respect to
these sites, it intends to enforce its rights under the CBCC Purchase Agreement
to recover such amounts from BP. In the event CBCC is entitled to recovery
from BP pursuant to the CBCC Purchase Agreement, or otherwise, but is unable to
collect such amounts from BP, the Company may elect to offset the amounts of
such recoveries against amounts payable under the BP Note to the extent is
legally is entitled to do so.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through
the solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
The Company completed its initial public offering of Common Stock on
November 10, 1994 (the "Offering"), pursuant to which the Company sold
3,200,000 shares of Common Stock at a price to the public of $10.00 per share.
As of March 20, 1998, the Company had outstanding 6,030,516 shares of Common
Stock and 4,100,079 shares of Nonvoting Common Stock exchangeable on a
share-for-share basis into shares of Common Stock at the option of the holder
thereof. There is no established public trading market for the Company's
Nonvoting Common Stock, all of which currently is held of record by CVC.
The Company's Common Stock is listed and traded on the New York Stock
Exchange (the "NYSE") under the symbol "CSI." The Common Stock began trading
on the NYSE on November 4, 1994.
The following table sets forth, for the periods shown, the high and
low sales prices for the Common Stock as reported by the NYSE. No cash
dividends were paid or declared with respect to such periods.
<TABLE>
<CAPTION>
1997 1996
---- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter $ 24 1/8 $ 19 3/8 $ 14 3/4 $ 10 3/4
Second quarter $ 24 3/8 $ 18 3/4 $ 20 3/8 $ 13 1/2
Third quarter $ 2915/16 $ 23 1/8 $ 18 7/8 $ 16 1/8
Fourth quarter $ 30 1/16 $ 22 3/8 $ 19 7/8 $ 17 1/4
</TABLE>
As of March 20, 1998, the last reported sales price of the Company's
Common Stock, as reported by the NYSE, was $27.6875 per share, and the Common
Stock was held of record by approximately 133 holders.
The Company has not paid or declared any dividends on shares of its
Common Stock. The Company does not anticipate paying cash dividends on its
Common Stock in the
12
<PAGE> 13
foreseeable future and anticipates that future earnings will be retained to
finance operations, expansion and acquisitions. The payment of future cash
dividends will be at the sole discretion of the Company's Board of Directors
and will depend upon the Company's profitability, financial condition, cash
requirements, future earnings prospects and other factors deemed relevant by
the Company's Board of Directors.
The Bank Credit Facility (as hereinafter defined) entered into by the
Company in conjunction with the Leavitt Acquisition also contains certain
restrictions on the Company's ability to pay dividends. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Bank Credit Facility."
ITEM 6. SELECTED FINANCIAL DATA
The response to this item is included on page 14 of the Company's
Annual Report to Shareholders for the year ended December 31, 1997, and the
required information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The response to this item is included on pages 15 through 21 of the
Company's Annual Report to Shareholders for the year ended December 31, 1997,
and the required information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included on pages 22 through 37 of the
Company's Annual Report to Shareholders for the year ended December 31, 1997,
and the required information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is included in the Company's Proxy Statement
for its Annual Meeting of Stockholders to be held in 1998 and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is included in the Company's Proxy Statement
for its Annual Meeting of Stockholders to be held in 1998 and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is included in the Company's Proxy Statement
for its Annual Meeting of Stockholders to be held in 1998 and is incorporated
herein by reference.
13
<PAGE> 14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is included in the Company's Proxy Statement
for its Annual Meeting of Stockholders to be held in 1998 and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Set forth below is a list of the Company's consolidated
financial statements included in Part II, Item 8, by
incorporation by reference to the Company's 1997 Annual Report
to Shareholders (See Exhibit 13); page references correspond
to the pages in the 1997 Annual Report to Shareholders on
which such items appear.
Page
Quarterly Information (unaudited) . . . . . . . . . . . . . . 22
Consolidated Statement of Income for the Years Ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . 23
Consolidated Balance Sheet as of December 31, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 1997,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . 26
Notes to Consolidated Financial Statements . . . . . . . .27-36
Report of Independent Accountants (Financial Statements) . . . 37
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants (Financial Statement
Schedule) (page S-1)
Schedule II - Valuation and Qualifying Accounts (page S-2)
All other schedules are omitted because they are not
applicable or not required or because the required information
is included in the financial statements or notes thereto.
3. EXHIBITS
Exhibits followed by an (*) constitute management contracts or
compensatory plans or arrangements.
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
2.1 -- Sale and Purchase Agreement dated May 15, 1996, among Chase Brass Industries, Inc. (the
"Company"), Leavitt Structural Tubing Co. and UNR Industries, Inc. (incorporated by
reference to Exhibit 2.1 to
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C>
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
2.2 -- Amendment No. 1 to Sale and Purchase Agreement dated July 1, 1996, by and among the
Company, Leavitt Tube Company, Inc., a Delaware corporation and a wholly owned subsidiary
of the Company, Leavitt Structural Tubing Co., and UNR Industries, Inc. (incorporated by
reference to Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
2.3 -- Amendment No. 2 to Sale and Purchase Agreement dated as of August 29, 1996, among the
Company, Leavitt Tube Company, Inc., Leavitt Structural Tubing Co. and UNR Industries,
Inc. (incorporated by reference to Exhibit 2.4 to the Company's Current Report on Form 8-
K filed with the Securities and Exchange Commission on September 13, 1996).
2.4 -- Assignment and Assumption Agreement dated June 27, 1996, by and between the Company and
Leavitt Tube Company, Inc. (incorporated by reference to Exhibit 2.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
3.1 -- Restated Certificate of Incorporation of Chase Brass Industries, Inc., a Delaware
corporation (incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 dated December 9, 1994, Registration No. 33-87278).
3.2 -- By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 as filed with the Securities and Exchange Commission on
November 3, 1994, Registration No. 33-83178).
4.1 -- Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-1 as filed with the Securities and Exchange
Commission on November 3, 1994, Registration No. 33-83178).
4.2 -- Exchange Agreement dated November 4, 1994, between the Company and Citicorp Venture
Capital Ltd. ("CVC") (incorporated by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-8 dated December 9, 1994, Registration No. 33-87278).
4.3 -- Voting Agreement dated November 4, 1994, between the Company, CVC and Martin V. Alonzo
("Mr. Alonzo") (incorporated by reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-8 dated December 9, 1994, Registration No. 33-87278).
10.1 -- Credit Agreement by and among the Company, the banks referred to therein and PNC Bank,
National Association, as Agent, dated as of August 30, 1996 (incorporated by reference to
Exhibit 99.1 to the
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C>
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on
September 13, 1996).
10.2* -- Employment Agreement dated November 10, 1994, between the Company and Mr. Alonzo
(incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.3* -- Employment Agreement dated October 28, 1996, between Chase Brass & Copper Company, Inc., a
wholly owned subsidiary of the Company, and Duane R. Grossett (incorporated by reference
to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December
31, 1996).
10.4* -- Chase Brass Industries, Inc., 1994 Long-Term Incentive Plan, as amended effective as of
October 21, 1996 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996).
10.5 -- Indemnification Agreement dated November 10, 1994, between the Company and Mr. Alonzo
(incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.6 -- Schedule identifying additional documents substantially identical to the Indemnification
Agreement included as Exhibit 10.5 and setting forth the material details in which those
documents differ from that document (incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996).
10.7 -- Registration Rights Agreement dated November 10, 1994, by and among the Company, CVC and
Mr. Alonzo (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.8 -- Asset Purchase Agreement dated May 10, 1990, as amended, by and among the Company, CBC
Acquisition Corporation (a wholly-owned subsidiary of the Company now named Chase Brass &
Copper Company, Inc. ("CBCC"), Chase Brass & Copper Company, Incorporated, a Delaware
corporation now named Ken-Chas Reserve Co. ("Old Chase"), BP Exploration (Alaska), Inc.
("BP") and The Standard Oil Company ("Standard") (incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-1 as filed with the Securities and
Exchange Commission on November 3, 1994, Registration No. 33-83178).
10.9 -- Subordinated Promissory Note dated August 24, 1990, between the Company and CBCC
(incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form
S-1 as filed with the
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C>
Securities and Exchange Commission on November 3, 1994, Registration No. 33-83178).
10.10 -- Remediation Agreement dated August 24, 1990, by and among the Company, CBCC, BP and
Standard (incorporated by reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1 as filed with the Securities and Exchange Commission on November 3,
1994, Registration No. 33-83178).
10.11 -- Tolling Agreement dated May 4, 1994, by and among the Company, CBCC, Old Chase, BP and
Standard (incorporated by reference to Exhibit 10.13 to the Company's Registration
Statement on Form S-1 as filed with the Securities and Exchange Commission on November 3,
1994, Registration No. 33-83178).
10.12 -- Lease Agreement dated October 14, 1985, between UNR Industries, Inc., UNR-Leavitt
Division, as lessee, and Madison Country Economic Development Authority (formerly known as
Industrial Development Authority of Madison County), as lessor, regarding certain real
property and improvements located in Madison County, Mississippi ("Madison Lease (1985)")
(incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
10.13 -- Assignment and Consent Agreement dated August 28, 1996, assigning the Madison Lease (1985)
from UNR Industries, Inc. to Leavitt Tube Company, Inc. ("Leavitt") (incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.14 -- Lease Agreement dated October 14, 1988, between UNR Industries, Inc., UNR-Leavitt
Division, as lessee, and Madison Country Economic Development Authority (formerly known as
Industrial Development Authority of Madison County), as lessor, regarding certain real
property and improvements located in Madison County, Mississippi ("Madison Lease (1988)")
(incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
10.15 -- Assignment and Consent Agreement dated August 28, 1996, assigning the Madison Lease (1988)
from UNR Industries, Inc. to Leavitt (incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996).
10.16* -- CBCC Benefit Restoration Plan (incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.17* -- Leavitt Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.17
to the Company's Annual Report on Form 10-K for the year ended December 31, 1996).
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
+10.18 -- Participation Agreement dated as of December 23, 1997, among CBCC, as Lessee, ABN Amro
Bank N.V., as Lessor, ABN Amro Bank N.V. and Credit Agricole IndoSuez, as Participants,
and ABN Amro Bank N.V., as Agent, regarding lease of equipment at CBCC's Montpelier, Ohio,
facility.
+10.19 -- Master Lease dated as of December 23, 1997, between ABN Amro Bank N.V., as Lessor, and
CBCC, as Lessee, regarding lease of equipment at CBCC's Montpelier, Ohio, facility.
+10.20 -- Lease Supplement No. 1 dated as of December 23, 1997, between ABN Amro Bank N.V., as
Lessor, and CBCC, as Lessee, supplementing the Master Lease filed herewith as Exhibit
10.19.
+10.21 -- Lease Supplement No. 2 dated as of February 2, 1998, between ABN Amro Bank N.V., as
Lessor, and CBCC, as Lessee, supplementing the Master Lease filed herewith as Exhibit
10.19.
+10.22 -- Appendix 1 (Definitions) to Participation Agreement filed herewith as Exhibit 10.18 and
Master Lease filed herewith as Exhibit 10.19.
+10.23 -- Guarantee dated as of December 23, 1997, from the Company, as Obligor, to ABN Amro Bank
N.V., as Agent, guaranteeing obligations of CBCC under Participation Agreement filed
herewith as Exhibit 10.18 and Master Lease filed herewith as Exhibit 10.19.
+13 -- Portions of Chase Industries Inc. 1997 Annual Report to Shareholders incorporated into
this Form 10-K by reference.
21 -- List of Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996).
+23 -- Consent of Coopers & Lybrand L.L.P.
+27 -- Financial Data Schedules (EDGAR filing only).
</TABLE>
- -------------
+ Filed herewith
(b) REPORTS ON FORM 8-K
No Current Report on Form 8-K was filed by the Company during
the fourth quarter of 1997.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CHASE INDUSTRIES INC.
Date: March 27, 1998 By: /s/ MARTIN V. ALONZO
---------------------------------
Martin V. Alonzo
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C> <C>
/s/ MARTIN V. ALONZO Chairman of the Board, March 27, 1998
- -------------------------------------------- President, Chief Executive
Martin V. Alonzo Officer and Director (Principal
Executive Officer, Principal
Financial Officer and Principal
Accounting Officer)
/s/ MICHAEL T. SEGRAVES Chief Financial Officer March 27, 1998
- -------------------------------------------- (Principal Financial Officer and
Michael T. Segraves Principal Accounting Officer)
/s/ RAYMOND E. CARTLEDGE Director March 27, 1998
- --------------------------------------------
Raymond E. Cartledge
/s/ CHARLES E. CORPENING Director March 27, 1998
- --------------------------------------------
Charles E. Corpening
Director March 27, 1998
/s/ DONALD J, DONAHUE
- --------------------------------------------
Donald J. Donahue
Director March 27, 1998
/s/ JOHN R. KENNEDY
- --------------------------------------------
John R. Kennedy
Director March , 1998
- --------------------------------------------
Thomas F. McWilliams
Director March 27, 1998
/s/ WILLIAM R. TOLLER
- --------------------------------------------
William R. Toller
</TABLE>
19
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Chase Industries Inc.:
Our report on the consolidated financial statements of Chase Industries Inc.
has been incorporated by reference in this Form 10-K from page 37 of the 1997
Annual Report to Stockholders of Chase Industries Inc. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in Item 14(a)(2) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Detroit, Michigan
February 4, 1998
S-1
<PAGE> 21
CHASE INDUSTRIES INC.
(PARENT COMPANY ONLY)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Additions Charged to Balance at
Beginning Cost and Other End
of Period Expenses Accounts Deductions of Period
--------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts
and claims $1,236 $ 84 $ -- $ 34 $ 1,286
====== =========== ========= ======== ===========
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts
and claims $1,036 $ 201 $ -- $ 1 $ 1,236
====== =========== ========== ========= ===========
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts
and claims $1,036 $ 2 $ -- $ 2 $ 1,036
======= ============= ========== ========= ==========
</TABLE>
S-2
<PAGE> 22
INDEX TO EXHIBITS
Exhibits followed by an (*) constitute management contracts or compensatory
plans or arrangements.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
<S> <C> <C> <C>
2.1 -- Sale and Purchase Agreement dated May 15, 1996, among Chase
Brass Industries, Inc. (the "Company"), Leavitt Structural
Tubing Co. and UNR Industries, Inc. (incorporated by reference
to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996).
2.2 -- Amendment No. 1 to Sale and Purchase Agreement dated July 1,
1996, by and among the Company, Leavitt Tube Company, Inc., a
Delaware corporation and a wholly owned subsidiary of the
Company, Leavitt Structural Tubing Co., and UNR Industries,
Inc. (incorporated by reference to Exhibit 2.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996).
2.3 -- Amendment No. 2 to Sale and Purchase Agreement dated as of
August 29, 1996, among the Company, Leavitt Tube Company,
Inc., Leavitt Structural Tubing Co. and UNR Industries, Inc.
(incorporated by reference to Exhibit 2.4 to the Company's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on September 13, 1996).
2.4 -- Assignment and Assumption Agreement dated June 27, 1996, by
and between the Company and Leavitt Tube Company, Inc.
(incorporated by reference to Exhibit 2.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996).
3.1 -- Restated Certificate of Incorporation of Chase Brass
Industries, Inc., a Delaware corporation (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 dated December 9, 1994, Registration No.
33-87278).
3.2 -- By-Laws of the Company (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on November
3, 1994, Registration No. 33-83178).
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
<S> <C> <C>
4.1 -- Specimen Common Stock Certificate (incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on Form
S-1 as filed with the Securities and Exchange Commission on
November 3, 1994, Registration No. 33-83178).
4.2 -- Exchange Agreement dated November 4, 1994, between the Company
and Citicorp Venture Capital Ltd. ("CVC") (incorporated by
reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-8 dated December 9, 1994, Registration No.
33-87278).
4.3 -- Voting Agreement dated November 4, 1994, between the Company,
CVC and Martin V. Alonzo ("Mr. Alonzo") (incorporated by
reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-8 dated December 9, 1994, Registration No.
33-87278).
10.1 -- Credit Agreement by and among the Company, the banks referred
to therein and PNC Bank, National Association, as Agent, dated
as of August 30, 1996 (incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on September 13, 1996).
10.2* -- Employment Agreement dated November 10, 1994, between the
Company and Mr. Alonzo (incorporated by reference to Exhibit
10.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.3* -- Employment Agreement dated October 28, 1996, between Chase
Brass & Copper Company, Inc., a wholly owned subsidiary of the
Company, and Duane R. Grossett (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996).
10.4* -- Chase Brass Industries, Inc., 1994 Long-Term Incentive Plan,
as amended effective as of October 21, 1996 (incorporated by
reference to Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996).
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
<S> <C> <C>
10.5 -- Indemnification Agreement dated November 10, 1994, between the
Company and Mr. Alonzo (incorporated by reference to Exhibit
10.6 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.6 -- Schedule identifying additional documents substantially
identical to the Indemnification Agreement included as Exhibit
10.5 and setting forth the material details in which those
documents differ from that document (incorporated by reference
to Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
10.7 -- Registration Rights Agreement dated November 10, 1994, by and
among the Company, CVC and Mr. Alonzo (incorporated by
reference to Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.8 -- Asset Purchase Agreement dated May 10, 1990, as amended, by
and among the Company, CBC Acquisition Corporation (a
wholly-owned subsidiary of the Company now named Chase Brass &
Copper Company, Inc. ("CBCC"), Chase Brass & Copper Company,
Incorporated, a Delaware corporation now named Ken-Chas
Reserve Co.("Old Chase"), BP Exploration (Alaska), Inc. ("BP")
and The Standard Oil Company ("Standard") (incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1 as filed with the Securities and
Exchange Commission on November 3, 1994, Registration No.
33-83178).
10.9 -- Subordinated Promissory Note dated August 24, 1990, between
the Company and CBCC (incorporated by reference to Exhibit
10.8 to the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on November
3, 1994, Registration No. 33-83178).
10.10 -- Remediation Agreement dated August 24, 1990, by and among the
Company, CBCC, BP and Standard (incorporated by reference to
Exhibit 10.10 to the Company's Registration Statement on Form
S-1 as filed with the Securities and Exchange Commission on
November 3, 1994, Registration No. 33-83178).
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
<S> <C> <C>
10.11 -- Tolling Agreement dated May 4, 1994, by and among the Company,
CBCC, Old Chase, BP and Standard (incorporated by reference to
Exhibit 10.13 to the Company's Registration Statement on Form
S-1 as filed with the Securities and Exchange Commission on
November 3, 1994, Registration No. 33-83178).
10.12 -- Lease Agreement dated October 14, 1985, between UNR
Industries, Inc., UNR-Leavitt Division, as lessee, and Madison
Country Economic Development Authority (formerly known as
Industrial Development Authority of Madison County), as
lessor, regarding certain real property and improvements
located in Madison County, Mississippi ("Madison Lease
(1985)") (incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.13 -- Assignment and Consent Agreement dated August 28, 1996,
assigning the Madison Lease (1985) from UNR Industries, Inc.
to Leavitt Tube Company, Inc. ("Leavitt") (incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996).
10.14 -- Lease Agreement dated October 14, 1988, between UNR
Industries, Inc., UNR-Leavitt Division, as lessee, and Madison
Country Economic Development Authority (formerly known as
Industrial Development Authority of Madison County), as
lessor, regarding certain real property and improvements
located in Madison County, Mississippi ("Madison Lease
(1988)") (incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.15 -- Assignment and Consent Agreement dated August 28, 1996,
assigning the Madison Lease (1988) from UNR Industries, Inc.
to Leavitt (incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.16* -- CBCC Benefit Restoration Plan (incorporated by reference to
Exhibit 10.16 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996).
10.17* -- Leavitt Supplemental Executive Retirement Plan (incorporated
by reference to Exhibit 10.17 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996).
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
<S> <C> <C>
+10.18 -- Participation Agreement dated as of December 23, 1997, among
CBCC, as Lessee, ABN Amro Bank N.V., as Lessor, ABN Amro Bank
N.V. and Credit Agricole IndoSuez, as Participants, and ABN
Amro Bank N.V., as Agent, regarding lease of equipment at
CBCC's Montpelier, Ohio, facility.
+10.19 -- Master Lease dated as of December 23, 1997, between ABN Amro
Bank N.V., as Lessor, and CBCC, as Lessee, regarding lease of
equipment at CBCC's Montpelier, Ohio, facility.
+10.20 -- Lease Supplement No. 1 dated as of December 23, 1997, between
ABN Amro Bank N.V., as Lessor, and CBCC, as Lessee,
supplementing the Master Lease filed herewith as Exhibit
10.19.
+10.21 -- Lease Supplement No. 2 dated as of February 2, 1998, between
ABN Amro Bank N.V., as Lessor, and CBCC, as Lessee,
supplementing the Master Lease filed herewith as Exhibit
10.19.
+10.22 -- Appendix 1 (Definitions) to Participation Agreement filed
herewith as Exhibit 10.18 and Master Lease filed herewith as
Exhibit 10.19.
+10.23 -- Guarantee dated as of December 23, 1997, from the Company, as
Obligor, to ABN Amro Bank N.V., as Agent, guaranteeing
obligations of CBCC under Participation Agreement filed
herewith as Exhibit 10.18 and Master Lease filed herewith as
Exhibit 10.19.
+13 -- Portions of Chase Industries Inc. 1997 Annual Report to
Shareholders incorporated into this Form 10-K by reference.
21 -- List of Subsidiaries of the Company (incorporated by
reference to Exhibit 21 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
+23 -- Consent of Coopers & Lybrand L.L.P.
+27 -- Financial Data Schedules (EDGAR filing only).
</TABLE>
- ---------
+ Filed herewith
<PAGE> 1
EXHIBIT 10.18
================================================================================
PARTICIPATION AGREEMENT
dated as of December 23, 1997
among
CHASE BRASS & COPPER COMPANY, INC.,
as Lessee,
ABN AMRO BANK N.V.,
as Lessor,
ABN AMRO BANK N.V. and
CREDIT AGRICOLE INDOSUEZ,
as Participants,
and
ABN AMRO BANK N.V.,
as Agent
================================================================================
Extrusion Press Facility
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SECTION 1. DEFINITIONS; INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3. SALE AND PURCHASE; PARTICIPATION IN THE ADVANCES; CLOSING DATES . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3.1. Sale and Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3.2. Participants' Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3.3. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3.4. Procedures for Advances; Closing Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3.5. Allocation of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3.6. Termination, Reduction or Extension of Participants' Commitments . . . . . . . . . . . . . . . . . . . 4
SECTION 3.7. Interest Rates and Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 3.8. Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 3.9. Pro Rata Treatment and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.10. The Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.11. Basic Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.12. Purchase Payments by Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.13. Residual Value Guarantee Amount Payment by Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.14. Sales Proceeds of Remarketing of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.15. Supplemental Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.16. Excepted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.17. Distribution of Payments After Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.18. Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.19. Casualty and Condemnation Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.20. Order of Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4. FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.1. Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.2. Underwriting Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.3. Overdue Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5. CERTAIN INTENTIONS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.1. Nature of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.2. Amounts Due Under Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 6. CONDITIONS PRECEDENT TO ACQUISITION OF EQUIPMENT AND ADVANCES . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6.1. Conditions Precedent -- Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) Funding Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Operative Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(d) Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(e) Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(f) Bill of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(g) Lease Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(h) Evidence of Recording and Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(i) Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(j) Evidence of Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(k) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(l) Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(m) Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(n) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(o) Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(p) Responsible Officer's Certificate of the Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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(q) The Lessee's Resolutions and Incumbency Certificate, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 17
(r) Responsible Officer's Certificate of the Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(s) The Guarantor's Resolutions and Incumbency Certificate, etc. . . . . . . . . . . . . . . . . . . . . . . . . 18
(t) [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(u) No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(v) Responsible Officer's Certificate of the Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(w) The Lessor's Resolutions and Incumbency Certificate, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 19
(x) [RESERVED]] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(y) [RESERVED]l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(z) Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 6.2. Further Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(c) Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(d) No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 7. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 8. REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 8.1. Representations of the Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Due Organization, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Authorization; No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Enforceability, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(e) Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(f) Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(g) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(h) Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(i) Chief Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(j) Federal Reserve Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(k) Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(l) No Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(m) No Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.2. Representations of the Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) No Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Due Organization, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Authorization; No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(d) Enforceability, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(e) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(f) No Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(g) Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8.3. Representations of the Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(a) Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b) Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(c) No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(d) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(e) Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(f) Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(g) Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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(h) Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(i) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(j) Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(k) Environmental and Other Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(l) Offer of Securities, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(m) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(n) No Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 8.4. Representations of the Lessee With Respect to the Property on each Closing Date . . . . . . . . . . . 28
(a) Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(c) No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(d) Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(e) Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(f) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(g) Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(h) Protection of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(i) Flood Hazard Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(j) Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 9. PAYMENT OF CERTAIN EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 9.1. Transaction Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 9.2. Stamp and Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 9.3. Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 10. OTHER COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 10.1. Covenants of the Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(b) Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(c) Certain Covenants Relating to the Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) [RESERVED.] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(e) Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.2. Cooperation with the Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.3. Covenants of the Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Discharge of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Change of Chief Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 11. PARTICIPATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 11.1. Amendments; Actions on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 11.2. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 11.3 Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 11.4. Refusal to Give Consents or Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 11.5. Required Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 11.6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 11.7. Required Supplemental Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 11.8. Application of Payments Received From Defaulting Participant As a Cure For Payment
Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 11.9. Order of Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 11.10. Investments Pending Dispute Resolution; Overnight Investments . . . . . . . . . . . . . . . . . . . 39
SECTION 11.11. Agent to Exercise Lessor's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 11.12. Exculpatory Provisions Regarding the Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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SECTION 12. TRANSFERS OF PARTICIPANTS' INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 12.1. Restrictions on and Effect of Transfer by Participants . . . . . . . . . . . . . . . . . . . . . . . 41
(a) Required Notice and Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(b) Assumption of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(c) Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(d) Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(e) Amounts; Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(f) Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(g) Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 12.2. Covenants and Agreements of Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(a) Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(b) Transferee Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 12.3. Future Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 13.1. General Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 13.2. End of Term Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 13.3. Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 13.4. Proceedings in Respect of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 13.5. General Impositions Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(a) Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(b) Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(c) Reports and Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(d) Income Inclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(e) Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(f) Contests of Impositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(g) Documentation of Withholding Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(h) Limitation on Tax Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 13.6. Inability to Determine Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 13.7. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 13.8. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 13.9. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 13.10. Substitution of Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 13.11. Indemnity Payments in Addition to Residual Value Guarantee Amount . . . . . . . . . . . . . . . . . 58
SECTION 14. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 14.1. Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 14.2. Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 14.3. Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 14.4. Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 14.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 14.6. Non-Reliance on Agent and Other Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 14.7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 14.8. Agent in its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 14.9. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 15. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 15.1. Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 15.2. No Broker, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 15.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 15.4. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
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SECTION 15.5. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 15.6. Headings, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 15.7. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 15.8. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 15.9. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 15.10. Liability Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 15.11. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 15.12. Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 15.13. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 15.14. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 15.15. Usury Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
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SCHEDULES
SCHEDULE I Participants' Commitments
SCHEDULE II Notice Information and Funding Offices
SCHEDULE III Environmental Matters
SCHEDULE IV Site Description
SCHEDULE V Property Description
APPENDICES
APPENDIX 1 Definitions and Interpretation
EXHIBITS
EXHIBIT A Form of Funding Request
EXHIBIT B [RESERVED]
EXHIBIT C-1 Opinion of Special Ohio Counsel to Lessee
EXHIBIT C-2 Opinion of Counsel to Lessee
EXHIBIT D Opinion of Special Counsel to Lessor
EXHIBIT E Opinion of Internal Counsel to Lessor
EXHIBIT F Form of Assignment and Acceptance
EXHIBIT G Form of Participant's Letter
EXHIBIT H Assignment of Lease and Consent to Assignment
EXHIBIT I Form of Guarantee
EXHIBIT J Form of CII Guarantee
EXHIBIT K [RESERVED]
EXHIBIT L Form of Bill of Sale
EXHIBIT M Form of Assignment of Warranties
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PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT, dated as of December 23, 1997 (this
"Participation Agreement"), is entered into by and among CHASE BRASS & COPPER
COMPANY, INC., a Delaware corporation, as Lessee (together with its permitted
successors and assigns, the "Lessee"); ABN AMRO BANK N.V., a bank organized
under the laws of The Netherlands, as Lessor (together with its permitted
successors and assigns, the "Lessor"), ABN AMRO BANK N.V. and CREDIT AGRICOLE
INDOSUEZ, as Participants (together with their respective permitted successors
and assigns each a "Participant" and collectively the "Participants"); and ABN
AMRO BANK N.V., as Agent (in such capacity, together with its successors in
such capacity, the "Agent") for the Participants.
PRELIMINARY STATEMENT
In accordance with the terms of this Participation Agreement, the
Lease and the other Operative Documents,
A. Subject to the terms and conditions hereof, the
Lessee agrees to sell to the Lessor, and the Lessor agrees to acquire
(using funds provided by the Participants) from the Lessee, the
Property described in Schedule V as hereinafter provided, and in
connection therewith: (x) the Lessee agrees to deliver to the Lessor
the Bills of Sale evidencing the purchase and transfer of title to the
Equipment to be delivered on the applicable Closing Date to the
Lessor; (y) the Lessor agrees to reimburse the Lessee for payment of
the Property Improvement Costs incurred by the Lessee in acquiring the
Property and (z) the Lessee and the Lessor agree to execute and
deliver the Assignment of Warranties covering the Equipment delivered
on such Closing Date whereby the Lessee assigns to the Lessor the
Lessee's rights and interest under the purchase agreement between the
Lessee and the manufacturers of the Equipment;
B. Concurrently with the execution and delivery of this
Agreement, the Lessor and the Lessee have entered into the Lease
relating to the Equipment pursuant to which, subject to the terms and
conditions set forth therein, the Lessor agrees to lease to the
Lessee, and the Lessee agrees to lease from the Lessor, the Equipment
to be delivered on the applicable Closing Date, such lease to be
evidenced by the execution and delivery of a Lease Supplement covering
such Equipment; and
C. the Lessor wishes to obtain, and the Participants are
willing to provide, financing of the funding of the costs of
reimbursing the Lessee for the acquisition of such Equipment through
the purchase of Participation Interests in the Lease and the Rent.
In consideration of the mutual agreements contained in this
Participation Agreement and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE> 9
SECTION 1. - DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in Appendix 1
hereto for all purposes hereof; and the rules of interpretation set forth in
Appendix 1 hereto shall apply to this Participation Agreement.
SECTION 2. - [RESERVED]
SECTION 3. - SALE AND PURCHASE; PARTICIPATION IN THE ADVANCES;
CLOSING DATES
SECTION 3.1. Sale and Purchase.
Subject to the terms and conditions hereof and on the basis of the
representations and warranties set forth herein, the Lessee agrees to sell to
the Lessor, and the Lessor agrees to acquire (using funds provided by the
Participants) from the Lessee, the Property described in Schedule V as
hereinafter provided, and in connection therewith, the Lessor agrees to pay the
Lessee for reimbursement of the Property Improvement Costs, as more fully
provided for in Section 3.4; provided, however, that the Lessee shall not be
obligated to sell and the Lessor shall not be obligated to purchase on any
Closing Date any Property that is destroyed, damaged or otherwise unacceptable
to the Lessor for lease pursuant to the Lease on such Closing Date. The Lessee
shall deliver the Equipment to the Lessor and the Lessor shall accept such
delivery on not more than two closing dates as more fully provided herein
(each a "Closing Date"); provided that the date of the first delivery of
Equipment under the Lease (the "First Closing Date") shall occur on or prior to
December 23, 1997 and the date of the second delivery of Equipment under the
Lease (the "Second Closing Date") shall occur on or prior to February 2, 1998.
SECTION 3.2. Participants' Commitments.
Subject to the terms and conditions hereof, each Participant severally
shall purchase a Participation Interest in the Advances being made by the
Lessor at the request of the Lessee from time to time during the Commitment
Period by making available to the Lessor on each Closing Date an amount in
immediately available funds equal to such Participants' Commitment Percentage
of the amount of the Advance being funded on such Closing Date.
Notwithstanding any other provision hereof, no Participant shall be obligated
to purchase its Participation Interest in any Advance if (i) the amount of such
purchase would exceed its Available Commitment, or (ii) if, after giving effect
to the proposed Advance, the outstanding aggregate amount of such Participant's
Participation Interest in the Advances would exceed such Participant's
Commitment.
SECTION 3.3. [RESERVED].
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SECTION 3.4. Procedures for Advances; Closing Dates.
(a) With respect to each proposed Closing Date, the Lessee shall
give the Lessor and the Agent prior written notice not later than 10:00 a.m.,
Chicago Time, three Business Days prior to the proposed Closing Date (other
than for the First Closing Date, if the initial Advance is to bear interest at
the Alternate Base Rate, where notice shall be one Business Day), pursuant, in
each case, to a Funding Request substantially in the form of Exhibit A (a
"Funding Request"), specifying (i) the proposed Closing Date, (ii) the amount
and purpose of the Advance requested, (iii) the initial Interest Period for
such Advance, (iv) the payee of such Advance, and (v) the allocation of such
Advance to the respective Property Improvements Costs of the Property (and pro
rata portions of the related remittances from the Participants shall likewise
be deemed to be so allocated). The Agent shall promptly forward a copy of such
Funding Request to each Participant, provided that if the Funding Request is
received by the Agent in a timely manner in accordance with the terms of this
Section 3.4, the Agent shall forward a copy of such Funding Request to each
Participant on the same day it is received. The Lessee shall not request more
than one Closing Date during any calendar month. Each Advance shall be in a
minimum amount of $100,000. Subject to the satisfaction or waiver of the
conditions precedent to such Advance set forth in Section 6, each Participant
shall purchase its Participation Interest in such Advance by making available
to the Lessor its proportionate share of such Advance in immediately available
federal funds by wire transfer to the Agent for credit to the Lessor not later
than 12:00 noon, Chicago Time, on the applicable Closing Date. Upon (i) the
Lessor's receipt of the funds provided by the Participants with respect to an
Advance, and (ii) satisfaction or waiver of the conditions precedent to such
Advance set forth in Section 6, the Lessor shall pay to third parties, or the
Lessee for reimbursement of, Property Improvements Costs, in each case from the
funds provided by the Participants for such Advance.
(b) Closings. The closings of the transactions contemplated
hereby (each a "Closing") shall take place at 11:00 A.M., New York Time, on
each Closing Date at the offices of Buchanan Ingersoll, 500 College Road East,
Princeton, New Jersey 08540 or at such other place or time as the parties
hereto shall agree.
(c) Postponement of Closing Dates. (i) The scheduled Closing
Date for any Advances may be postponed from time to time for any reason (but no
later than December 23, 1997, in the case of the First Closing Date, and
February 2, 1998, in the case of the Second Closing Date) if the Lessee gives
the Lessor and the Agent telex, telegraphic, facsimile or telephonic (confirmed
in writing) notice of such postponement and notice of the date to which such
Closing Date has been postponed, such notice of postponement to be received by
each party no later than 5:30 P.M., Chicago Time, on the originally scheduled
Closing Date, and the term "Closing Date" as used in this Agreement shall mean
such postponed "Closing Date".
(ii) In the event of any postponement of any Closing Date
pursuant to this Section 3.4(c), or if on any originally scheduled Closing Date
not postponed as above provided any Advance is not made (the originally
scheduled Closing Date being referred to as the "Scheduled Closing Date" for
the purposes of this Section 3.4(c)): (x) the Lessee will reimburse each
Participant for the loss of the use of its funds with respect to each such
Advance occasioned
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by such postponement by paying to the Agent, on behalf of the Participants, on
demand interest at an interest rate equal to the overnight Federal Funds
Effective Rate from time to time, plus 1.5% per annum, for the period from and
including the Scheduled Closing Date to but excluding the earlier of the date
upon which such funds are returned to the Agent on behalf of such Participants
prior to 1:00 P.M. (Chicago Time) or the actual date of delivery; provided that
the Lessee shall in any event pay to the Agent, on behalf of the Participants,
at least one day's interest at such rate on the amount of such funds, unless
the Agent shall have received, prior to 12:00 noon (Chicago Time) on the
Business Day preceding the Scheduled Closing Date, a notice of postponement of
the Scheduled Closing Date pursuant to Section 3.4(c)(i), and (y) the Lessor
will return on the earlier of the fifth Business Day following the Scheduled
Closing Date or December 23, 1997, in the case of the First Closing Date, or
February 2, 1998, in the case of the Second Closing Date, or earlier, if so
instructed by the Lessee, any funds which it shall have received from the such
Participants' as their respective Commitment Percentage of the amount of the
Advance proposed to be funded on such Scheduled Closing Date, absent joint
instructions from Lessee and the Agent to retain such funds until the specified
date of postponement established under Section 3.4(c)(i).
(d) Notwithstanding the provisions of Section 3.4(c)(i), the
Lessor shall not be under any obligation to acquire any Equipment (using funds
provided by the Participants) beyond 5:30 P.M. (Chicago Time) on December 23,
1997, in the case of the First Closing Date, and February 2, 1998, in the case
of the Second Closing Date.
SECTION 3.5. Allocation of Commitments.
Schedule I hereto contains an allocation for each Participant of (i)
the amount of its Commitment representing its Tranche A Participation Interest
("Tranche A Participation Interest Commitment"), (ii) the amount of its
commitment representing its Tranche B Participation Interest ("Tranche B
Participation Interest Commitment"), and (iii) the percentage referred to in
the definition of the term "Participation Interest". The Lessee, the Lessor
and the Participants have approved all such allocations and percentages.
Schedule I shall be amended as required to reflect changes in the allocations
set forth thereon due to the addition of additional Participants pursuant to
Section 12.1.
SECTION 3.6. Termination, Reduction or Extension of
Participants' Commitments.
(a) The Lessor shall have the right, upon not less than five
Business Days' written notice to the Agent, to terminate the Participants'
Commitments or, from time to time, to reduce the amount of the Participants'
Commitments, provided that (i) after giving effect to such reduction, the
aggregate outstanding principal amount of the Tranche A Participation Interests
shall not exceed the aggregate Tranche A Participation Interest Commitments,
(ii) after giving effect to such reduction, the aggregate outstanding principal
amount of the Tranche B Participation Interests shall not exceed the aggregate
Tranche B Participation Interest Commitments, and (iii) any such reduction
shall be made pro rata among the Participants' Commitments within each Tranche.
Prior to the occurrence and continuance of an Event of Default the Lessor shall
exercise such right only as directed by the Lessee and after the
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occurrence and during the continuance of an Event of Default the Lessor shall
exercise such right only as directed by the Required Participants.
(b) The Lessee may, by written request to the Lessor and Agent
(which the Agent shall promptly forward to each Participant) given not later
than 120 days prior to the sixth anniversary of the applicable Closing Date
then in effect, request (an "Extension Request") that the applicable Maturity
Date occurring on such anniversary be extended to the date that is one (1) year
after the sixth anniversary of the applicable Closing Date. No later than the
date (the "Extension Response Date") which is 30 days after such request has
been delivered to each of the Participants, each Participant will notify the
Lessor in writing (with a copy to the Agent and the Lessee) whether or not it
consents to such Extension Request (which consent may be granted or denied by
each Participant in its sole discretion and may be conditioned on receipt of
such financial information or other documentation as may be specified by such
Participant including without limitation satisfactory appraisals of the
Property), provided that any Participant that fails to so advise the Lessor on
or prior to the Extension Response Date shall be deemed to have denied such
Extension Request. The extension of the applicable Maturity Date contemplated
by any Extension Request shall become effective as of the sixth anniversary of
the applicable Closing Date then in effect (the "Extension Effective Date") on
or after the Extension Response Date on which all of the Participants (other
than Non-Consenting Participants which have been replaced by Replacement
Participants in accordance with Section 3.6(c)) shall have consented to such
Extension Request; provided that:
(A) on both the date of the Extension Request and
the Extension Effective Date, (x) each of the representations and
warranties made by the Lessee and the Lessor in or pursuant to the
Operative Documents shall be true and correct in all material respects
as if made on and as of each such date, except for representations and
warranties made as of a specific date, which shall be true and correct
in all material respects as of such date, (y) no Event of Default
shall have occurred and be continuing, and (z) on each of such dates
the Agent shall have received a certificate of the Lessee and the
Lessor, each as to itself, as to the matters set forth in clause (x)
above and from the Lessee as to the matters set forth in clause (y)
above, and
(B) the Agent and the Required Participants shall
have received satisfactory evidence that the Expiration Date shall,
after giving effect to any extension thereof which has become
effective on or prior to such Extension Effective Date, occur on the
applicable Maturity Date as so extended.
(c) The Lessee shall be permitted to replace any Non-Consenting
Participant with a replacement bank or other financial institution (a
"Replacement Participant") at any time on or prior to the date which is 30 days
after the relevant Extension Response Date; provided that (i) such replacement
does not conflict with any Requirement of Law, (ii) the Replacement Participant
shall purchase, at par, all of the Participation Interest of such
Non-Consenting Participant on or prior to the date of replacement, (iii) the
Lessee shall be liable to such Non-Consenting Participant under Section 13 of
this Agreement if any Advance (or Participation Interest therein) shall be
prepaid (or purchased) other than on the last day of the Interest Period or
Interest Periods relating thereto, (iv) the Replacement Participant, if not
already a Participant,
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shall be reasonably satisfactory to the Required Participants, (v) such
replacement shall be made in accordance with the provisions of Section 12 of
this Agreement (provided that the relevant Replacement Participant shall be
obligated to pay the Transaction Expenses arising in connection therewith),
(vi) the Replacement Participant shall have agreed to be subject to all of the
terms and conditions of this Agreement (including the extension of the sixth
anniversary of the applicable Closing Date contemplated by the relevant
Extension Request) and other Operative Documents, and (vii) prior to the
occurrence and continuance of an Event of Default, the Lessee shall have the
exclusive right, subject to clauses (i) - (vi) above, to designate the
Replacement Participant. The Agent hereby agrees to cooperate with the Lessee
in the Lessee's efforts to arrange one or more Replacement Participants as
contemplated by this Section 3.6(c).
SECTION 3.7. Interest Rates and Payment Dates.
(a) Each Advance (other than the initial Advance, if the initial
advance is to bear interest at the Alternate Base Rate) shall bear interest
for each day during each Interest Period with respect thereto at a rate per
annum for such Interest Period equal to the Eurodollar Rate determined for such
day plus the Applicable Margin. At the election of the Lessee, the initial
Advance shall bear interest at the Alternate Base Rate for a period not in
excess of three Business Days until commencement of the initial Interest
Period. The Lessee shall give irrevocable notice to the Agent, in accordance
with the applicable provisions of the term "Interest Period" set forth in
Appendix 1, of the length of each Interest Period to be applicable to each
Advance. There shall not be more than two Interest Periods outstanding at any
time.
(b) If all or a portion of (i) the amount of any Advance, (ii) any
interest payable thereon or (iii) any other amount payable hereunder shall not
be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest at a rate per annum which
is equal to the Overdue Rate.
(c) Interest shall be payable in cash in arrears on each Scheduled
Payment Date, provided that (i) interest accruing pursuant to paragraph (b) of
this Section 3.7 shall be payable from time to time on demand and (ii) each
prepayment of Advances shall be accompanied by accrued interest to the date of
such prepayment on the amount of Advances so prepaid.
SECTION 3.8. Computation of Interest.
(a) Whenever it is calculated on the basis of the Alternate Base
Rate, interest shall be calculated on the basis of a 365- (or 366-, as the case
may be) day year for the actual days elapsed; and, otherwise, interest shall be
calculated on the basis of a 360-day year for the actual days elapsed. The
Agent shall as soon as practicable notify the Lessor, the Lessee and the
Participants of each determination of a Eurodollar Rate. Any change in the
interest rate on an Advance resulting from a change in the Alternate Base Rate
or the Eurocurrency Reserve Requirements shall become effective as of the
opening of business on the day on which such change becomes effective. The
Agent shall as soon as practicable notify the Lessor, the Lessee and the
Participants of the effective date and the amount of each such change in
interest rate.
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(b) Each determination of an interest rate by the Agent pursuant
to any provision of this Agreement shall be conclusive and binding on the
Lessor, the Lessee and the Participants in the absence of manifest error. The
Agent shall, at the request of such parties, deliver to such parties a
statement showing the quotations used by the Agent in determining any interest
rate pursuant to Section 3.8(a).
SECTION 3.9. Pro Rata Treatment and Payments.
(a) Each participation in the Advances by the Participants
hereunder and each reduction of the Commitments of the Participants shall be
made pro rata among the Tranche A Participants and Tranche B Participants
according to the respective Commitment Percentages of each such Participant.
Except as otherwise provided in Sections 3.10 - 3.20, each payment (including
each prepayment) by the Lessor on account of Participation Interests
representing the amount of and interest on the Advances shall be made pro rata
among the Tranche A Participants and Tranche B Participants according to the
respective Participation Interests of each such Participant. All payments
(including prepayments) to be made by the Lessor hereunder to the Participants
with respect to their Participation Interests, whether on account of principal,
interest or otherwise, shall be payable to the extent received by the Lessor
from or on behalf of the Lessee and shall be made without setoff or
counterclaim and shall be made prior to 12:00 noon, Chicago Time, on the due
date thereof to the Agent, for the account of the Participants, at the Agent's
office referred to in Section 15.3 of this Agreement, in Dollars and in
immediately available funds. The Agent shall distribute such payments to the
Participants on the same day if received prior to 12:00 noon, Chicago Time and
on the next Business Day if received after such time in like funds as received.
If any payment hereunder (other than payments of Participation Interests in the
Advances) becomes due and payable on a day other than a Business Day, such
payment shall be extended to the next succeeding Business Day. If any payment
of Participation Interests in an Advance becomes due and payable on a day other
than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day unless the result of such extension would be to extend
such payment into another calendar month, in which event such payment shall be
made on the immediately preceding Business Day. In the case of any extension
or shortening of the due date of any payment pursuant to the preceding two
sentences, interest thereon shall be payable at the then applicable rate during
such extension or until such shortened due date, as the case may be.
(b) Unless the Agent shall have been notified in writing by any
Participant prior to funding its Participation Interest in an Advance that such
Participant will not make its share of such Advance available to the Agent, the
Agent may assume that such Participant is making such amount available to the
Agent, and the Agent may, in reliance upon such assumption, make available to
the Lessor a corresponding amount. If such amount is not made available to the
Agent by the required time on the Funding Date therefor, such Participant shall
pay to the Agent, on demand, such amount with interest thereon at a rate equal
to the daily average Federal Funds Effective Rate for the period until such
Participant makes such amount immediately available to the Agent. A
certificate of the Agent submitted to any Participant with respect to any
amounts owing under this Section 3.9(b) shall be conclusive in the absence of
manifest error. If such Participant's share of such Advance is not made
available to the Agent by such Participant within three Business Days of such
Funding Date, the Agent shall also be entitled to recover such
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amount with interest thereon at the Alternate Base Rate, on demand, from the
Lessee, to the extent the Agent has made a corresponding amount of the Advance
to the Lessor which the Lessor has advanced to the Lessee.
SECTION 3.10. The Account.
The Agent may if it so desires establish an account (the "Account")
into which the Agent shall deposit all payments, receipts and other
consideration of any kind whatsoever paid under the Lease and received by the
Agent pursuant to this Agreement, the Lease and any other Operative Document.
The Agent shall make distributions of such payments, receipts and other
consideration (and, if an Account is used, from the Account) pursuant to the
requirements of Sections 3.11 - 3.20 hereof.
SECTION 3.11. Basic Rent.
(a) Each payment (or portion thereof) of Basic Rent comprising
interest on the Advances (and any payment of interest on overdue installments
of such component of Basic Rent) received by the Agent shall be distributed by
the Agent as promptly as possible (it being understood that any payments of
such component of Basic Rent received by the Agent on a timely basis and in
accordance with the provisions of the Lease shall be distributed on the date
received in the funds so received) to the Participants pro rata in accordance
with, and for application to, the portion of their Participation Interests in
such portion of Basic Rent, as well as in any overdue interest due to such
Participant (to the extent permitted by applicable law).
(b) Each payment (or portion thereof) of Basic Rent comprising
principal of the Advances (and any payment of interest on overdue installments
of such component of Basic Rent) received by the Agent shall be distributed as
promptly as possible (it being understood that any payments of such component
of Basic Rent received by the Agent on a timely basis and in accordance with
the provisions of the Lease shall be distributed on the date received in the
funds so received) in the order of priority set forth in Section 3.13.
SECTION 3.12. Purchase Payments by Lessee.
Any payment received by the Agent as a result of:
(a) the purchase of the Lessor's interest in the Property in
connection with the Lessee's exercise of its Purchase Option under Section 20.1
of the Lease, or
(b) the Lessee's compliance with its obligation to purchase the
Lessor's interest in the Property in accordance with Section 20.2 of the Lease,
or
(c) the payment of the Asset Termination Value in accordance with
Sections 16.2(b) or 16.3 of the Lease, or
(d) the Lessee failing to fulfill one or more of the conditions to
exercise of the Remarketing Option pursuant to Section 22.1 of the Lease and
the Agent's receipt pursuant to the
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next-to-last paragraph of Section 22.1 of the Lease of the Asset Termination
Value in accordance with Section 20.2 of the Lease, shall be distributed by the
Agent as promptly as possible (it being understood that any such payment
received by the Agent on a timely basis and in accordance with the provisions
of the Lease shall be distributed on the date on which such funds are so
received) to pay in full the Participant Balance of each Participant and in the
case that the amount so distributed shall be insufficient to pay in full as
aforesaid, then pro rata among the Participants without priority of one over
the other, in the proportion that the Participant Balance of each bears to the
aggregate of all of the Participant Balances.
SECTION 3.13. Residual Value Guarantee Amount Payment by Lessee.
The payment by the Lessee of the Residual Value Guarantee Amount to
the Agent in accordance with Article XXII of the Lease upon the Lessee's
exercise of the Remarketing Option shall be distributed by the Agent as
promptly as possible (it being understood that any such payment received by the
Agent on a timely basis in accordance with the provisions of the Lease shall be
distributed on the date on which such funds are so received) in the following
order of priority:
first, to the Tranche A Participants for application to pay in
full the Tranche A Participation Interest Balance of each Tranche A
Participant; and
second, to the Tranche B Participants for application to pay
in full the Tranche B Participation Interest Balance of each Tranche B
Participant, and in the case where the amounts so distributed shall be
insufficient to pay in full as aforesaid, then pro rata among the
Tranche B Participants without priority of one Tranche B Participant
over the other in the proportion that each such Tranche B
Participant's Tranche B Participation Interest Balance bears to the
aggregate Tranche B Participation Interest Balances of all Tranche B
Participants.
SECTION 3.14. Sales Proceeds of Remarketing of Property. Any
payments received by the Agent as proceeds from the sale of the Property sold
pursuant to the Lessee's exercise of the Remarketing Option pursuant to Article
XXII of the Lease, together with any payment made by the Lessee as a result of
an appraisal pursuant to Section 13.2 of this Agreement, shall be distributed
by the Agent as promptly as possible (it being understood that any such payment
received by the Agent on a timely basis and in accordance with the provisions
of the Lease shall be distributed on the date received) in the funds so
received in the following order of priority:
first, to the Tranche B Participants for application to pay in
full the Tranche B Participation Interest Balance of each Tranche B
Participant, and in the case where the amount so distributed shall be
insufficient to pay in full as aforesaid, then pro rata among the
Tranche B Participants without priority of one Tranche B Participant
over the other in the proportion that each Tranche B Participant's
Tranche B Participation Interest Balance bears to the aggregate
Tranche B Participation Interest Balances of all Tranche B
Participants;
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second, to the Tranche A Participants for application to pay
in full the Tranche A Participation Interest Balance of each Tranche A
Participant, and in the case where the amount so distributed shall be
insufficient to pay in full as aforesaid, then pro rata among the
Tranche A Participants without priority of one Tranche A Participant
over the other in the proportion that each Tranche A Participant's
Tranche A Participation Interest Balance bears to the aggregate
Tranche A Participation Interest Balances of all Tranche A
Participants; and
third, the balance, if any, shall be promptly distributed to,
or as directed by, the Lessee.
SECTION 3.15. Supplemental Rent.
All payments of Supplemental Rent received by the Agent (excluding any
amounts payable pursuant to the preceding provisions of this Section 3) shall
be distributed promptly by Agent upon receipt thereof to the Persons entitled
thereto pursuant to the Operative Documents.
SECTION 3.16. Excepted Payments.
Notwithstanding any other provision of this Agreement or the Operative
Documents, any Excepted Payment received at any time by the Agent shall be
distributed promptly to the Person entitled to receive such Excepted Payment
pursuant to the Operative Documents.
SECTION 3.17. Distribution of Payments After Event of Default.
(a) All payments received and amounts realized by the Lessor or
the Agent after an Event of Default exists, including under the Guarantee and
proceeds from the sale of any of the Property, proceeds of any amounts from any
insurer or any Governmental Authority in connection with any Casualty or
Condemnation, or from Lessee as payment in accordance with the Lease, including
any payment received from Lessee pursuant to Section 17 of the Lease, shall, if
received by Lessor, be paid to the Agent as promptly as possible and shall be
distributed by the Agent as promptly as possible (it being understood that any
such payment received by the Agent on a timely basis and in accordance with the
provisions of the Operative Documents shall be distributed on the date received
in the funds so received) in the following order of priority:
first, so much of such payment or amount as shall be required
to reimburse the Lessor or the Agent for any tax, expense or other
loss incurred by the Lessor or the Agent (including, to the extent not
previously reimbursed, those incurred in connection with any duties of
the Agent as the Agent) and any unpaid ongoing fees of the Lessor and
the Agent shall be distributed to each of them for its own account;
second, so much of such payments or amounts as shall be
required to reimburse the then existing or prior Participants for
payments made by them to the Lessor pursuant to Section 18.1 of the
Lease (to the extent not previously reimbursed) and to pay such then
existing or prior Participants the amounts payable to them pursuant to
any expense
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reimbursement or indemnification provisions of the Operative Documents
shall be distributed to each such Participant without priority of one
over the other in accordance with the amount of such payment or
payments payable to each such Person;
third, (i) in the case of a sale of the Property, in the order
of priority set forth in Section 3.14 and (ii) in all other cases, so
much of such amount as shall be required to pay in full the
Participant Balance of each Participant, and in the case that the
amounts so distributed shall be insufficient to pay in full as
aforesaid, then pro rata among the Participants without priority of
one over the other, in the proportion that the Participant Balance of
each bears to the aggregate Participant Balances of all the
Participants; and
fourth, the balance, if any, of such payment or amounts
remaining thereafter shall be promptly distributed to, or as directed
by, the Lessee.
SECTION 3.18. Other Payments.
(a) Except as otherwise provided in Sections 3.11, 3.12, 3.17 and
paragraph (b) below,
(i) any payment received by the Agent for which no
provision as to the application thereof is made in the Operative
Documents or elsewhere in this Section 3, and
(ii) all payments received and amounts
realized by the Agent under the Lease or otherwise with respect to the
Property to the extent received or realized at any time after
indefeasible payment in full of the Participant Balances of all of the
Participants and any other amounts due and owing to the Lessor, the
Participants or the Agent,
shall be distributed forthwith by the Agent in the order of priority set forth
in Section 3.12 (in the case of any payment described in clause (i) above) or
in Section 3.17 hereof (in the case of any payment described in clause (ii)
above), except, that (i) in the case of any payment described in clause (ii)
above, such payment shall be distributed omitting clause third of such Section
3.17; and the balance, if any (in the case of any payment described in clause
(i) or (ii) above), shall be distributed to, or as directed by, the Lessee, and
(ii) any payments received under the Guarantee shall be distributed in
accordance with the priorities set forth in Section 3.17.
(b) Except as otherwise provided in Sections 3.11 and 3.12 hereof,
any payment received by the Agent for which provision as to the application
thereof is made in an Operative Document but not elsewhere in this Section 3
shall be distributed forthwith by the Agent to the Person and for the purpose
for which such payment was made in accordance with the terms of such Operative
Document.
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SECTION 3.19. Casualty and Condemnation Amounts.
Any amounts payable to the Lessor as a result of a Casualty or
Condemnation pursuant to Section 15.1 of the Lease (but excluding any amounts
payable pursuant to Section 16.2 of the Lease) shall, if no Lease Event of
Default exists, be paid over to Lessee for the rebuilding or restoration of
that portion of the Property to which such Casualty or Condemnation applied,
and any excess proceeds shall be paid to the Lessee. If a Lease Event of
Default exists, then during the continuance of such Lease Event of Default, all
such amounts shall be held by the Agent as collateral in the Account, if any,
and upon exercise of the Lessor's remedies hereunder shall be distributed
pursuant to Section 3.17.
SECTION 3.20. Order of Application.
To the extent any payment made to any Participant pursuant to Sections
3.12, 3.13, 3.14 or 3.15 is insufficient to pay in full the Participant Balance
of such Participant, then each such payment shall first be applied to its
Participation Interest in accrued interest and then to its Participation
Interest in principal of the Advances.
SECTION 4. - FEES
SECTION 4.1. Commitment Fee.
The Lessee shall pay to each Participant, through the Agent, a
commitment fee (the "Commitment Fee") from the date hereof through the date on
which the Commitment Period shall end, computed at a rate equal to the
Applicable Percentage (as such term is defined in the Credit Agreement) as from
time to time in effect in accordance with the terms of the Credit Agreement,
calculated on the basis of a 365- (or 366- as the case may be) day year for the
actual days elapsed, on the amount of the undrawn aggregate Commitments during
the Commitment Period.
The Commitment Fee shall be payable monthly in arrears on the date of
the close of each fiscal month of the Lessee during the term of such
Participant's Commitment, commencing December 31, 1997, and continuing
thereafter on each such monthly closing date and on the last day of the
Commitment Period. If any such Applicable Percentage shall no longer be in
effect in accordance with the terms of the Credit Agreement during the
Commitment Period, the Lessee and the Participants shall negotiate in good
faith to revise the rate of the Commitment Fee and pending such revision, the
last such rate in effect prior to such change shall apply. As of the Closing
Date, the applicable commitment fee margin is equal to 0.175% per annum.
SECTION 4.2. Underwriting Fee.
The Lessee shall pay to the Arranger the fee (the "Underwriting Fee")
referred to in that certain letter from the Arranger to the Lessee dated as of
August 13, 1997, on the First Closing Date.
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SECTION 4.3. Overdue Fees.
If all or a portion of any fee due hereunder shall not be paid when
due, such overdue amount shall bear interest, payable by the Lessee on demand,
at a rate per annum equal to the Overdue Rate from the date of such nonpayment
until such amount is paid in full (as well after as before judgment).
SECTION 5. - CERTAIN INTENTIONS OF THE PARTIES
SECTION 5.1. Nature of Transaction.
(a) It is the intent of the parties hereto that: (i) the Lease
constitutes an "operating lease" pursuant to Statement of Financial Accounting
Standards No. 13, as amended, for purposes of Lessee's financial reporting, and
(ii) for purposes of federal, state and local income or franchise taxes and for
any other tax imposed on or measured by income, the transaction contemplated
hereby is a financing arrangement and preserves ownership in the Property in
the Lessee. Nevertheless, the Lessee acknowledges and agrees that neither the
Agent, the Lessor nor any Participant has made any representations or
warranties to the Lessee concerning the tax, accounting or legal
characteristics of the Operative Documents and that the Lessee has obtained and
relied upon such tax, accounting and legal advice concerning the Operative
Documents as it deems appropriate.
(b) Specifically, without limiting the generality of subsection
(a) of this Section 5.1, the parties hereto intend and agree that with respect
to the nature of the transactions evidenced by the Lease, the Lease grants a
security interest and mortgage or deed of trust or lien, as the case may be, in
the Property to the Lessor and the Participants to secure the Lessee's
performance and payment of all amounts under the Lease and the other Operative
Documents.
SECTION 5.2. Amounts Due Under Lease.
Anything else herein or elsewhere to the contrary notwithstanding, it
is the intention of the Lessee, the Lessor, the Participants and the Agent
that: (i) the amount and timing of installments of Basic Rent due and payable
from time to time from the Lessee under the Lease shall be equal to the
aggregate payments due to the Participants in respect of their Participation
Interests on each Payment Date; (ii) if the Lessee elects the Purchase Option
or becomes obligated to purchase the Property under the Lease, the
Participation Interests, all fees and all of the interest on overdue amounts
thereon and all other obligations of the Lessee owing to the Lessor, the
Participants and the Agent shall be paid in full by the Lessee; (iii) if the
Lessee properly elects the Remarketing Option, the Lessee shall only be
required to pay to the Lessor the proceeds of the sale of the Property, the
Residual Value Guarantee Amount and any amounts due pursuant to Section 13 of
this Participation Agreement and Section 22.2 of the Lease (which aggregate
amounts may be less than the Asset Termination Value); and (iv) upon an Event
of Default resulting in an acceleration of the Lessee's obligation to purchase
the Property under the Lease, the amounts then due and payable by the Lessee
under the Lease shall include all amounts
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necessary to pay in full the Asset Termination Value, plus all other amounts
then due from the Lessee to the Participants, the Agent and the Lessor under
the Operative Documents.
SECTION 6. - CONDITIONS PRECEDENT TO ACQUISITION OF EQUIPMENT AND ADVANCES
SECTION 6.1. Conditions Precedent -- Documentation.
The obligation of the Lessor to make an Advance on any Closing Date in
respect of the Equipment to be purchased on such Closing Date and the
obligation of each Participant to purchase its Participation Interest in, and
to make available to the Lessor its related portion of, each such Advance on
such Closing Date are subject to satisfaction or waiver of the following
conditions precedent and the conditions precedent set forth in Section 6.2 (it
being understood that the Lessor's obligation to finance such Equipment shall
not be subject to the conditions precedent set forth in this Section 6.1 or
Section 6.2 to the extent such conditions are actions required of the Lessor)
on or prior to the applicable Closing Date, as the case may be:
(a) Funding Request.
The Agent and the Lessor shall have received a fully executed
counterpart of the Funding Request, appropriately completed by the Lessee, in
accordance with Section 3.4.
(b) Operative Documents.
Each of the Operative Documents to be entered into on such Closing
Date in respect of the Equipment to be purchased on such Closing Date shall
have been duly authorized, executed and delivered by the parties thereto, and
shall be in full force and effect, including, without limitation, (i) this
Participation Agreement, (ii) the Lease, (iii) the Lease Supplement in respect
of the Equipment to be purchased on such Closing Date; (iv) the Bill of Sale,
(v) the Assignment of Warranties, (vi) the Guarantee, (vii) the CII Guarantee,
(viii) the Assignment of Lease and Supplement to Assignment of Lease and (ix)
the Consent to Assignment. No Default or Event of Default shall exist
thereunder (both before and after giving effect to the transactions
contemplated by the Operative Documents), and the Lessor, the Agent and each
Participant shall each have received a fully executed copy of each of the
Operative Documents (other than the Lease and Lease Supplement, of which the
Agent shall receive the original and the Lessor and the Participants shall
receive specimens). On or before such Closing Date, the Operative Documents
(or memoranda thereof), any supplements thereto and any financing statements in
connection therewith required under the Uniform Commercial Code shall have been
recorded, registered and filed, if necessary, in such manner as to enable the
Lessee's counsel to render its opinion referred to in clauses l(i)(A) and
1(i)(B) below.
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(c) [RESERVED].
(d) Appraisal.
On or prior to the First Closing Date, the Agent, the Lessor and the
Participants shall have received an Appraisal of the Equipment, which Appraisal
shall (i) show as of the projected Closing Date the Fair Market Sales Value of
the Equipment to be constructed on the Site in accordance with the Plans and
Specifications and (ii) meet the other applicable requirements set forth in the
definition of the term "Appraisal" contained in Appendix 1.
(e) Title.
On such Closing Date, after giving effect to the transactions
contemplated hereby, the Lessor shall have good title to the Equipment to be
delivered on such Closing Date free and clear of all Liens except Permitted
Liens.
(f) Bill of Sale.
On such Closing Date, the Lessee shall have delivered to the Lessor
(with copies to the Agent and each Participant) the Bill of Sale dated such
date covering the Equipment to be settled for on such date, transferring to the
Lessor good title to such Equipment free of all claims, liens and encumbrances
of any nature, except Permitted Liens, and warranting to the Lessor that at the
time of delivery of such Equipment, the Lessee had legal title thereto and good
and lawful right to sell the same, and title thereto was free of all claims,
Liens and encumbrances of any nature, except Permitted Liens.
(g) Lease Supplement.
The Lessee and the Lessor shall have delivered to the Agent prior to
the applicable Closing Date the original counterpart of the Lease Supplement
covering the Equipment being acquired with the proceeds of such Advance by the
Lessor on such Closing Date, duly executed by the Lessee and the Lessor.
(h) Evidence of Recording and Filing.
On or prior to the applicable Closing Date, the Agent shall have
received evidence reasonably satisfactory to it that each of the applicable
Lease Supplement with respect to the Equipment to be delivered on such Closing
Date, the Assignment of Lease and Supplement to Assignment of Lease and the
Consent to Assignment shall have been or are being recorded with the
appropriate Governmental Authorities in the order in which such documents are
listed in this clause, and the UCC Financing Statements with respect to the
Property being acquired on such Closing Date shall have been or are being filed
with the appropriate Governmental Authorities.
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(i) Evidence of Insurance.
On or prior to the applicable Closing Date, the Agent, the Lessor and
each Participant shall have received evidence of insurance with respect to the
Property required to be maintained pursuant to the Lease, setting forth the
respective coverages, limits of liability, carrier, policy number and period of
coverage.
(j) Evidence of Use of Proceeds.
The Agent and each Participant shall have received evidence reasonably
satisfactory to the Agent and each Participant as to the use of the proceeds of
the Advance in accordance with the provisions of Section 8.1(g).
(k) Taxes.
All taxes, fees and other charges in connection with the execution,
delivery, recording, filing and registration of the Operative Documents shall
have been paid or provisions for such payment shall have been made to the
satisfaction of the Agent, each Participant and the Lessor.
(l) Opinions of Counsel.
On or prior to the applicable Closing Date, (i) the Lessee shall have
delivered to the Agent, each Participant and the Lessor (A) an opinion of
special counsel to the Lessee admitted to practice in the jurisdiction where
the Property is located reasonably satisfactory to the Agent, each Participant
and the Lessor, as to the matters set forth in Exhibit C-1; and (B) an opinion
of counsel to the Lessee as to the matters set forth in Exhibit C-2 and (ii)
the Lessor shall have delivered to the Agent and each Participant (A) an
opinion of special counsel to the Lessor in the form set forth on Exhibit D;
and (B) an opinion of internal counsel to the Lessor in the form set forth in
Exhibit E.
(m) Approvals.
All necessary (or, in the reasonable opinion of the Lessor, the
Participants or the Agent or any of their respective counsel, advisable)
Governmental Actions and covenants and approvals of or by any Governmental
Authority or other Person, in each case required by any Requirement of Law,
covenant or restriction affecting the Property or the transactions contemplated
thereby shall have been obtained or made and be in full force and effect.
(n) Litigation.
No action or proceeding shall have been instituted, nor shall any
action or proceeding be threatened, before any Governmental Authority, nor
shall any order, judgment or decree have been issued or proposed to be issued
by any Governmental Authority at the time of such Closing Date (i) to set
aside, restrain, enjoin or prevent the full performance of this Participation
Agreement, the Lease or any other Operative Document or any transaction
contemplated hereby or thereby or (ii) which is reasonably likely to have a
Material Adverse Effect.
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(o) Requirements of Law.
In the reasonable opinion of the Lessor, the Participants, the Agent
and their respective counsel, the transactions contemplated by the Operative
Documents do not and will not violate any Requirement of Law and do not and
will not subject the Lessor, the Agent or any Participant to any adverse
regulatory or tax prohibitions or constraints.
(p) Responsible Officer's Certificate of the Lessee.
On or prior to the applicable Closing Date, the Lessor, each
Participant and the Agent shall each have received a Responsible Officer's
Certificate, dated as of the applicable Closing Date, of the Lessee stating
that (i) each and every representation and warranty of the Lessee contained in
the Operative Documents to which it is a party is true and correct on and as of
the applicable Closing Date (with the same effect as though such
representations and warranties had been made on and as of such date, except
representations and warranties which relate solely to an earlier date or time,
which representations and warranties shall be true and correct on and as of the
specific dates and times referred to therein); (ii) no Default or Event of
Default under the Lease or the Guarantee has occurred and is continuing; (iii)
each Operative Document to which the Lessee is a party is in full force and
effect with respect to it; and (iv) the Lessee has duly performed and complied
with all covenants, agreements and conditions contained herein or in any
Operative Document required to be performed or complied with by it on or prior
to the applicable Closing Date.
(q) The Lessee's Resolutions and Incumbency Certificate, etc.
On or prior to the applicable Closing Date, the Lessor, each
Participant and the Agent shall each have received (i) a certificate of the
Secretary or an Assistant Secretary of the Lessee attaching and certifying as
to (A) the resolutions of the Board of Directors of the Lessee, duly
authorizing the execution, delivery and performance by the Lessee of documents
and agreements of the type represented by each Operative Document to which it
is or will be a party, (B) its articles of incorporation and bylaws, and (C)
the incumbency and signature of persons authorized to execute and deliver on
its behalf the Operative Documents to which it is a party, and (ii) a good
standing certificate from the appropriate officer of the state in which the
Property is located.
(r) Responsible Officer's Certificate of the Guarantor.
On or prior to the applicable Closing Date, the Lessor, each
Participant and the Agent shall each have received a Responsible Officer's
Certificate, dated as of the applicable Closing Date, of the Guarantor stating
that (i) each and every representation and warranty of the Guarantor contained
in the Operative Documents to which it is a party is true and correct on and as
of the applicable Closing Date (with the same effect as though such
representations and warranties had been made on and as of such date, except
representations and warranties which relate solely to an earlier date or time,
which representations and warranties shall be true and correct on and as of the
specific dates and times referred to therein); (ii) no Default or Event of
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Default under the Lease or the CII Guarantee has occurred and is continuing;
(iii) each Operative Document to which the Guarantor is a party is in full
force and effect with respect to it; and (iv) the Guarantor has duly performed
and complied with all covenants, agreements and conditions contained herein or
in any Operative Document required to be performed or complied with by it on or
prior to the applicable Closing Date.
(s) The Guarantor's Resolutions and Incumbency Certificate, etc.
On or prior to the applicable Closing Date, the Lessor, each
Participant and the Agent shall each have received (i) a certificate of the
Secretary or an Assistant Secretary of the Guarantor attaching and certifying
as to (A) the resolutions of its Board of Directors duly authorizing the
execution, delivery and performance by the Guarantor of documents and
agreements of the type represented by each Operative Document to which it is or
will be a party, (B) its articles of incorporation and by-laws, and (C) the
incumbency and signature of persons authorized to execute and deliver on its
behalf the Operative Documents to which it is a party, and (ii) a good standing
certificate from the appropriate officer of the state in which the Guarantor is
incorporated.
(t) [RESERVED].
(u) No Material Adverse Effect.
As of the applicable Closing Date, there shall not have occurred any
Material adverse change in the Lessee's or the Guarantor's capital structure,
ownership or consolidated assets, liabilities, results of operations, or
financial condition from that set forth or contemplated in the most recent
financial statements delivered pursuant to Section 8.3(m), 10.1(b) or pursuant
to the Guarantee, and no event or condition shall have occurred that would
result in a Material Adverse Effect.
(v) Responsible Officer's Certificate of the Lessor.
On or prior to the applicable Closing Date, the Lessee, the Agent and
each Participant shall have received a certificate of an authorized officer of
the Lessor, dated as of the applicable Closing Date, stating that (i) each and
every representation and warranty of the Lessor contained in the Operative
Documents to which it is a party is true and correct on and as of the
applicable Closing Date (with the same effect as though such representations
and warranties had been made on and as of such date, except representations and
warranties which relate solely to an earlier date or time, which
representations and warranties shall be true and correct on and as of the
specific dates and times referred to therein), (ii) each Operative Document to
which the Lessor is a party is in full force and effect with respect to it, and
(iii) the Lessor has duly performed and complied with all covenants, agreements
and conditions contained herein or in any Operative Document required to be
performed or complied with by it on or prior to the applicable Closing Date.
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(w) The Lessor's Resolutions and Incumbency Certificate, etc.
On or prior to the applicable Closing Date, the Lessee, the Agent and
each Participant shall have received a certificate of the Secretary or an
Assistant Secretary of the Lessor attaching and certifying as to the incumbency
and signature of persons authorized to execute and deliver on its behalf the
Operative Documents to which it is a party.
(x) [RESERVED].
(y) [RESERVED].
(z) Interest Rate Protection.
On or prior to the applicable Closing Date, to the extent the Lessee
shall have elected to hedge any Advances, the Lessee shall have entered into
Interest Rate Protection Agreements on or prior to the applicable Closing Date
with counterparties and on terms and conditions acceptable to the Required
Participants, which agreements may include caps and swaps and shall protect the
Lessee against interest rate fluctuations.
SECTION 6.2. Further Conditions Precedent.
The obligation of the Lessor to make an Advance on any Closing Date
and the obligation of each Participant to purchase its Participation Interest
in, and to make available its related portion of, such Advance on such Closing
Date are subject to satisfaction or waiver of the following conditions
precedent and to satisfaction on or before the applicable Closing Date of the
conditions precedent set forth in Section 6.1 (it being understood that the
Lessor's obligations to acquire the Property and each Participant's obligation
to fund the purchase of its Participation Interest in an Advance shall not be
subject to the conditions precedent set forth in Section 6.1 and this Section
6.2 to the extent such conditions are actions required of the Lessor or such
Participant, as the case may be):
(a) Representations and Warranties.
On such date the representations and warranties of the Lessee,
the Guarantor, the Lessor and each Participant contained herein and in each of
the other Operative Documents shall be true and correct as though made on and
as of such date, except to the extent such representations or warranties relate
solely to an earlier date, in which case such representations and warranties
shall have been true and correct on and as of such earlier date.
(b) Performance of Covenants.
The parties hereto shall have performed their respective
agreements contained herein and in the other Operative Documents to be
performed by them on or prior to such date.
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(c) Title.
Title to the Property shall conform to the representations and
warranties set forth in Section 8.4.
(d) No Default.
There shall not have occurred and be continuing any Default or
Event of Default under any of the Operative Documents, and no Default or Event
of Default under any of the Operative Documents will have occurred after giving
effect to the acquisition of the Property and/or the making of the Advance
requested on such Closing Date, as the case may be.
SECTION 7. - [RESERVED].
SECTION 8. - REPRESENTATIONS
SECTION 8.1. Representations of the Lessor.
The Lessor represents and warrants to each of the other parties hereto
as follows:
(a) Due Organization, etc.
It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois and has the corporate power
and authority to enter into and perform its obligations under each of the
Operative Documents to which it is or will be a party and each other agreement,
instrument and document to be executed and delivered by it in connection with
or as contemplated by each such Operative Document to which it is or will be a
party.
(b) Authorization; No Conflict.
The execution, delivery and performance of each Operative Document to
which it is or will be a party has been duly authorized by all necessary action
on its part and neither the execution and delivery thereof, nor the
consummation of the transactions contemplated thereby, nor compliance by it
with any of the terms and provisions thereof (i) does or will require any
approval or consent of any trustee or holders of any of its indebtedness or
obligations, (ii) does or will contravene any current United States or Illinois
law, governmental rule or regulation, (iii) does or will contravene or result
in any breach of or constitute any default under, or result in the creation of
any Lien upon any of its property under, its articles of incorporation or
by-laws, or any indenture, mortgage, deed of trust, conditional sales contract,
credit agreement or other agreement or instrument to which it is a party or by
which it or its properties may be bound or affected or (iv) does or will
require any Governmental Action by any Governmental Authority, except such as
have been obtained on the Lessee's or the Lessor's behalf.
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(c) Enforceability, etc.
Each Operative Document to which the Lessor is or will be a party has
been, or on or before the applicable Closing Date will be, duly executed and
delivered by the Lessor and each such Operative Document to which the Lessor is
a party constitutes, or upon execution and delivery will constitute, a legal,
valid and binding obligation enforceable against the Lessor in accordance with
the terms thereof, except as the same may be limited by insolvency, bankruptcy,
reorganization or other laws relating to or affecting creditors' rights or by
general equitable principles.
(d) Litigation.
There is no action or proceeding pending or, to its knowledge,
threatened to which it is a party, before any Governmental Authority that, if
adversely determined, would materially and adversely affect its ability to
perform its obligations under the Operative Documents to which it is a party,
would have a material adverse effect on the financial condition of the Lessor
or would question the validity or enforceability of any of the Operative
Documents to which it is or will become a party.
(e) Assignment.
It has not assigned or transferred any of its right, title or interest
in or under the Lease except to the Agent and the Participants in accordance
with this Agreement.
(f) Defaults.
No Default or Event of Default under the Operative Documents
attributable to it has occurred and is continuing.
(g) Use of Proceeds.
The proceeds of the purchase of the Participation Interests shall be
applied by the Lessor solely in accordance with the provisions of the Operative
Documents.
(h) Securities Act.
Neither the Lessor nor any Person authorized by the Lessor to act on
its behalf has offered or sold any interest in the Lease, or in any similar
security relating to the Property, or in any security the offering of which for
the purposes of the Securities Act would be deemed to be part of the same
offering as the offering of the aforementioned securities to, or solicited any
offer to acquire any of the same from, any Person other than the Agent and the
Participants, and neither the Lessor nor any Person authorized by the Lessor to
act on its behalf will take any action which would subject the issuance or sale
of any interest in the Lease or the Property to the provisions of Section 5 of
the Securities Act or require the qualification of any Operative Document under
the Trust Indenture Act of 1939, as amended.
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(i) Chief Place of Business.
The Lessor's chief place of business, chief executive office and office where
the documents, accounts and records relating to the transactions contemplated
by this Participation Agreement and each other Operative Document are kept are
located at 135 S. LaSalle Street, Chicago, Illinois 60603.
(j) Federal Reserve Regulations.
The Lessor is not engaged principally in, and does not have as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying any margin stock (within the meaning of Regulation U of
the Board), and no part of the proceeds of the purchase of the Participation
Interests will be used by it to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any such margin
stock or for any purpose that violates, or is inconsistent with, the provisions
of Regulation G, T, U, or X of the Board.
(k) Investment Company Act.
The Lessor is not an "investment company" or a company controlled by
an "investment company" within the meaning of the Investment Company Act.
(l) No Plan Assets.
The Lessor is not acquiring its interests in the Property with the
assets of any "employee benefit plan" (as defined in Section 3(3) of ERISA)
which is subject to Title I of ERISA, or "plan" (as defined in Section
4975(e)(1) of the Code).
(m) No Broker.
The Lessor has not employed any financial advisor, broker or finder,
or incurred any liability for any financial advisory, brokerage or finders
fees, in connection with the Operative Documents or the transactions
contemplated thereby.
SECTION 8.2. Representations of the Participants.
Each Participant represents and warrants to the Lessor, each of the
other Participants and the Lessee as follows:
(a) No Plan Assets.
Such Participant is not and will not be funding its Participation
Interest hereunder, and is not performing its obligations under the Operative
Documents, with the assets of an "employee benefit plan" (as defined in Section
3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in
Section 4975(e)(1) of the Code). The advancing of any amount with respect
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to its Participation Interest on any Funding Date shall constitute an
affirmation by the subject Participant of the preceding representation and
warranty.
(b) Due Organization, etc.
It is either (i) a duly organized and validly existing corporation in
good standing under the laws of the state of its incorporation, or (ii) a
national banking association duly organized and validly existing under the laws
of the United States or (iii) a banking corporation duly organized and validly
existing under the laws of the jurisdiction of its organization, and, in each
case, has the corporate power and authority to execute, deliver and carry out
the terms and provisions of the Operative Documents to which it is a party.
(c) Authorization; No Conflict.
The execution, delivery and performance of each Operative Document to
which it is or will be a party has been duly authorized by all necessary action
on its part and neither the execution and delivery thereof, nor the
consummation of the transactions contemplated thereby, nor compliance by it
with any of the terms and provisions thereof (i) does or will require any
approval or consent of any trustee or holders of any of its indebtedness or
obligations, (ii) does or will contravene any current law, governmental rule or
regulation of the United States or the state or country of its organization,
(iii) does or will contravene or result in any breach of or constitute any
default under, or result in the creation of any Lien upon any of its property
under, its certificate of incorporation or bylaws, articles of association or
other organizational documents or any indenture, mortgage, deed of trust,
conditional sales contract, credit agreement or other agreement or instrument
to which it is a party or by which it or its properties may be bound or
affected or (iv) does or will require any Governmental Action by any
Governmental Authority.
(d) Enforceability, etc.
Each Operative Document to which it is a party has been, or on or
before the Closing Date will be, duly executed and delivered by it and each
such Operative Document to which it is a party constitutes, or upon execution
and delivery will constitute, a legal, valid and binding obligation enforceable
against it in accordance with the terms thereof, except as the same may be
limited by insolvency, bankruptcy, reorganization or other laws relating to or
affecting creditors' rights or by general equitable principles.
(e) Litigation.
There is no action or proceeding pending or, to its knowledge,
threatened to which it is or will be a party before any Governmental Authority
that is reasonably likely to be adversely determined and, if adversely
determined, would materially and adversely affect its ability to perform its
obligations under the Operative Documents to which it is a party.
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(f) No Broker.
Such Participant has not employed any financial advisor, broker or
finder, or incurred any liability for any financial advisory, brokerage or
finders fees, in connection with the Operative Documents or the transactions
contemplated thereby.
(g) Securities Act.
Such Participant has not, nor has any Person authorized by such
Participant to act on its behalf, offered or sold any interest in the Lease, or
in any similar security relating to the Property, or in any security the
offering of which for the purposes of the Securities Act would be deemed to be
part of the same offering as the offering of the aforementioned securities to,
or solicited any offer to acquire any of the same from, any Person other than
the Agent and the other Participants, and such Participant will not, nor will
any Person authorized by such Participant to act on its behalf, take any action
which would subject the issuance or sale of any interest in the Lease or the
Property to the provisions of Section 5 of the Securities Act or require the
qualification of any Operative Document under the Trust Indenture Act of 1939,
as amended.
SECTION 8.3. Representations of the Lessee.
The Lessee represents and warrants to each of the other parties hereto
that:
(a) Corporate Status.
The Lessee (i) is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and (ii) has duly
qualified and is authorized to do business and has obtained a certificate of
authority to transact business as a foreign corporation in the jurisdiction
where the Property is located and in each other jurisdiction where the failure
to so qualify is reasonably likely to be Material.
(b) Corporate Power and Authority.
The Lessee has corporate power and authority to execute, deliver and
carry out the terms and provisions of the Operative Documents to which it is or
will be a party and has taken all necessary corporate action to authorize the
execution, delivery and performance of the Operative Documents to which it is
or will be a party and has or will have duly executed and delivered each
Operative Document required to be executed and delivered by it and, assuming
the due authorization, execution and delivery thereof on the part of each other
party thereto, each such Operative Document constitutes or will constitute a
legal, valid and binding obligation enforceable against it in accordance with
its terms, except as the same may be limited by insolvency, bankruptcy,
reorganization or other laws relating to or affecting the enforcement of
creditors' rights or by general equitable principles.
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(c) No Violation.
Neither the execution, delivery and performance by the Lessee of the
Operative Documents to which it is or will be a party nor compliance with the
terms and provisions thereof, nor the consummation by the Lessee of the
transactions contemplated therein (i) will result in a violation by the Lessee
of any applicable provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality having
jurisdiction over the Lessee or the Property that would (x) adversely affect
the validity or enforceability of the Operative Documents to which the Lessee
is a party, or the title to, or value or condition of, the Property, or (y)
have a Material Adverse Effect on the consolidated financial position, business
or consolidated results of operations of the Lessee, or (z) have an adverse
effect on the ability of the Lessee to perform its obligations under the
Operative Documents, (ii) will conflict with or result in any breach that has
not been waived to the satisfaction of Lessor and the Agent under, or (other
than pursuant to the Operative Documents) result in the creation or imposition
of (or the obligation to create or impose) any Lien upon any of the property or
assets of Lessee pursuant to the terms of, any indenture, loan agreement or
other agreement for borrowed money to which the Lessee is a party or by which
it or any of its property or assets is bound or to which it may be subject
(other than Permitted Liens), or (iii) will violate any provision of the
certificate or articles of incorporation or bylaws of the Lessee.
(d) Litigation.
There are no actions, suits or proceedings pending or, to the
knowledge of the Lessee, threatened, to which the Lessee is a party or by which
any property or other assets of the Lessee are subject to or bound (i) that are
reasonably likely to have a Material Adverse Effect or (ii) that question the
validity or enforceability of any of the Operative Documents to which it is or
will be a party or the rights or remedies of the Lessor, the Agent or the
Participants with respect to the Lessee or the Property under the Operative
Documents.
(e) Governmental Approvals.
No Governmental Action by any Governmental Authority having
jurisdiction over the Lessee or the Property is required to authorize or is
required in connection with (i) the execution, delivery and performance by the
Lessee of any Operative Document or (ii) the legality, validity, binding effect
or enforceability against the Lessee of any Operative Document, except for the
filing or recording of the Operative Documents listed in Section 8.4(h) hereof
with the appropriate Governmental Authorities, all of which will have been
completed on or prior to the Closing Date, except that the UCC Financing
Statements with respect to the Property being acquired on the applicable
Closing Date shall have been or are being filed with the appropriate
Governmental Authorities.
(f) Investment Company Act.
The Lessee is not an "investment company" or a company "controlled"
by an "investment company," within the meaning of the Investment Company Act.
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(g) Public Utility Holding Company Act.
The Lessee is not a "holding company, or a "subsidiary company," or an
"affiliate" of a "holding company, or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
(h) Information.
The information and materials regarding the Lessee and the Property
which were or will be provided by the Lessee to one or more of the Participants
are true and accurate in all material respects on the date as of which such
information and materials are dated or certified and not incomplete by omitting
to state any material fact necessary to make such information not misleading at
such time in light of the circumstances under which such information was
provided.
(i) Taxes.
All United States federal income tax returns and all other Material
tax returns which are required to have been filed have been or will be prepared
in accordance with applicable law and filed by or on behalf of the Lessee by
the respective due dates, including extensions, and all taxes due with respect
to the Lessee pursuant to such returns or pursuant to any assessment received
by the Lessee have been or will be paid, except to the extent such taxes are
being contested in good faith by appropriate proceedings diligently conducted
and for which such reserves or other appropriate provisions, if any, as shall
be required by GAAP, shall have been made. The charges, accruals and reserves
on the books of the Lessee in respect of taxes or other governmental charges
are, in the opinion of the Lessee, in accordance with GAAP.
(j) Compliance with ERISA.
Each member of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and
is in compliance in all Material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting
of a bond or other security under ERISA or the Code or (iii) incurred any
liability under Title IV of ERISA other than a liability to the PBGC for
premiums under Section 4007 of ERISA.
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(k) Environmental and Other Regulations.
Except for Exempt Environmental Conditions, the Lessee and the
Property are in compliance with all applicable Environmental Laws relating to
pollution and environmental control or employee safety other than such
non-compliance as could not reasonably be expected to have a Material Adverse
Effect.
(l) Offer of Securities, etc.
Neither the Lessee nor the Guarantor nor any Person authorized to act
on their behalf has, directly or indirectly, offered any interest in the
Property or the Lease or any other interest similar thereto (the sale or offer
of which would be integrated with the sale or offer of such interest in the
Property or the Lease), for sale to, or solicited any offer to acquire any of
the same from, any Person other than the Participants, the Lessor and other
"accredited investors" (as defined in Regulation D of the Securities and
Exchange Commission).
(m) Financial Statements.
(i) The audited consolidated statement of financial
position of the Lessee and its consolidated subsidiaries as of
December 31, 1996 and the related consolidated statements of income,
shareholder's equity and cash flows for the fiscal year then ended,
reported on by Coopers & Lybrand L.L.P., a copy of which has been
delivered to each of the Lessor, the Participants and the Agent,
present fairly in all material respects, in conformity with GAAP, the
financial position of the Lessee as of such date and its results of
operations and cash flows for such fiscal year.
(ii) The unaudited consolidated statement
of financial position of the Lessee and its consolidated subsidiaries
as of September 30, 1997 and the related unaudited consolidated
statements of income, shareholder's equity and cash flows for the year
to date, a copy of which has been delivered to each of the Lessor, the
Participants and the Agent, present fairly in all material respects,
in conformity with GAAP applied on a basis substantially consistent
with the financial statements referred to in clause (i) of this
subsection (m), the consolidated financial position of the Lessee as
of such date and its consolidated results of operations and cash flows
for such year-to-date period (subject to normal year-end adjustments).
(n) No Broker.
The Lessee has not employed any financial advisor, broker or finder,
or incurred any liability for any financial advisory, brokerage or finders
fees, in connection with the Operative Documents or the transactions
contemplated thereby.
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SECTION 8.4. Representations of the Lessee With Respect to the
Property on each Closing Date.
The Lessee hereby represents and warrants as follows:
(a) Representations.
The representations and warranties of the Lessee set forth in the
Operative Documents (including the representations and warranties set forth in
Sections 8.3) are true and correct in all Material respects on and as of such
Closing Date, except to the extent such representations or warranties relate
solely to an earlier date, in which case such representations and warranties
shall have been true and correct in all Material respects on and as of such
earlier date. The Lessee is in compliance in all Material respects with its
obligations under the Operative Documents and there exists no Default or Event
of Default. No Default or Event of Default will occur as a result of, or after
giving effect to, the Advance requested by the Funding Request on such date.
(b) Equipment.
Delivery and installation of the Equipment to date has been performed
in a good and workmanlike manner, substantially in accordance with the Plans
and Specifications and in compliance with all Insurance Requirements and
Requirements of Law.
(c) No Liens.
There have been no Liens against the Property since the date of the
Lease Supplement, the Assignment of Lease or the Consent to Assignment.
(d) Property.
The Property consists of an extrusion press facility and other capital
equipment which will be constructed on the Site. Such Site is located in the
State of Ohio. Such Property as improved in accordance with the related Plans
and Specifications and the use thereof by the Lessee and its agents, assignees,
employees, invitees, lessees, licensees, contractors and tenants will comply in
all material respects with all Requirements of Law and Insurance Requirements,
except for such Requirements of Law as the Lessee shall be contesting in good
faith by appropriate proceedings. The related Plans and Specifications have
been or will be prepared in all material respects in accordance with applicable
Requirements of Law and upon completion of the Property in accordance with the
Plans and Specifications, such Property will not encroach in any manner onto
any adjoining land (except as permitted by express written easements or as
insured by appropriate title insurance) and such Property will comply in all
Material respects with all applicable Requirements of Law. Upon completion of
such Property in accordance with the related Plans and Specifications, the
Property including, without limitation, structural members, the plumbing,
heating, air conditioning and electrical systems thereof, and all water, sewer,
electric, gas, telephone and drainage facilities will be completed in a
workmanlike manner and in accordance with the Plans and Specifications and will
be in good working condition and fit for use as an extrusion press facility,
and all other utilities required to adequately service the
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Property for its intended use are or will be available and "tapped on" and
hooked up pursuant to adequate permits. Except as described in Guarantor's
Annual Report on Form 10-K for the year ended December 31, 1996, and Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997, there is no
action, suit or proceeding (including any proceeding in condemnation or eminent
domain or under any Environmental Law) pending or, to the best of the Lessee's
knowledge, threatened with respect to the Lessee, its Affiliates or such
Property which adversely affects the title to, or the use, operation or value
of, the Property or the Site. No fire or other casualty with respect to the
Property or the Site has occurred which could have a Material Adverse Effect.
The Property has available all material services of public facilities and other
utilities necessary for use and operation of such facility for its primary
intended purpose, including, without limitation, adequate water, gas and
electrical supply, storm and sanitary sewerage facilities, telephone, other
required public utilities and means of access to such facility from publicly
dedicated streets and public highways for pedestrians and motor vehicles. All
utilities serving such Property, or proposed to serve such Property in
accordance with the related Plans and Specifications, are located in, and
vehicular access to the Property is provided by, either public rights-of-way
abutting such Property or Appurtenant Rights. All material licenses,
approvals, authorizations, consents, permits (including, without limitation,
building, demolition and environmental permits, licenses, approvals,
authorizations and consents), easements and rights-of-way, including proof and
dedication, required for (x) the use, treatment, storage, transport, disposal
or disposition of any Hazardous Substance on, at, under or from such Site
during the delivery and installation of the Equipment thereon, and (y) delivery
and installation of such Equipment in accordance with the related Plans and
Specifications has either been obtained from the appropriate Governmental
Authorities having jurisdiction or from private parties, as the case may be, or
will be obtained from the appropriate Governmental Authorities having
jurisdiction or from private parties, as the case may be, prior to commencing
any such delivery, installation, use and operation, as applicable and will in
each case be maintained by the Lessee during the periods for which they are
required by Applicable Law or such Governmental Authorities.
(e) Title.
On each Closing Date, the Lessee shall have, and the Bill of Sale
shall convey, to the Lessor good title to the Equipment being delivered on such
Closing Date, free and clear of all claims, Liens and encumbrances of any
nature, except Permitted Liens.
(f) Insurance.
The Lessee has obtained insurance coverage covering the Property which
meets the requirements of Article XIV of the Lease, such coverage is in full
force and effect and all premiums due prior to each Closing Date in respect of
such insurance shall have been paid in full.
(g) Lease.
Upon the execution and delivery of the applicable Lease Supplement to
the Lease on such Closing Date, (i) the Lessee will have unconditionally
accepted the Property and will be bound
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by the terms of the Lease Supplement and will have a valid leasehold interest
in the Property, subject only to Permitted Liens; (ii) the Lessee's obligation
to pay Rent will be an independent covenant and no right of deduction or offset
will exist with respect to any Rent or other sums payable under the Lease; and
(iii) no Rent under the Lease will have been prepaid and the Lessee will have
no right to prepay the Rent, except as specifically set forth therein.
(h) Protection of Interests.
On such Closing Date, (i) the Agent Financing Statements are
each in a form sufficient, and have been, or are being, filed in all filing
offices necessary, to create a valid and perfected first priority security
interest in the Lessor's interest in all Equipment, if any, to be located on
the Site; and (ii) the Lessor Financing Statements are each in a form
sufficient, and have been, or are being, filed in all filing offices necessary,
to perfect the Lessor's interest under the Lease to the extent the Lease is a
security agreement.
(i) Flood Hazard Areas.
No portion of the Site is located in an area identified as a special
flood hazard area by the Federal Emergency Management Agency or other
applicable agency, or if any portion of the Site is located in an area
identified as a special flood hazard area by the Federal Emergency Management
Agency or other applicable agency, then flood insurance has been obtained for
the Site or such portion thereof in accordance with Section 14.2(b) of the
Lease and in accordance with the National Flood Insurance Act of 1968, as
amended.
(j) Conditions Precedent.
All conditions precedent contained in this Agreement and in the other
Operative Documents relating to the acquisition and leasing of the Property by
the Lessor have been satisfied in full or waived.
SECTION 9. - PAYMENT OF CERTAIN EXPENSES
The Lessee agrees, for the benefit of the Lessor, the Agent and the
Participants, that:
SECTION 9.1. Transaction Expenses.
(a) The Lessee shall pay, or cause to be paid, on the applicable
Closing Date and thereafter, from time to time, all Transaction Expenses in
respect of the transactions consummated on such Closing Date, it being
understood and agreed that neither the Agent, the Lessor nor any Participant
shall be required to advance any Transaction Expenses in connection with the
closing. Such Transaction Expenses and the Underwriting Fee may be added to
the Property Improvement Cost to the extent supported by the Appraisal and
agreed by the Agent and the Participants.
(b) The Lessee shall pay or cause to be paid (i) all expenses of
the Lessor, (ii) the Commitment Fee, (iii) the Underwriting Fee, (iv) all
Transaction Expenses incurred by the
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Lessee, the Agent, the Participants or the Lessor in entering into any future
amendments or supplements with respect to any of the Operative Documents,
whether or not such amendments or supplements are ultimately entered into, or
giving or withholding of waivers or consents hereto or thereto, in each case
(except after the occurrence of an Event of Default) which have been requested
by or approved by the Lessee, (v) all Transaction Expenses incurred by the
Lessor, the Lessee, the Participants or the Agent in connection with any
purchase of the Property by the Lessee or other Person pursuant to Articles
XVI, XVII, XX or XXII of the Lease, (vi) all Transaction Expenses incurred by
any of the other parties hereto in respect of enforcement of any of their
rights or remedies against the Lessee in respect of the Operative Documents,
and (vii) all Transaction Expenses of the Agent in connection with the addition
of Participants to the transaction after any Closing Date who are added in
order to replace Defaulting Participants, or to substitute for a Participant
who has been removed at the request of the Lessee, in each case in accordance
with the terms and conditions of the Operative Documents, to the extent such
expenses are not covered by an assigning Participant under Section 12 hereof;
provided, that, Lessee shall not be obligated to pay or cause to be paid any
Transaction Expenses incurred by Lessor, Agent or any Participant as a result
of or in connection with the termination of Credit Agricole Indosuez's
participation pursuant to Section 11.4(b) or any amendment or supplement to the
Operative Documents in connection therewith or in connection with or otherwise
to effect the addition of any Participant to replace Credit Agricole Indosuez
as a result of their termination pursuant to Section 11.4(b).
SECTION 9.2. Stamp and Other Taxes.
The Lessee shall pay or cause to be paid any and all stamp, transfer
and other similar taxes, fees and excises, if any, including any interest and
penalties, which are payable in connection with the transactions contemplated
by this Participation Agreement and the other Operative Documents.
SECTION 9.3. Obligations.
The Lessee shall pay, on or before the due date thereof, all costs,
expenses and other amounts required to be paid by the Assignment of Lease.
SECTION 10. - OTHER COVENANTS AND AGREEMENTS
SECTION 10.1. Covenants of the Lessee.
The Lessee hereby agrees that so long as this Participation Agreement
is in effect:
(a) [RESERVED].
(b) Certificates.
The Lessee will deliver to the Lessor and the Agent (with sufficient
copies for distribution to each Participant), concurrently with the delivery of
the financial statements
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referred to in Section 8.3(d)(ii) of the Credit Agreement, a certificate of a
Responsible Officer stating that, to the officer's knowledge, the Lessee during
such period has in all material respects observed or performed all of its
covenants and other agreements and satisfied every condition, contained in this
Agreement and in the Operative Documents to be observed, performed or satisfied
by it, and that such officer has obtained no knowledge of any Event of Default
except as specified in such certificate.
(c) Certain Covenants Relating to the Credit Agreement.
(i) neither the limitation on indebtedness to be created,
incurred, assumed or suffered set forth in Section 8.2(d) of the
Credit Agreement nor any other provision of the Credit Agreement shall
be deemed to restrict the Lessee's ability to execute, deliver and
perform its obligations under this Agreement and the other Operative
Agreements, including the Interest Rate Protection Agreements referred
to in Section 6.1(z); and
(ii) Lessee shall provide prompt written notice to each of
Agent, Lessor, and each Participant in the event of any amendment or
modification to, any expiration or termination of or any waiver of any
provision of, the Credit Agreement, or any breach, default, or event
of default of or under the Credit Agreement.
(d) [RESERVED.]
(e) Further Assurances.
The Lessee shall take or cause to be taken from time to time all
action necessary to assure during the Term that title to the Property remains
in the Lessor as contemplated by Section 12.1 of the Lease, that the Lessor
holds a perfected Lien on the Property securing the Lease Balance as
contemplated by Section 7.1 of the Lease, and that the Agent holds a perfected
Lien on the Property and the Lease securing the repayment of the Participation
Interests.
SECTION 10.2. Cooperation with the Lessee.
The Lessor, the Participants and the Agent shall, to the extent
reasonably requested by the Lessee (but without assuming additional
liabilities, duties or other obligations on account thereof), at the Lessee's
expense, cooperate with the Lessee in connection with its covenants contained
herein including, without limitation, at any time and from time to time, upon
the request of the Lessee, to promptly and duly execute and deliver any and all
such further instruments, documents and financing statements (and continuation
statements related thereto) as the Lessee may reasonably request in order to
perform such covenants.
SECTION 10.3. Covenants of the Lessor.
The Lessor hereby agrees that so long as this Participation Agreement
is in effect:
(a) Discharge of Liens.
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The Lessor will not create or permit to exist at any time, and will,
at its own cost and expense, promptly take such action as may be necessary duly
to discharge, or to cause to be discharged, all Lessor Liens on the Property
attributable to it; provided, however, that the Lessor shall not be required to
so discharge any such Lessor Lien while the same is being contested in good
faith by appropriate proceedings diligently prosecuted so long as such
proceedings shall not involve any material danger of impairment of the Liens of
the Lease or the Security Documents or of the sale, forfeiture or loss of, and
shall not interfere with the use or disposition of, the Property or title
thereto or any interest therein or the payment of Rent.
(b) Change of Chief Place of Business.
The Lessor shall give prompt notice to the Lessee and the Agent if the
Lessor's chief place of business or chief executive office, or the office where
the records concerning the accounts or contract rights relating to the Property
are kept, shall cease to be located at 135 S. LaSalle Street, Chicago, Illinois
60603, or if it shall change its name, identity or corporate structure.
SECTION 11. - PARTICIPATIONS
SECTION 11.1. Amendments; Actions on Default.
(a) The Lessor shall have the right to forebear from exercising
rights against the Lessee to the extent the Lessor shall determine in good
faith that such forbearance is appropriate and is permitted by Section 15.5 and
Sections 11.1, 11.2 and 11.3. Upon the direction of the Required Participants,
the Lessor shall execute any waiver, modification or amendment of the Lease
requested by the Lessee; provided, that: (i) the waiver, modification or
amendment is not prohibited by the forgoing provisions of this Agreement, (ii)
the waiver, modification or amendment does not (A) increase the amount the
Lessor may be required to pay to the Lessee or anyone else, or (B) reduce or
postpone (and cannot reasonably be expected to reduce or postpone) any payments
that the Lessor would, but for such modification or amendment, be expected to
receive, or (C) release the Lessor's interest in all or a substantial part of
the Property; and (iii) the Lessor is not excused from executing the waiver,
modification or amendment by Section 11.3.
(b) The Lessor will, with reasonable promptness, provide each
Participant with copies of all default notices it sends or receives under the
Lease and notify each Participant of any Event of Default under the Lease of
which it is aware and of any other matters which, in the Lessor's reasonable
judgment, are likely to materially affect the payments each Participant will be
required to make or be entitled to receive under this Agreement, but the Lessor
will not in any event be liable to any Participant for the Lessor's failure to
do so unless such failure constitutes gross negligence or willful misconduct on
the part of the Lessor.
(c) Before taking possession of the Property or exercising
foreclosure or offset rights against the Property or filing any lawsuit against
the Lessee because of any breach by the Lessee of the Operative Documents or if
requested in writing by any Participant at any time when an Event of Default
has occurred and is continuing, the Lessor shall promptly call a meeting with
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each Participant and the Agent to discuss what, if anything, the Lessor should
do. Such meeting shall be scheduled during regular business hours in the
offices of the Agent, or another appropriate location in Pittsburgh,
Pennsylvania, not earlier than five (5) and not later than twenty (20) Business
Days after the Lessor's receipt of the written request from a Participant. If
the Required Participants shall direct the Lessor in writing to (a) send any
default notices required before a Default can become an Event of Default, or
(b) bring a lawsuit against the Lessee to enforce the Operative Documents when
an Event of Default has occurred and is continuing, then the Lessor shall send
the notice or bring the suit, and the Lessor shall prosecute any such suit with
reasonable diligence using reputable counsel. However, if the Agent is not a
member of the Required Participants voting pursuant to this subsection 11.1(d)
in favor of the giving of any such notice or the bringing of any such suit,
then the Lessor may require that it first receive the written agreement (in
form reasonably acceptable to the Lessor) of the members of the Required
Participants so voting to indemnify the Agent and the Lessor from and against
all costs, liabilities and claims that may be incurred by or asserted against
the Lessor because of the action the Required Participants direct the Agent or
the Lessor to take. In no event shall any Participant instigate any suit or
other action directly against the Lessee with respect to the Operative
Documents or the Property, even if such Participant would, but for this
agreement, be entitled to do so as a third party beneficiary or otherwise under
the Operative Documents.
(d) In the event the Lessee or its designee fails to purchase the
Property after any exercise of its Purchase Option or Expiration Date Purchase
Obligation or following the occurrence and continuance of an Event of Default,
the Lessor shall, if the Required Participants shall agree in writing, bring
suit against the Lessee to enforce the Operative Documents in such form as
shall be recommended by reputable counsel, and thereafter the Lessor shall
prosecute the suit with reasonable diligence in accordance with the advice of
reputable counsel. If the Lessor acquires the interests of the Lessee in any
of the Property as a result of such suit or otherwise (unless the Lessor
acquires such interests through a Voluntary Retention of the Property and pays
to each Participant all amounts payable to such Participant hereunder,
including, without limitation, such Participant's Participation Interest in all
amounts payable by the Lessee on the Designated Payment Date and any Shortfall
Amount), the Lessor shall thereafter proceed with reasonable diligence to sell
the Property in a commercially reasonable manner to one or more bona fide third
party purchasers and shall in any event endeavor to consummate the sale of the
Property (through a single sale of the entire Property or a series of sales of
parts) within five (5) years following the date the Lessor recovers possession
of the Property at the best price or prices the Lessor believes are reasonably
attainable within such time. After the Designated Payment Date and until the
Lessor sells the Property, the Lessor shall (i) endeavor in good faith to
maintain, or shall obtain the agreement of one or more of any applicable
tenants or lessees, as the case may be, to maintain, the Property in good order
and repair, (ii) procure and maintain casualty insurance against risks
customarily insured against by owners of comparable property, in amounts
sufficient to eliminate the effects of coinsurance, (iii) keep and allow each
Participant to review accurate books and records covering the operation of the
Property, and (iv) pay prior to delinquency all taxes and assessments lawfully
levied against the Property.
(e) Notwithstanding the foregoing, Defaulting Participants shall
have no voting or consent rights under this Section 11.1 and no rights to
require the Lessor to call a meeting pursuant to Section 11.1(d) until they
cease to be Defaulting Participants. During any period that
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any Defaulting Participants have no voting rights under this Section 11.1, only
the Commitment Percentages of the other Participants that still have voting
rights will be considered for purposes of determining the Required
Participants.
SECTION 11.2. General.
Subject to the limitations set forth in Section 11.1 and Section 14:
(a) The Lessor shall have the exclusive right to take any action
and to exercise any available powers, rights and remedies to enforce the
obligations of the Lessee under the Operative Documents, or to refrain from
taking any such action or exercising any such power, right or remedy.
(b) The Lessor shall be entitled to (i) give any consent, waiver
or approval requested by the Lessee with respect to any construction or other
approval contemplated in the Lease or (ii) waive or consent to any adverse
title claims affecting the Property, provided that, in either case, such action
will not have a material adverse effect on the Lessee's obligations or ability
to make the payments required under the Operative Documents, the Lessor's
rights and remedies under the Operative Documents or any Participant's rights
hereunder.
SECTION 11.3 Conflicts.
Notwithstanding anything to the contrary herein contained, the Lessor
shall be entitled, even over the objection of each Participant or the Required
Participants, (i) to take any action required of the Lessor by, or to refrain
from taking any action prohibited by, the Operative Documents or any law, rule
or regulation to which the Lessor is subject (provided, that this Section shall
not be construed to authorize the Lessor to take any action required by a
modification of the Operative Documents prohibited by Section 11.1), and (ii)
after notice to the Participants, to bring and prosecute a suit against the
Lessee in the form recommended by and in accordance with advice of reputable
counsel at any time when a breach of the Operative Documents by the Lessee
shall have put the Lessor (or any of its officers or employees) at risk of
criminal prosecution or significant liability to third parties or at any time
after the Lessee or its designee fails to purchase the Property on the
Designated Payment Date. Nothing herein contained shall be construed to require
the Lessor to agree to modify the Operative Documents or to take any action or
refrain from taking any action in any manner that could increase the Lessor's
liability to the Lessee or others, that could reduce or postpone payments to
which the Lessor is entitled thereunder, or that could reduce the scope and
coverage of the indemnities provided for the Lessor's benefit therein.
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SECTION 11.4. Refusal to Give Consents or Fund.
(a) If any Participant declines to consent to any amendment,
modification, waiver, release or consent for which such Participant's consent
is requested or required by reason of this Agreement, or if any Participant
fails to pay any amount owed by it hereunder, the Lessor shall have the right,
but not the obligation and without limiting any other remedy of the Lessor, to
terminate such Participant's rights to receive any further payments under
Section 3 of this Agreement (other than payments required because of the
Lessor's collection of any Rent applied by the Lessor as reimbursement for a
Defaulted Amount or interest on a Defaulted Amount) by paying such Participant
a termination fee equal to the total of:
(i) all amounts actually advanced by such Participant to
the Lessor under Section 3.4 hereof before the termination; excluding,
however, any such amounts that were repaid to such Participant before
the termination by actual payments made to such Participant by the
Lessor of, or the Lessor's offset against, sums representing:
(A) Such Participant's Commitment Percentage times
the principal portion of any payments of Rent
received by the Lessor under the Lease; plus
(B) Such Participant's Commitment Percentage times
any sales, condemnation or casualty proceeds received
by the Lessor under the Lease; and
(ii) Such Participant's Commitment Percentage, times:
(A) the then accrued but unpaid Commitment Fees due
under the Lease and hereunder; plus
(B) interest on past due amounts described in the
preceding clause (A), computed at the Federal Funds
Effective Rate; plus
(C) interest on any amounts, including accrued and
unpaid Basic Rent (other than interest itself), past
due from the Lessee or its designees under the
Operative Documents, computed at the Federal Funds
Effective Rate.
;provided that, notwithstanding the foregoing, if any Participant declines to
consent to any amendment, modification, waiver, release or consent for which
such Participant's consent is requested or required by reason of this
Agreement, and the Lessor shall not have exercised its right, in accordance
with the provisions of this Section 11.4(a), to terminate such Participant's
rights to receive any further payments under Section 3 of this Agreement by
paying such Participant a termination fee in accordance with the provisions of
Section 11.4(a), within 60 days of any such request or requirement, then
accrued interest on the amounts past due described in Sections 11.4(a)(ii)(B)
and 11.4(a)(ii)(C) shall be computed in accordance with the applicable
provisions of the Operative Documents rather than the Federal Funds Effective
Rate.
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Such Participant's rights to receive payments equal to such Participant's
Commitment Percentage of any Rent applied by the Lessor as reimbursement for a
Defaulted Amount or interest on a Defaulted Amount shall not be impaired or
affected by any termination contemplated in this Section 11.4(a).
(b) Notwithstanding the foregoing provisions of Section 11.4(a),
if Credit Agricole Indosuez declines to consent to any amendment to the
definition of "Applicable Margin" made in accordance with the terms of the
Operative Agreements, the Lessor shall, within 90 days of any such failure to
consent, terminate such Participant's rights to receive any further payments
under Section 3 of this Agreement (other than payments required because of the
Lessor's collection of any Rent applied by the Lessor as reimbursement for a
Defaulted Amount or interest on a Defaulted Amount) by paying such Participant
a termination fee equal to the total of:
(i) all amounts actually advanced by such Participant to
the Lessor under Section 3.4 hereof before the termination; excluding,
however, any such amounts that were repaid to such Participant before
the termination by actual payments made to such Participant by the
Lessor of, or the Lessor's offset against, sums representing:
(A) Such Participant's Commitment Percentage times
the principal portion of any payments of Rent
received by the Lessor under the Lease; plus
(B) Such Participant's Commitment Percentage times
any sales, condemnation or casualty proceeds received
by the Lessor under the Lease; and
(ii) Such Participant's Commitment Percentage, times:
(A) the then accrued but unpaid Commitment Fees due
under the Lease and hereunder; plus
(B) interest on past due amounts described in the
preceding clause (A), computed at the Federal Funds
Effective Rate; plus
(C) interest on any amounts, including accrued and
unpaid Basic Rent (other than interest itself), past
due from the Lessee or its designees under the
Operative Documents, computed at the Federal Funds
Effective Rate.
Until such time as the termination fee under this Section 11.4(b) shall have
been paid in accordance with the terms hereof, Credit Agricole Indosuez shall
be entitled, in addition to such other amounts as are due and payable in
accordance with the terms of the Operative Documents, to its Commitment
Percentage of the Applicable Margin then in effect with respect to any
Eurodollar Rate Advance. Such Participant's rights to receive payments equal
to such Participant's Commitment Percentage of any Rent applied by the Lessor
as reimbursement for a Defaulted Amount or interest on a Defaulted Amount shall
not be impaired or affected by any termination contemplated in this Section
11.4(b).
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SECTION 11.5. Required Repayments.
Each Participant shall repay to the Lessor, upon written request or
demand by the Lessor (i) any sums paid by the Lessor to such Participant under
this Agreement from, or that were computed by reference to, any Rent or other
amounts which the Lessor shall be required to return or pay over to another
party, whether pursuant to any bankruptcy or insolvency law or proceeding or
otherwise and (ii) any interest or other amount that the Lessor is also
required to pay to another party with respect to such sums. Such repayment by
any Participant shall not constitute a release of such Participant's right to
receive such Participant's Commitment Percentage times the amount of any such
Rent or any such other amount (or any interest thereon) that the Lessor may
later recover.
SECTION 11.6. Indemnification.
Each Participant agrees to indemnify and defend the Lessor (to the
extent not reimbursed by the Lessee within ten (10) days after demand) from and
against such Participant's Commitment Percentage of any and all liabilities,
obligations, claims, expenses or disbursements (including reasonable fees of
attorneys, accountants, experts and advisors) of any kind or nature whatsoever
(in this Section 11.6 collectively called "Covered Liabilities") which to any
extent (in whole or in part) may be imposed on, incurred by or asserted against
the Lessor growing out of, resulting from or in any other way associated with
the Property or the Operative Documents (including the enforcement thereof,
whether exercised upon the Lessor's own initiative or upon the direction of the
Required Participants) and the transactions and events at any time associated
therewith or contemplated therein. The foregoing indemnification shall apply
whether or not such Covered Liabilities are in any way or to any extent caused,
in whole or in part, by any negligent act or omission of any kind by the
Lessor; provided, only that no Participant shall be obligated under this
Section 11.6 to indemnify the Lessor (i) for Covered Liabilities that would not
have been incurred but for a Voluntary Retention of the Property by the Lessor,
(ii) for Covered Liabilities incurred in connection with any transfer or
assignment by the Lessor of its right to receive Rent or its rights and
interests in and to the Property, the Operative Documents or this Agreement to
its Affiliates, or (iii) for that portion or percentage, if any, of any of the
Covered Liabilities which is proximately caused by: (A) the Lessor's own gross
negligence or willful misconduct; (B) any representation made by the Lessor in
the Operative Documents that is false in any material respect and that the
Lessor knew was false at the time of the Lessor's execution of the Operative
Documents; or (C) Lessor Liens not claimed by, through or under any of the
Participants. After each Participant has paid its Commitment Percentage of any
Covered Liabilities, each Participant shall be entitled to payment from the
Lessor of an amount equal to the Adjusted Percentage (as defined below) of any
payments subsequently received by the Lessor as Excess Reimbursement (as
defined below) for such Covered Liabilities. As used in this Section "Adjusted
Percentage" shall equal (i) such Participant's Commitment Percentage, divided
by (ii) the sum of the Commitment Percentages of all Participants who have paid
the Lessor their respective shares of the Covered Liabilities at issue. As
used in this Section, the term "Excess Reimbursement" shall mean, for the
Covered Liabilities at issue, amounts reimbursed or paid by the Lessee to or on
behalf of the Lessor on account of such Covered Liabilities in excess of (i)
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such Covered Liabilities, times (ii) the Commitment Percentages of any
Participants that have not paid the Lessor their respective Commitment
Percentages of such Covered Liabilities.
SECTION 11.7. Required Supplemental Payments.
In the event that the Lessee fails to pay any Required Supplemental
Payment when due (a "Defaulted Amount"), the Lessor shall notify each
Participant of such Defaulted Amount, whereupon each Participant shall pay to
the Lessor an amount equal to such Participant's Commitment Percentage times
the Defaulted Amount; such payment from Participant to the Lessor shall be due
prior to 2:00 p.m., Chicago Time, on the date of such notice if such notice is
given by 12:00 noon, Chicago Time, otherwise prior to 12:00 noon, Chicago Time,
on the next Business Day following such notice. After payment of a
Participant's Commitment Percentage times the Defaulted Amount, any payments
subsequently received by the Lessor from the Lessee as reimbursement for such
Defaulted Amount, and any interest received by the Lessor from the Lessee that
accrued on the Defaulted Amount after the date of such Participant's payment of
its Commitment Percentage times the Defaulted Amount, will constitute
Supplemental Rent for purposes of computing payments due such Participant under
this Agreement.
SECTION 11.8. Application of Payments Received From Defaulting
Participant As a Cure For Payment Defaults.
If after a failure to make a payment required by Section 3.4, any
Defaulting Participant cures such failure, in whole or in part, by paying to
the Lessor all or part of such payment and interest thereon at the Late Payment
Rate, then the Lessor shall apply the payments so made to the Lessor, net of
the costs of collecting such payments (the "Net Cure Proceeds"), or other funds
available to the Lessor equal to the Net Cure Proceeds, in the following order
before applying the same to any other purpose:
(i) first, to make payments to the Lessor itself equal to
its Excess Investment (if any) until the Lessor shall no longer have
any Excess Investment; and
(ii) second, to make further Advances to the Lessee under
this Agreement to the extent the Lessor is required or deems it
appropriate to do so; provided, that such further Advances do not
cause the total Property Improvement Cost to exceed the sum of the
Commitments.
SECTION 11.9. Order of Application.
For purposes of this Agreement, the Lessor shall be entitled, but not
required, to apply any payments received from the Lessee under the Operative
Documents to satisfy (1) unpaid Required Supplemental Payments (and interest
thereon) not included in Rent, if any, and (2) costs incurred by the Lessor
because of any sale under the Lease before applying such payments to satisfy
the Lessee's other obligations, regardless of how the Lessee may have
designated such payments.
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SECTION 11.10. Investments Pending Dispute Resolution; Overnight
Investments.
Whenever the Lessor in good faith determines that it does not have all
information needed to determine how payments to Participants must be made on
account of any then existing Participation Interests which the Lessor has
received, or whenever the Lessor in good faith determines that there is any
dispute among the Participants about payments which must be made on account of
Participation Interests actually received by the Lessor, the Lessor may choose
to defer the payments which are the subject of such missing information or
dispute. However, to minimize any such deferral, the Lessor shall attempt
diligently to obtain any missing information needed to determine how payments
to the Participants must be made. Also, pending any such deferral, or if the
Lessor is otherwise required to invest funds pending distribution to the
Participants, the Lessor shall invest funds equal to (i) the total of the
Commitment Percentages of all Participants to whom payments have not been made
with respect to the Participation Interests at issue, times (ii) the total
payments at issue. In addition, the Lessor shall endeavor to invest payments
of Participation Interests it receives after 12:00 noon, Chicago Time, on the
day in question that are to be paid to a Participant on the next Business Day
pursuant to Section 3; provided that the Lessor shall have no liability to any
Participant if the Lessor is unable to make such investments. Investments by
the Lessor shall be in the overnight federal funds market pending distribution,
and the interest earned on each dollar of principal so invested shall be paid
to the Person entitled to receive such dollar of principal when the principal
is paid to such Person.
SECTION 11.11. Agent to Exercise Lessor's Rights.
The Lessor has assigned its interest in the Lease to the Agent, for
the benefit of the Participants, pursuant to the Assignment of Lease. To the
extent provided therein, the rights, remedies, duties and responsibilities of
the Lessor contained in this Section 11 and in the other Operative Documents
with respect thereto shall be exercisable by, binding upon and inure to the
benefit of the Agent, for the benefit of the Participants.
SECTION 11.12. Exculpatory Provisions Regarding the Lessor.
Subject to the provisions of Section 11.11, each Participant hereby
irrevocably authorizes the Lessor to take such actions on its behalf as are
expressly vested in or delegated to the Lessor by the terms of this Agreement
and the other Operative Documents, together with such powers as are reasonably
incidental thereto. The provisions of the following Sections of this Agreement
are hereby incorporated by reference into this Section 11.12, substituting the
word "Lessor" for "Agent" therein:
(i) Section 14.1 - second sentence.
(ii) Section 14.2 - all.
(iii) Section 14.3 - all.
(iv) Section 14.4 - all.
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(v) Section 14.5 - first sentence.
(iv) Section 14.6 - last sentence.
SECTION 12. - TRANSFERS OF PARTICIPANTS' INTERESTS
SECTION 12.1. Restrictions on and Effect of Transfer by
Participants.
No Participant may (without the prior written consent of the Agent
and, if prior to the occurrence and continuance of an Event of Default, Lessee
(not to be unreasonably withheld)) assign, convey or otherwise transfer
(including pursuant to a participation) all or any portion of its right, title
or interest in, to or under its Participation Interest or any of the Operative
Documents or the Property, provided that (x) any Participant may pledge its
interest without the consent of the Agent or the Lessee to any Federal Reserve
Bank, and (y) without the prior written consent of the Agent or the Lessee, any
Participant may transfer all or any portion of its interest to any Affiliate of
such Participant or to any other existing Participant; provided that in the
case of any transfer (other than to such Affiliate) each of the following
conditions and any other applicable conditions of the other Operative Documents
are satisfied:
(a) Required Notice and Effective Date.
Any Participant desiring to effect a transfer of its interest shall
give written notice of each such proposed transfer to the Lessee, the Agent and
each other Participant at least five (5) Business Days prior to such proposed
transfer, setting forth the name of such proposed transferee, the percentage or
interest to be retained by such Participant, if any, and the date on which such
transfer is proposed to become effective. All reasonable out-of-pocket costs
(including, without limitation, legal expenses) incurred by the Lessor, the
Agent or any Participant in connection with any such disposition by a
Participant under this Section 12.1 shall be borne by such transferring
Participant. In the event of a transfer under this Section 12.1, any expenses
incurred by the transferee in connection with its review of the Operative
Documents and its investigation of the transactions contemplated thereby shall
be borne by such transferee or the relevant Participant, as they may determine,
but shall not be considered costs and expenses which the Lessee is obligated to
pay or reimburse under Section 9. Any such proposed transfer shall become
effective upon the later of (i) the date proposed in the transfer notice
referred to above and (ii) the date on which all conditions to such transfer
set forth in this Section 12.1 shall have been satisfied.
(b) Assumption of Obligations.
Any transferee pursuant to this Section 12.1 shall execute and deliver
to the Agent and the Lessee an Assignment and Acceptance in substantially the
form attached as Exhibit F ("Assignment and Acceptance"), duly executed by such
transferee and the transferring Participant, and a letter in substantially the
form of the Participant's Letter attached hereto as Exhibit G ("Participant's
Letter"), and thereupon the obligations of the transferring Participant under
the Operative Documents shall be proportionately released and reduced to the
extent of
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such transfer. Upon any such transfer as above provided, the transferee shall
be deemed to be bound by all obligations (whether or not yet accrued) under,
and to have become a party to, all Operative Documents to which its transferor
was a party, shall be deemed the pertinent "Participant" for all purposes of
the Operative Documents and shall be deemed to have made that portion of the
payments pursuant to this Participation Agreement previously made or deemed to
have been made by the transferor represented by the interest being conveyed;
and each reference herein and in the other Operative Documents to the pertinent
"Participant" shall thereafter be deemed a reference to the transferee, to the
extent of such transfer, for all purposes. Upon any such transfer, the Agent
shall deliver to each Participant, the Lessor and the Lessee new Schedule I and
Schedule II to this Agreement, revised to reflect the relevant information for
such new Participant and the Commitment of such new Participant (and the
revised Commitment of the transferor Participant if it shall not have
transferred its entire interest).
(c) Employee Benefit Plans.
No Participant may make any such assignment, conveyance or transfer to
or in connection with any arrangement or understanding in any way involving any
employee benefit plan (or its related trust), as defined in Section 3(3) of
ERISA, or with the assets of any such plan (or its related trust), as defined
in Section 4975(e)(1) of the Code.
(d) Representations.
Notwithstanding anything to the contrary set forth above, no
Participant may assign, convey or transfer its interest to any Person, unless
such Person shall have delivered to the Agent and the Lessee a certificate
confirming the accuracy of the representations and warranties set forth in
Section 8 with respect to such Person (other than as such representation or
warranty relates to the execution and delivery of Operative Documents) and
representing that such Person has, independently and without reliance upon the
Agent, any other Participant or, except to the extent of the Lessee's
representations made under the Operative Documents when made, the Lessee, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into this transaction, the Property and the
Lessee and made its own decision to enter into this transaction.
(e) Amounts; Agent's Fee.
Any transfer of a Participation Interest shall be in a principal
amount which is equal to or greater than $2,000,000. Each transferring
Participant shall pay to the Agent a transfer fee of $2,500.
(f) Applicable Law.
Such transfer shall comply with Applicable Law and shall not require
registration under any securities law applicable thereto.
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(g) Effect.
From and after any transfer of its Participation Interest the
transferring Participant shall be released, to the extent assumed by the
transferee, from its liability and obligations hereunder and under the other
Operative Documents to which such transferor is a party in respect of
obligations to be performed on or after the date of such transfer. Upon any
transfer by a Participant as above provided, any such transferee shall be
deemed a "Participant" for all purposes of such documents and each reference
herein to a Participant shall thereafter be deemed a reference to such
transferee for all purposes to the extent of such transfer, except as the
context may otherwise require. Notwithstanding any transfer as provided in
this Section 12.1, the transferor shall be entitled to all benefits accrued and
all rights vested prior to such transfer, including, without limitation, rights
to indemnification under this Participation Agreement or any other Operative
Document.
SECTION 12.2. Covenants and Agreements of Participants.
(a) Participations.
Each Participant covenants and agrees that it will not grant
Participations in its Participation Interest to any Person (a
"Sub-Participant") unless such participation complies with Applicable Law and
does not require registration under any securities law applicable thereto and
such Sub-Participant (i) is a bank or other financial institution and (ii)
represents and warrants, in writing, to such Participant for the benefit of the
Participants, the Lessor and the Lessee that (A) no part of the funds used by
it to acquire an interest in any Participation Interest constitutes assets of
any "employee benefit plan" (as defined in Section 3(3) of ERISA) which is
subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the
Code) and (B) such Sub-Participant is acquiring its interest for investment
purposes without a view to the distribution thereof. Any such Person shall
require any transferee of its interest in its Participation Interest to make
the representations and warranties set forth in the preceding sentence, in
writing, to such Person for its benefit and the benefit of the Participants,
the Lessor and Lessee. In the event of any such sale by a Participant of a
participating interest in its Participation Interest to a Sub-Participant, such
Participant's obligations under this Participation Agreement and under the
other Operative Documents shall remain unchanged, such Participant shall remain
solely responsible for the performance thereof, such Participant shall remain
the holder of its Participation Interest, for all purposes under this
Participation Agreement and under the other Operative Documents, and the
Lessor, the Agent and, except as set forth in Section 12.2(b), the Lessee shall
continue to deal solely and directly with such Participant in connection with
such Participant's rights and obligations under this Participation Agreement
and under the other Operative Documents.
(b) Transferee Indemnities.
Each Sub-Participant shall be entitled to the benefits of Sections
13.5, 13.6, and 13.7 and 13.10 with respect to its participation in the
Participation Interests outstanding from time to time; provided that no
Sub-Participant shall be entitled to receive any greater amount pursuant to
such Sections than the transferor Participant would have been entitled to
receive in respect of the amount of the participation transferred by such
transferor Participant to such Sub-Participant had no such transfer or
participation occurred.
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SECTION 12.3. Future Participants.
Each Participant shall be deemed to be bound by and, upon compliance
with the requirements of this Section 12, will be entitled to all of the
benefits of the provisions of, this Participation Agreement.
SECTION 13. - INDEMNIFICATION
SECTION 13.1. General Indemnification.
The Lessee agrees, whether or not any of the transactions contemplated
hereby shall be consummated, to assume liability for, and to indemnify,
protect, defend, save and keep harmless each Indemnitee, on an After Tax Basis,
from and against, any and all Claims that may be imposed on, incurred by or
asserted against such Indemnitee (whether because of action or omission by such
Indemnitee or otherwise), whether or not such Indemnitee shall also be
indemnified as to any such Claim by any other Person and whether or not such
Claim arises or accrues prior to the Closing Date or after the Expiration Date,
in any way relating to or arising out of:
(a) any of the Operative Documents or any of the transactions
contemplated thereby or any violation thereof, and any amendment, modification
or waiver in respect thereof;
(b) the Property purchased or leased by the Lessee pursuant to the
Operative Documents, or any part thereof or interest therein;
(c) the purchase, design, construction, preparation, installation,
inspection, delivery, non-delivery, acceptance, rejection, ownership,
management, possession, operation, rental, lease, sublease, repossession,
maintenance, repair, alteration, modification, addition or substitution,
storage, transfer of title, redelivery, use, financing, refinancing,
disposition, operation, condition, sale (including, without limitation, any
sale pursuant to Sections 16.2, 16.3, 17.2(c), 17.2(e) or 17.4 of the Lease or
any sale pursuant to Articles XX or XXII of the Lease, but not to increase the
amount of any Shortfall under Article XXII of the Lease except pursuant to
Section 13.2 hereof), return or other disposition of all or any part or any
interest in the Property or the imposition of any Lien (or incurring of any
liability to refund or pay over any amount as a result of any Lien) thereon,
including, without limitation: (1) Claims or penalties arising from any
violation of federal, state or local law, rule, regulation or order or in tort
(strict liability or otherwise), (2) latent or other defects, whether or not
discoverable, (3) any Claim based upon a violation or alleged violation of the
terms of any restriction, easement, condition or covenant or other matter
affecting title to the Property, (4) the making of any Modifications in
violation of any standards imposed by any insurance policies required to be
maintained by Lessee pursuant to the Lease which are in effect at any time with
respect to the Property or any part thereof, (5) any Claim for patent,
trademark or copyright infringement, and (6) Claims arising from any public
improvements with respect to the Property resulting in any charge or special
assessments being levied against the Property or any plans to widen, modify or
realign any street or highway adjacent to the Property;
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(d) the offer, issuance or sale of the Participation Interests or
any interest therein, provided that (i) the Lessor shall not be entitled to
indemnification under this clause (d) if it shall have been determined by a
court of competent jurisdiction to have breached its representation set forth
in Section 8.1(h) and (ii) no Participant shall be entitled to indemnification
under this clause (d) if it shall have been determined by a court of competent
jurisdiction to have breached its representation set forth in Section 8.2(g).
(e) the breach by the Lessee of any covenant, representation or
warranty made by it or deemed made by it in any Operative Document or any
certificate required to be delivered by any Operative Document;
(f) the retaining or employment of any broker, finder or financial
advisor (collectively, a "Broker") by the Lessee to act on its behalf in
connection with this Participation Agreement, or the incurring of any fees or
commissions of any Broker retained or employed by Lessee to which the Lessor
might be subjected by virtue of entering into the transactions contemplated by
this Participation Agreement;
(g) the existence of any Lien on or with respect to the Property,
the Equipment, any Basic Rent or Supplemental Rent, title thereto, or any
interest therein including any Liens which arise out of the possession, use,
occupancy, construction, repair or rebuilding of the Property or by reason of
labor or materials furnished or claimed to have been furnished to the Lessee,
the Lessor or any of their contractors or agents or by reason of the financing
of the Property pursuant to the Operative Documents or any personalty or
equipment purchased or leased by the Lessee or Modifications constructed by the
Lessee pursuant to the Operative Documents, except Lessor Liens and Liens in
favor of the Agent or the Lessor; or
(h) the transactions contemplated by the Lessee hereby or by any
other Operative Document, in respect of the application of Parts 4 and 5 of
Subtitle B of Title I of ERISA and any prohibited transaction described in
Section 4975(c) of the Code (other than any Claim resulting from a breach of
representation or warranty of the Lessor or any Participant);
provided, however, the Lessee shall not be required to indemnify any Indemnitee
under this Section 13.1 for any of the following: (1) any Claim to the extent
resulting from the willful misconduct or gross negligence of such Indemnitee
(it being understood that the Lessee shall be required to indemnify an
Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee
caused or contributed to such Claim), (2) any Claim resulting from Lessor Liens
which the Lessor is responsible for discharging under the Operative Documents,
(3) any Claim to the extent attributable to acts or events occurring after the
expiration of the Term or the return or remarketing of the Property so long as
the Lessor, the Agent and the Participants are not exercising remedies against
the Lessee in respect of the Operative Documents and no Default or Event of
Default under the Lease has occurred and is continuing, (4) any Imposition or
other claims for Taxes of the type(s) described in Section 13.5, (5) any Claims
of the type(s) described in Sections 13.2, 13.6, 13.7, 13.8 and 13.10 and (6)
any Claims resulting from a settlement or other compromise entered into without
the consent of the Lessee where such consent was not unreasonably withheld in
the case of a money settlement. The Lessor, the Agent, and the
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Participants shall attempt to minimize the fees and expenses of legal counsel
in connection with any Claim subject to reimbursement by Lessee hereunder by
considering the usage of one law firm to represent such parties as appropriate
under the circumstances. It is expressly understood and agreed that the
indemnity provided for herein shall survive the expiration or termination of
and shall be separate and independent from any remedy under the Lease or any
other Operative Document. Without limiting the express rights of any
Indemnitee under this Section 13.1, this Section 13.1 shall be construed as an
indemnity only and not a guaranty of residual value of the Property or as a
guaranty of the Participation Interests.
SECTION 13.2. End of Term Indemnity.
(a) If the Lessee elects the Remarketing Option and there would,
after giving effect to the proposed remarketing transactions, be a Shortfall
Amount, then prior to the Maturity Date and as a condition to the Lessee's
right to complete the remarketing of the Property pursuant to Section 22.1 of
the Lease, the Lessee shall cause to be delivered to the Lessor at least 30
days prior to the Expiration Date, at the Lessee's sole cost and expense, a
report from an appraiser selected by the Lessor and reasonably satisfactory to
the Agent and the Required Participants in form and substance satisfactory to
the Lessor, the Agent and the Required Participants (the "End of the Term
Report") which shall state the appraiser's conclusions as to the reason for any
decline in the Fair Market Sales Value of the Property from that anticipated
for such date in the Appraisal delivered on the Closing Date.
(b) Prior to the Expiration Date, the Lessee shall pay to the
Lessor an amount (not to exceed the Shortfall Amount) equal to the portion of
the Shortfall Amount that the End of the Term Report demonstrates was the
result of a decline in the Fair Market Sales Value of the Property due to:
(i) extraordinary wear and tear, excessive usage,
failure to maintain, to repair, to restore, to rebuild the Property in
accordance with the manufacturer's recommendations or as otherwise may
be appropriate under reasonable operating and maintenance procedures
or to replace, failure to comply with the Lease and all applicable
laws, failure to use, workmanship, method of installation or removal
or maintenance, repair, rebuilding or replacement (excepting in each
case ordinary wear and tear);
(ii) any Modification, other than a Required
Modification, made to, or any rebuilding of, the Property or any part
thereof by the Lessee or any permitted sublessee or assignee; or
(iii) the existence of any Hazardous Activity,
Hazardous Substance or Environmental Violations other than Exempt
Environmental Conditions; or
(iv) any restoration or rebuilding carried out by
the Lessee or any permitted sublessee or assignee; or
(v) any condemnation of any portion of the Property
pursuant to Article XV of the Lease; or
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(vi) any use of the Property or any part thereof by
the Lessee or any permitted sublessee or assignee other than as an
extrusion press facility; or
(vii) any grant, release, dedication, transfer,
annexation or amendment made pursuant to Section 12.2 of the Lease;
(viii) the failure of the Lessor to have good title
to the Equipment, free and clear of all Liens (including Permitted
Liens), except Lessor Liens; or
(ix) any sublease or assignment by the Lessee of the
Property or any portion thereof.
SECTION 13.3. Environmental Indemnity.
Without limitation of the other provisions of this Section 13, the
Lessee hereby agrees to indemnify, hold harmless and defend each Indemnitee
from and against any and all claims (including without limitation third party
claims for personal injury or real or personal property damage), losses
(including but not limited to any loss of value of the Property), damages,
liabilities, fines, penalties, charges, administrative and judicial proceedings
(including informal proceedings) and orders, judgments, remedial action,
requirements, enforcement actions of any kind, and all reasonable and
documented costs and expenses incurred in connection therewith (including but
not limited to reasonable and documented attorneys' and/or paralegals' fees and
expenses), including, but not limited to, all costs incurred in connection with
any investigation or monitoring of site conditions or any clean-up, remedial,
removal or restoration work by any federal, state or local government agency,
which such Indemnitee becomes subject to because of its involvement with the
Property pursuant to the Operative Documents, the transactions contemplated by
the Operative Documents or any other matter referred to in paragraphs (a)
through (i) of Section 13.1 arising in whole or in part, out of:
(a) the presence on or under the Property of any Hazardous
Substances, or any Releases or discharges of any Hazardous Substances on,
under, from or onto the Property;
(b) any activity, including, without limitation, construction,
carried on or undertaken on or off the Property, and whether by the Lessee or
any predecessor in title or any employees, agents, contractors or
subcontractors of the Lessee or any predecessor in title, or any other Persons
(including such Indemnitee), in connection with the handling, treatment,
removal, storage, decontamination, cleanup, transport or disposal of any
Hazardous Substances that at any time are located or present on or under or
that at any time migrate, flow, percolate, diffuse or in any way move onto or
under the Property;
(c) loss of or damage to any property or the environment
(including, without limitation, cleanup costs, response costs, remediation and
removal costs, cost of corrective action, costs of financial assurance, fines
and penalties and natural resource damages), or death or injury to any Person,
and all expenses associated with the protection of wildlife, aquatic
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species, vegetation, flora and fauna, and any mitigative action required by or
under Environmental Laws;
(d) any claim concerning lack of compliance with Environmental
Laws, or any act or omission causing an environmental condition that requires
remediation or would allow any Governmental Authority to record a Lien on the
land records;
(e) any residual contamination on or under the Property, or
affecting any natural resources, or any contamination of any property or
natural resources arising in connection with the generation, use, handling,
storage, transport or disposal of any such Hazardous Substances, and
irrespective of whether any of such activities were or will be undertaken in
accordance with applicable Environmental Laws; or
(f) any material inaccuracies, misrepresentations, misstatements,
and omissions and any conflicting information contained in or omitted from the
Environmental Audit.
provided, however, the Lessee shall not be required to indemnify any Indemnitee
under this Section 13.3 for (1) any Claim to the extent resulting from the
willful misconduct or gross negligence of such Indemnitee (it being understood
that the Lessee shall be required to indemnify an Indemnitee even if the
ordinary (but not gross) negligence of such Indemnitee caused or contributed to
such Claim), (2) subject to the provisions Section 15.2 of the Lease, any Claim
to the extent attributable to acts or events occurring after the expiration of
the Term or the return or remarketing of the Property so long as the Lessor,
the Agent and the Participants are not exercising remedies against the Lessee
in respect of the Operative Documents and no Default or Event of Default under
the Lease has occurred and is continuing, (3) any Imposition or other claims
for Taxes of the type(s) described in Section 13.5 or (4) any Claims of the
type(s) described in Sections 13.2, 13.6, 13.7, 13.8 and 13.10. It is expressly
understood and agreed that the indemnity provided for herein shall survive the
expiration or termination of and shall be separate and independent from any
remedy under the Lease or any other Operative Document. Without limiting the
express rights of any Indemnitee under this Section 13.3, this Section 13.3
shall be construed as an indemnity only and not a guarantee of residual value
of the Property or as a guarantee of the Participation Interests.
SECTION 13.4. Proceedings in Respect of Claims.
With respect to any amount that the Lessee is requested by an
Indemnitee to pay by reason of Section 13.1 or 13.3, such Indemnitee shall, if
so requested by the Lessee and prior to any payment, submit such additional
information to the Lessee as the Lessee may reasonably request and which is in
the possession of such Indemnitee to substantiate properly the requested
payment.
In case any action, suit or proceeding shall be brought against any
Indemnitee, such Indemnitee shall notify the Lessee of the commencement thereof
and provide (with reasonable specificity) the basis on which indemnification is
being asserted as a consequence thereof, set forth the actual or good faith
estimated amount for which such indemnification is being asserted, if known,
and be accompanied by copies of all relevant pleadings, demands and other
papers
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served on the Indemnitee, if any, in connection therewith; provided, however,
that the Indemnitee's failure to provide the Lessee with such notice and
additional information shall not relieve the indemnifying party of its
obligations under Section 13.1 or 13.3 except to the extent Lessee's ability to
defend against such Claim has been materially prejudiced as a result of such
failure. The Lessee shall be entitled, at its expense, to participate in, and,
to the extent that the Lessee desires to, assume and control the defense of any
such action, suit or proceeding; provided, however, that the Lessee shall have
acknowledged in writing its obligation to fully indemnify such Indemnitee in
respect of such action, suit or proceeding, and the Lessee shall keep such
Indemnitee fully apprised of the status of such action, suit or proceeding and
shall provide such Indemnitee with all information with respect to such action,
suit or proceeding as such Indemnitee shall reasonably request, and provided
further, that the Lessee shall not be entitled to assume and control the
defense of any such action, suit or proceeding if and to the extent that, (A)
in the reasonable opinion of such Indemnitee, (x) such action, suit or
proceeding involves any possibility of imposition of criminal liability or any
risk of material civil liability on such Indemnitee or will involve a material
risk of the sale, forfeiture or loss of, or the creation of any Lien (other
than a Permitted Lien) on the Property or any part thereof unless, in the case
of civil liability or Lien, the Lessee shall have posted a bond or other
security satisfactory to the relevant Indemnitee in respect to such risk or (y)
the control of such action, suit or proceeding would involve an actual or
potential conflict of interest, (B) such proceeding involves Claims not fully
indemnified by the Lessee which the Lessee and the Indemnitee have been unable
to sever from the indemnified claim(s), or (C) an Event of Default under the
Lease has occurred and is continuing. If clause (A), (B) or (C) in the
immediately preceding sentence is applicable, then the Indemnitee may employ
separate counsel at the expense of the Lessee to represent or defend it,
provided that for any one such Claim for each Indemnitee in any one
jurisdiction the Indemnitees shall attempt to minimize fees and expenses of
legal counsel in connection with any such Claim by considering the usage of one
law firm to represent such parties as appropriate under the circumstances. The
Indemnitee or the Lessee, as applicable, may participate in a reasonable manner
at its own expense and with its own counsel in any proceeding conducted by the
Lessee or the Indemnitee, as applicable, in accordance with the foregoing.
Notwithstanding any of the foregoing to the contrary, with respect to any Claim
which is fully covered under policies of insurance maintained by the Lessee (or
any permitted sublessee) pursuant to the Lease and as to which Claim the
insurers liable therefor have (x) unconditionally acknowledged in writing to
the applicable Indemnitee their liability in respect of any such Claim and (y)
set aside reserves sufficient to cover any such Claim, the rights of an
Indemnitee to control or participate in any proceeding shall be modified to the
extent necessary to comply with the requirements of such policies and the
rights of the insurers thereunder. Neither the Indemnitee nor the Lessee shall
enter into any settlement or other compromise with respect to any Claim which
is entitled to be indemnified under Section 13.1 or 13.3 without the prior
written consent of the Lessee and each Indemnitee entitled to indemnification
with respect to any such Claim which consent shall not be unreasonably withheld
in the case of a money settlement not involving an admission of liability of
the Lessee or such Indemnitee, as applicable.
Each Indemnitee shall at the expense of the Lessee cooperate with and
supply the Lessee with such information and documents reasonably requested by
the Lessee as are necessary or advisable for the Lessee to participate in any
action, suit or proceeding to the extent permitted by Section 13.1 or 13.3.
Unless an Event of Default under the Lease shall have occurred and be
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continuing, no Indemnitee shall enter into any settlement or other compromise
with respect to any Claim which is entitled to be indemnified under Section
13.1 or 13.3 without the prior written consent of the Lessee, which consent
shall not be unreasonably withheld, unless such Indemnitee waives its right to
be indemnified under Section 13.1 or 13.3 with respect to such Claim.
Upon payment in full of any Claim by the Lessee pursuant to Section
13.1 or 13.3 to or on behalf of an Indemnitee, the Lessee, without any further
action, shall be subrogated to any and all claims that such Indemnitee may have
relating thereto (other than claims in respect of insurance policies maintained
by such Indemnitee at its own expense), and such Indemnitee shall execute such
instruments of assignment and conveyance, evidence of claims and payment and
such other documents, instruments and agreements as may be necessary to
preserve any such claims and otherwise cooperate with the Lessee and give such
further assurances as are necessary or advisable to enable the Lessee
vigorously to pursue such claims.
If any Indemnitee recovers from any third party (including insurers)
all or any portion of any amount previously paid to it by Lessee pursuant to
this Section 13, such Indemnitee shall promptly pay over to Lessee the amount
so recovered (after deducting therefrom the full amount of the expenses
incurred by it in obtaining such recovery), but not in excess of any amount
previously so paid by the Lessee.
Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.3
shall be paid to such Indemnitee promptly upon receipt of a written demand
therefor from such Indemnitee, accompanied by a written statement describing in
reasonable detail the basis for such indemnity and the computation of the
amount so payable and, if requested by the Lessee, such determination shall be
verified by a nationally recognized independent accounting firm mutually
acceptable to the Lessee and the Indemnitee at the expense of the Lessee.
SECTION 13.5. General Impositions Indemnity.
(a) Indemnification.
The Lessee shall pay and assume liability for, and does hereby agree
to indemnify, protect and defend the Property and all Indemnitees, and hold
them harmless against, all Impositions on an After Tax Basis.
(b) Payments.
(i) Subject to the terms of Section 13.5(f), the
Lessee shall pay or cause to be paid all Impositions directly
to the taxing authorities where feasible and otherwise to the
Indemnitee, as appropriate, and the Lessee shall at its own
expense, upon such Indemnitee's reasonable request, furnish to
such Indemnitee copies of official receipts or other
satisfactory proof evidencing such payment.
(ii) In the case of Impositions for which no contest
is conducted pursuant to Section 13.5(f) and which the Lessee
pays directly to the taxing authorities, the
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Lessee shall pay such Impositions prior to the latest time
permitted by the relevant taxing authority for timely payment.
In the case of Impositions for which the Lessee reimburses an
Indemnitee, the Lessee shall do so within twenty (20) days
after receipt by the Lessee of demand by such Indemnitee
describing in reasonable detail the nature of the Imposition
and the basis for the demand (including the computation of the
amount payable), but in no event shall the Lessee be required
to pay such reimbursement prior to thirty (30) days before the
latest time permitted by the relevant taxing authority for
timely payment. In the case of Impositions for which a
contest is conducted pursuant to Section 13.5(f), the Lessee
shall pay such Impositions or reimburse such Indemnitee for
such Impositions, to the extent not previously paid or
reimbursed pursuant to subsection (a), prior to the latest
time permitted by the relevant taxing authority for timely
payment after conclusion of all contests under Section
13.5(f).
(iii) Impositions imposed with respect to the
Property for a billing period during which the Lease expires
or terminates (unless the Lessee has exercised the Renewal
Option or the Purchase Option with respect to the Property)
shall be adjusted and prorated on a daily basis between the
Lessee and the Lessor, whether or not such Imposition is
imposed before or after such expiration or termination and
each party shall pay or reimburse the other for each party's
pro rata share thereof.
(iv) At the Lessee's request, the amount of any
indemnification payment by the Lessee pursuant to subsection
(a) shall be verified and certified by an independent public
accounting firm mutually acceptable to the Lessee and the
Indemnitee. The fees and expenses of such independent public
accounting firm shall be paid by the Lessee unless such
verification shall result in an adjustment in the Lessee's
favor of 5% or more of the payment as computed by the
Indemnitee, in which case such fee shall be paid by the
Indemnitee.
(c) Reports and Returns.
(i) The Lessee shall be responsible for preparing and
filing any real and personal property or ad valorem tax
returns in respect of the Property. In case any other report
or tax return shall be required to be made with respect to any
obligations of the Lessee under or arising out of subsection
(a) and of which the Lessee has knowledge or should have
knowledge, the Lessee, at its sole cost and expense, shall
notify the relevant Indemnitee of such requirement and (except
if such Indemnitee notifies the Lessee that such Indemnitee
intends to file such report or return) (A) to the extent
required or permitted by and consistent with Applicable Law,
make and file in its own name such return, statement or
report; and (B) in the case of any other such return,
statement or report required to be made in the name of such
Indemnitee, advise such Indemnitee of such fact and prepare
such return, statement or report for filing by such Indemnitee
or, where such return, statement or report shall be required
to reflect items in addition to any obligations of the Lessee
under or arising out of subsection (a), provide such
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Indemnitee at the Lessee's expense with information sufficient
to permit such return, statement or report to be properly made
with respect to any obligations of the Lessee under or arising
out of subsection (a). Such Indemnitee shall, upon the
Lessee's request and at the Lessee's expense, provide any data
maintained by such Indemnitee (and not otherwise available to
or within the control of the Lessee) with respect to the
Property which the Lessee may reasonably require to prepare
any required tax returns or reports. Each Indemnitee agrees
to use its best efforts to send to the Lessee a copy of any
written request or other notice that the Indemnitee receives
with respect to any reports or returns required to be filed
with respect to the Property or the transactions contemplated
by the Operative Documents, it being understood that no
Indemnitee shall have any liability for failure to provide
such copies.
(d) Income Inclusions.
If as a result of the payment or reimbursement by the Lessee of any
expenses of the Lessor or the payment of any Transaction Expenses incurred in
connection with the transactions contemplated by the Operative Documents, the
Lessor or any Participant shall suffer a net increase in any federal, state or
local income tax liability, the Lessee shall indemnify such Persons (without
duplication of any indemnification required by subsection (a)) on an After Tax
Basis for the amount of such increase. The calculation of any such net
increase shall take into account any current or future tax savings realized or
reasonably expected to be realized by such person in respect thereof, as well
as any interest, penalties and additions to tax payable by the Lessor, or any
Participant or such Affiliate, in respect thereof.
(e) Withholding Taxes.
As between the Lessee on one hand, and the Lessor or the Agent or any
Participant on the other hand, the Lessee shall be responsible for, and,
subject to the provisions of Sections 13.5(g) and (h), the Lessee shall
indemnify and hold harmless the Lessor, the Agent and the Participants (without
duplication of any indemnification required by subsection (a)) on an After Tax
Basis against, any obligation for United States or foreign withholding taxes
imposed in respect of payments with respect to the Participation Interests or
with respect to Rent payments under the Lease or payments of the Asset
Termination Value or Purchase Option Price (and, if the Lessor, the Agent or
any Participant receives a demand for such payment from any taxing authority,
the Lessee shall discharge such demand on behalf of the Lessor, the Agent or
such Participant).
(f) Contests of Impositions.
(i) If a written claim is made against any Indemnitee
or if any proceeding shall be commenced against such
Indemnitee (including a written notice of such proceeding),
for any Impositions, such Indemnitee shall promptly notify the
Lessee in writing and shall not take action with respect to
such claim or proceeding without the consent of the Lessee for
thirty (30) days after the receipt of such notice by the
Lessee; provided, however, that, in the case of any such claim
or proceeding, if action shall be required by law or
regulation to be taken
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prior to the end of such 30-day period, such Indemnitee shall,
in such notice to the Lessee, inform the Lessee of such
shorter period, and no action shall be taken with respect to
such claim or proceeding without the consent of the Lessee
before 2 days before the end of such shorter period; provided,
further, that the failure of such Indemnitee to give the
notices referred to this sentence shall not diminish the
Lessee's obligation hereunder except to the extent such
failure precludes the Lessee from contesting all or part of
such claim.
(ii) If, within thirty (30) days of receipt of such
notice from the Indemnitee (or such shorter period as the
Indemnitee has notified the Lessee is required by law or
regulation for the Indemnitee to commence such contest), the
Lessee shall request in writing that such Indemnitee contest
such Imposition, the Indemnitee shall, at the expense of the
Lessee, in good faith conduct and control such contest
(including, without limitation, by pursuit of appeals)
relating to the validity, applicability or amount of such
Impositions (provided, however, that (A) if such contest
involves a tax other than a tax on net income and can be
pursued independently from any other proceeding involving a
tax liability of such Indemnitee, the Indemnitee, at the
Lessee's request, shall allow the Lessee to conduct and
control such contest and (B) in the case of any contest, the
Indemnitee may request the Lessee to conduct and control such
contest) by, in the sole discretion of the Person conducting
and controlling such contest, (1) resisting payment thereof,
(2) not paying the same except under protest, if protest is
necessary and proper, (3) if the payment be made, using
reasonable efforts to obtain a refund thereof in appropriate
administrative and judicial proceedings, or (4) taking such
other action as is reasonably requested by the Lessee from
time to time.
(iii) The party controlling any contest shall
consult in good faith with the non-controlling party and shall
keep the non-controlling party reasonably informed as to the
conduct of such contest; provided, that all decisions
ultimately shall be made in the sole discretion of the
controlling party. The parties agree that an Indemnitee may
at any time decline to take further action with respect to the
contest of any Imposition and may settle such contest if such
Indemnitee shall waive its rights to any indemnity from the
Lessee that otherwise would be payable in respect of such
claim (and any future claim by any taxing authority, the
contest of which is precluded by reason of such resolution of
such claim) and shall pay to the Lessee any amount previously
paid or advanced by the Lessee pursuant to this Section 13.5
by way of indemnification or advance for the payment of an
Imposition other than expenses of such contest.
(iv) Notwithstanding the foregoing provisions of
this Section 13.5, an Indemnitee shall not be required to take
any action and the Lessee shall not be permitted to contest
any Impositions in its own name or that of the Indemnitee
unless (A) the Lessee shall have agreed to pay and shall pay
to such Indemnitee on demand and on an After Tax Basis all
reasonable costs, losses and expenses that such Indemnitee
actually incurs in connection with contesting such
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Impositions, including, without limitation, all reasonable
legal, accounting and investigatory fees and disbursements,
(B) in the case of a claim that must be pursued in the name of
an Indemnitee (or an Affiliate thereof), the amount of the
potential indemnity (taking into account all similar or
logically related claims that have been or could be raised in
any audit involving such Indemnitee for which the Lessee may
be liable to pay an indemnity under this Section 13.5) exceeds
$100,000, (C) the Indemnitee shall have reasonably determined
that the action to be taken will not result in any material
danger of sale, forfeiture or loss of the Property, or any
part thereof or interest therein, will not interfere with the
payment of Rent, and will not result in risk of criminal
liability, (D) if such contest shall require the payment of
the Imposition prior to the contest, the Lessee shall provide
to the Indemnitee an interest-free advance in an amount equal
to such required Imposition that the Indemnitee is required to
pay (with no additional net after-tax cost to such
Indemnitee), (E) in the case of a claim that must be pursued
in the name of an Indemnitee (or an Affiliate thereof), the
Lessee shall have provided to such Indemnitee an opinion of
independent tax counsel selected by the Indemnitee and
reasonably satisfactory to the Lessee stating that a
reasonable basis exists to contest such claim (or, in the case
of an appeal of an adverse determination, an opinion of such
counsel to the effect that there is substantial authority for
the position asserted in such appeal) and (F) no Event of
Default hereunder shall have occurred and be continuing. In
no event shall an Indemnitee be required to appeal an adverse
judicial determination to the United States Supreme Court. In
addition, an Indemnitee shall not be required to contest any
claim in its name (or that of an Affiliate) if the subject
matter thereof shall be of a continuing nature and shall have
previously been decided adversely by a court of competent
jurisdiction pursuant to the contest provisions of this
Section 13.5, unless there shall have been a change in law (or
interpretation thereof) and the Indemnitee shall have
received, at the Lessee's expense, an opinion of independent
tax counsel selected by the Indemnitee and reasonably
acceptable to the Lessee stating that as a result of such
change in law (or interpretation thereof), it is more likely
than not that the Indemnitee will prevail in such contest.
(g) Documentation of Withholding Status.
Each Participant (or any successor thereto or transferee
thereof) that is organized under the laws of a jurisdiction outside of the
United States of America and each Lessor that is organized under the laws of a
jurisdiction outside of the United States of America shall:
(i) on or before the date it becomes a party to any
Operative Document, deliver to the Lessee any certificates,
documents, or other evidence that shall be required by the
Code or Treasury Regulations issued pursuant thereto to
establish its exemption from United States Federal withholding
requirements, including (A) two valid, duly completed,
original copies of Internal Revenue Service Form 1001 or Form
4224 or successor applicable form, properly and duly executed,
certifying in each case that such party is entitled to receive
payments pursuant to the Operative Documents without deduction
or withholding of United States Federal
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income taxes, and (B) a valid, duly completed, original copy
of Internal Revenue Service Form W-8 or Form W-9 or applicable
successor form, properly and duly executed, certifying that
such party is entitled to an exemption from United States of
America backup withholding tax; and
(ii) on or before the date that any such form
described above expires or becomes obsolete, or after the
occurrence of any event requiring a change in the most recent
such form previously delivered to the Lessee, deliver to the
Lessee two further valid, duly completed, original copies of
any such form or certification, properly and duly executed.
(h) Limitation on Tax Indemnification.
The Lessee shall not be required to indemnify any Indemnitee,
or to pay any increased amounts to any Indemnitee or tax authority with respect
to any Impositions pursuant to this Section 13.5 to the extent that (i) any
obligation to withhold, deduct, or pay amounts with respect to Tax existed on
the date such Indemnitee became a party to any Operative Document (and, in such
case, the Lessee may deduct and withhold such Tax from payments pursuant to the
Operative Documents), or (ii) such Indemnitee fails to comply with the
provisions of Section 13.5(g) (and, in such case, the Lessee may deduct and
withhold all Taxes required by law as a result of such noncompliance from
payments made by the Lessee pursuant to the Operative Documents). With respect
to any transferee of any Participant (including a transfer resulting from any
change in the designation of the lending office of a Participant), the
transferee shall not be entitled to any greater payment or indemnification
under this Section 13.5 than the transferor would have been entitled to.
SECTION 13.6. Inability to Determine Interest Rate.
In the event that (i) the Agent shall have determined (which
determination shall be conclusive and binding upon the Lessee) that, by reason
of circumstances affecting the interbank Eurodollar market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate applicable
for any Interest Period requested hereunder or (ii) the Required Participants
shall have informed the Agent in writing that the Eurodollar Rate will not
adequately and fairly reflect the cost to such Participants of making or
maintaining their Participation Interests in Advances during the Interest
Period, the Agent shall forthwith give telecopy notice, confirmed in writing,
of such determination to the Lessee and the Participants at least one day prior
to the first day of such Interest Period. If such notice is given, (x) any
requested Advance may be made as an Alternate Base Rate Advance if the Lessee
wishes to make the Advance on such terms and so notifies the Agent; and (y) any
outstanding Advance shall be converted on the last day of such Interest Period
to Alternate Base Rate Advances. Until such notice has been withdrawn by the
Agent or the Required Participants, as the case may be, no further Advances
comprised of Eurodollar Rate Advances shall be made or continued as such.
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SECTION 13.7. Increased Costs.
(a) In the event that (i) the introduction of or any change
(including, without limitation, any change by way of imposition or increase of
the Eurocurrency Reserve Requirements) in or in the interpretation of any law
or regulation or (ii) the compliance with any request or directive from any
central bank or other Governmental Authority (whether or not having the force
of law), made subsequent to the date hereof:
(x) does or shall subject such Participant to any
additional tax of any kind whatsoever with respect to the Operative
Documents or any purchase of a Participation Interest in any Advance,
or change the basis or the applicable rate of taxation of payments to
such Participant of its Participation Interest or any other amount
payable hereunder (except for the imposition of or change in any tax
on or measured by the overall net income of such Participant (other
than any such tax imposed by means of withholding));
(y) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Participant which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
(z) shall impose on any Participant any other condition;
and the result of any of the foregoing is to increase the cost of such
Participant, by an amount which the Participant reasonably deems to be
material, of making, continuing or maintaining its Participation Interest in
any Eurodollar Rate Advances or to reduce any amount receivable hereunder in
respect thereof then, in any such case, the Lessee shall promptly pay to such
Participant, upon its demand, any additional amounts necessary to compensate
such Participant for such increased cost or reduced amount receivable. If any
Participant becomes entitled to claim any additional amounts pursuant to this
section, it shall promptly notify the Lessee of the event by reason of which it
has become so entitled (with a copy to the Agent) and deliver to the Lessee a
certificate setting forth in reasonable detail the calculation of any
additional amounts payable pursuant to this section. Any such certificate
submitted by any Participant to the Lessee shall be conclusive in the absence
of manifest error. This covenant shall survive the termination of this
Agreement and the payment of the Advances and all other amounts payable under
the Operative Documents for a period of one year.
(b) In the event that any Participant shall have determined that
the introduction of or any change (other than any change by way of imposition
or increase of the Eurocurrency Reserve Requirements), in any law or regulation
regarding capital adequacy or in the interpretation or application of or
compliance by any Participant or any affiliate of a Participant with any
request or directive regarding capital adequacy (whether or not having the
force of law) from any Governmental Authority made subsequent to the date
hereof does or shall have the effect of reducing the rate of return on such
Participant's or such affiliate's capital as a consequence of its obligations
hereunder to a level below that which such Participant or such affiliate could
have achieved but for such change or compliance (taking into consideration such
Participant's or such
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affiliate's policies with respect to capital adequacy) by an amount reasonably
deemed by such Participant to be material, then from time to time, after
submission by such Participant to the Lessee (with a copy to the Agent) of a
written request therefor (which request shall set forth in reasonable detail
the calculation of such additional amount), the Lessee shall pay to such
Participant such additional amount as will compensate such Participant or such
affiliate for such reduction.
(c) Notwithstanding the foregoing, each Participant shall make
written demand on the Participant for indemnification or compensation pursuant
to paragraphs (a) and (b) of this Section 13.7 within thirty (30) Business Days
after such Participant receives actual notice or obtains actual knowledge of
the promulgation of a law, rule, order or interpretation or occurrence of
another event giving rise to a claim pursuant to such paragraphs. In the
event that any Participant fails to give the Lessee the notice within the time
limitation set forth in the preceding sentence, the Lessee shall have no
obligation to pay such claim for indemnification or compensation accruing prior
to the ninetieth (90th) day preceding such written demand. Nothing in this
Agreement shall prevent any Participant from delivering successive demands for
such indemnification or compensation pursuant hereto.
(d) Each Participant agrees that it will use reasonable efforts to
designate an alternate Funding Office with respect to any of its Participation
Interests in any Advances affected by the matters or circumstances described in
paragraphs (a) and (b) of this Section 13.7 or Section 13.8 to reduce the
liability of the Lessee or avoid the results provided thereunder, so long as
such designation is not disadvantageous to the Participant as determined by
such Participant in its sole discretion.
SECTION 13.8. Illegality.
Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other Governmental
Authority shall assert that it is unlawful, for any Participant or its Funding
Office to perform its obligations hereunder to purchase its participation
interest in Eurodollar Rate Advances or to continue to fund or maintain its
participation interest in Eurodollar Rate Advances hereunder, then, on notice
thereof and demand therefor by such Participant to the Lessee (with a copy to
the Agent), (i) any obligation of such Participant to purchase or maintain its
participation interest in any Eurodollar Rate Advance shall terminate, (ii) all
Eurodollar Rate Advances then outstanding, if any, shall be converted
automatically, on the last day of the Interest Period therefor, or within such
earlier period as required by law, to Alternate Base Rate Advances, and (iii)
if the result any of the foregoing is to increase the cost to such Participant
by an amount which such Participant reasonably deems to be material, after
submission by such Participant to the Lessee (with a copy to the Agent) of a
written request therefor (which request shall set forth in reasonable detail
the calculation of such additional amount), the Lessee shall pay to such
Participant such additional amount.
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SECTION 13.9. Indemnity.
The Lessee agrees to indemnify the Lessor, the Agent and the
Participants and to hold the Lessor, the Agent and the Participants harmless
from any actual and direct loss, cost or expense which any of them may sustain
or incur as a consequence of (a) default by the Lessee in payment when due (at
maturity, acceleration or otherwise) of the principal amount of or interest on
any Advance or portion of any Participation Interest, (b) failure by the Lessee
to utilize the proceeds of any purchase of Participation Interests after notice
has been given to the Agent, the Lessor or any Participant in accordance with
Section 3 or 4, (c) default by the Lessee in making any prepayment after the
Lessee has given a notice thereof in accordance with the provisions of the
Lease or (d) the making of a prepayment of an Advance or portion of any
Participation Interest on a day which is not the last day of an Interest Period
with respect thereto, including, without limitation, in each case, any such
loss or expense arising from the reemployment of funds obtained by any
Participant or from fees payable to terminate the deposits from which such
funds were obtained; provided, that the foregoing indemnification shall not
apply to any indirect, special, incidental or consequential damages. This
covenant shall survive the termination of this Agreement and the payment of the
Advances and all other amounts payable hereunder.
SECTION 13.10. Substitution of Participant.
If (i) the obligation of any Participant to purchase or maintain its
Participation Interest has been suspended pursuant to this Section 13, or (ii)
any Participant has demanded compensation or given notice of its intention to
demand compensation under Sections 13.7 or 13.8, the Lessee shall have the
right, with the assistance of the Agent, to seek one or more mutually
satisfactory substitute banks or financial institutions (which may be one or
more of the Participants) to replace such Participant under the Operative
Documents.
SECTION 13.11. Indemnity Payments in Addition to Residual Value
Guarantee Amount.
The Lessee acknowledges and agrees that its obligations to make
indemnity payments under this Section 13 are separate from, in addition to, and
do not reduce, its obligation to pay the Residual Value Guarantee Amount under
the Lease; provided, that except as otherwise set forth in Section 13.2 hereof,
the Shortfall Amount payable by the Lessee in connection with the Remarketing
Option under the Lease shall not be increased under this Section 13.
SECTION 14. - THE AGENT
SECTION 14.1. Appointment.
Each Participant hereby irrevocably designates and appoints the Agent
as the agent of such Participant under this Agreement and the other Operative
Documents, and each Participant irrevocably authorizes the Agent, in such
capacity, to take such action on its behalf under the provisions of this
Agreement and the other Operative Documents and to exercise such powers and
perform such duties as are expressly delegated to the Agent by the terms of
this Agreement and the other Operative Documents, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere in this Agreement, the Agent
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shall not have any duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with any Participant or any other party
to the Operative Documents, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Operative Document or otherwise exist against the Agent.
SECTION 14.2. Delegation of Duties.
The Agent may execute any of its duties under this Agreement and the
other Operative Documents by or through agents or attorneys-in-fact and shall
be entitled to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or misconduct of
any agents or attorneys-in-fact selected by it with reasonable care.
SECTION 14.3. Exculpatory Provisions.
Neither the Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates shall be (a) liable for any action
lawfully taken or omitted to be taken by it or such Person under or in
connection with this Agreement or any other Operative Document (except for its
or such Person's own gross negligence or willful misconduct) or (b) responsible
in any manner to any of the Participants or any other party to the Operative
Documents for any recitals, statements, representations or warranties made by
the Lessor or the Lessee or any officer thereof contained in this Agreement or
any other Operative Document or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Operative Document or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Operative Document or for any failure of the Lessor
or the Lessee to perform its obligations hereunder or thereunder. The Agent
shall not be under any obligation to any Participant or any other party to the
Operative Documents to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Operative Document, or to inspect the properties, books
or records of the Lessor or the Lessee.
SECTION 14.4. Reliance by Agent.
The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Lessor or the Lessee), independent accountants and other experts selected by
the Agent. The Agent shall be fully justified in failing or refusing to take
any action under this Agreement or any other Operative Document unless it shall
first receive such advice or concurrence of the Required Participants as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Participants against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement and the other Operative Documents in accordance with a request
of the Required Participants, and such request and any action taken or failure
to act pursuant thereto shall be binding upon all the Participants.
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SECTION 14.5. Notice of Default.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default unless the Agent has received
notice from a Participant, the Lessor or the Lessee describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Agent receives such a notice, the Agent shall give notice
thereof to the other parties hereto. Subject to the provisions of Section 11
and Section 15.5 hereof, the Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Participants; provided that unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Participants.
SECTION 14.6. Non-Reliance on Agent and Other Participants.
Each Participant expressly acknowledges that neither the Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or Affiliates
has made any representations or warranties to it and that no act by the Agent
hereinafter taken, including any review of the affairs of the Lessor or the
Lessee, shall be deemed to constitute any representation or warranty by the
Agent to any Participant. Each Participant represents to the Agent that it
has, independently and without reliance upon the Agent or any other
Participant, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Lessor, the Lessee and the Property and made its own decision to purchase its
Participation Interest hereunder and enter into this Agreement. Each
Participant also represents that it will, independently and without reliance
upon the Agent, the Lessor or any other Participant, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Operative Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Lessor and the Lessee. Except for notices, reports and other documents
expressly required to be furnished to the Participants by the Agent hereunder,
the Agent shall not have any duty or responsibility to provide any Participant
with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
the Lessor or the Lessee which may come into the possession of the Agent or any
of its officers, directors, employees, agents, attorneys-in-fact or Affiliates.
SECTION 14.7. Indemnification.
The Participants agree to indemnify the Agent in its capacity as such
(to the extent not reimbursed by the Lessee and without limiting the obligation
of the Lessee to do so), ratably according to their respective Commitment
Percentages in effect on the date on which indemnification is sought under this
Section 14.7 (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Participation Interests shall have
been paid in full, ratably in accordance with their Commitment Percentages
immediately prior to
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such date), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including, without limitation, at
any time following the payment of the Participation Interests) be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of, the Commitments, this Agreement, the Property, any of the other Operative
Documents or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by any of them under or in connection with any of the foregoing; provided that
no Participant shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting solely from the gross
negligence or willful misconduct of the Agent. The agreements in this Section
14.7 shall survive the payment of the Participation Interests and all other
amounts payable hereunder.
SECTION 14.8. Agent in its Individual Capacity.
The Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Lessor or the Lessee as
though the Agent were not the Agent hereunder and under the other Operative
Documents. With respect to its Participation Interest purchased by it, the
Agent shall have the same rights and powers under this Agreement and the other
Operative Documents as any Participant and may exercise the same as though it
were not the Agent, and the terms "Participant" and "Participants" shall
include the Agent in its individual capacity.
SECTION 14.9. Successor Agent.
The Agent may resign as Agent upon 20 days' notice to the
Participants, the Lessor or the Lessee. If the Agent shall resign as Agent
under this Agreement and the other Operative Documents, then the Required
Participants shall appoint a successor agent for the Participants, which
successor agent shall be a commercial bank organized under the laws of the
United States of America or any State thereof or under the laws of another
country which is doing business in the United States of America and having a
combined capital, surplus and undivided profits of at least $100,000,000 (and
if no Default or Event of Default exists, shall be approved by the Lessee
(which consent shall not be unreasonably withheld)), whereupon such successor
agent shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean such successor agent effective upon such appointment and
approval, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement. If no successor Agent has
accepted appointment as Agent by the date which is 20 days following a
resigning Agent's notice of resignation, the resigning Agent's resignation
shall nevertheless thereupon become effective and the Participants shall
perform all of the duties of the Agent hereunder until such time, if any, as
the Required Participants appoint a successor Agent as provided above. After
any retiring Agent's resignation as Agent, all of the provisions of this
Section 14 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement and the other Operative
Documents.
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SECTION 15. - MISCELLANEOUS
SECTION 15.1. Survival of Agreements.
The representations, warranties, covenants, indemnities and agreements
of the parties provided for in the Operative Documents, and the parties'
obligations under any and all thereof, shall survive the execution and delivery
of this Participation Agreement, the transfer of the Property to the Lessor,
any disposition of any interest of the Lessor in the Property, payment of the
Advances and the Participation Interests and any disposition thereof and shall
be and continue in effect notwithstanding any investigation made by any party
and the fact that any party may waive compliance with any of the other terms,
provisions or conditions of any of the Operative Documents. Except as
otherwise expressly set forth herein or in other Operative Documents, the
indemnities of the parties provided for in the Operative Documents shall
survive the expiration or termination of any thereof.
SECTION 15.2. No Broker, etc.
Each of the parties hereto represents to the others that it has not
retained or employed any broker, finder or financial adviser to act on its
behalf in connection with this Participation Agreement or the transactions
contemplated herein, nor has it authorized any broker, finder or financial
adviser retained or employed by any other Person so to act. Any party who is
in breach of this representation shall indemnify and hold the other parties
harmless from and against any liability arising out of such breach of this
representation.
SECTION 15.3. Notices.
Unless otherwise specifically provided herein, all notices, consents,
directions, approvals, instructions, requests and other communications required
or permitted by the terms hereof to be given to any Person shall be given in
writing and delivered (i) personally, (ii) by a nationally recognized overnight
courier service, (iii) by mail (by registered or certified mail, return receipt
requested, postage prepaid) or (iv) by facsimile, in each case directed to the
address of such Person as indicated on Schedule II. Any such notice shall be
effective upon receipt or refusal.
From time to time any party may designate a new address for purposes
of notice hereunder by written notice to each of the other parties hereto in
accordance with this Section.
SECTION 15.4. Counterparts.
This Participation Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
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SECTION 15.5. Amendments.
Subject to the provisions of Section 11 hereof, no Operative Document
nor any of the terms thereof may be terminated, amended, supplemented, waived
or modified with respect to the Lessee, the Lessor, the Agent or any
Participant, except (a) in the case of a termination, amendment, supplement,
waiver or modification to be binding on the Lessee, the Lessor or the Agent,
with the written agreement or consent of such party, and (b) in the case of a
termination, amendment, supplement, waiver or modification to be binding on the
Participants, with the written agreement or consent of the Required
Participants; provided, however, that
(x) no such termination, amendment, supplement, waiver or
modification shall without written agreement or consent of each Participant:
(i) modify any of the provisions of Section 11 of
this Agreement or this Section 15.5, change the definition of
"Required Participants" or modify or waive any provision of an
Operative Agreement requiring action by the foregoing;
(ii) amend, modify, waive or supplement
any of the provisions of Sections 3.6, 3.7 or 3.10 - 3.20of this
Agreement or the representations of such Participant in Section 8 or
the covenants in Sections 7 and 10 of this Participation Agreement;
(iii) reduce, modify, amend or waive any fees or
indemnities in favor of any Participant, including without limitation
amounts payable pursuant to Section 13 (except that any Person may
consent to any reduction, modification, amendment or waiver of any
indemnity payable to it);
(iv) modify, postpone, reduce or forgive, in whole
or in part, any payment of Rent (other than pursuant to the terms of
any Operative Agreement), any payment in respect of its Participation
Interest, or any payment of the Asset Termination Value, Commitment
Fee, Residual Value Guarantee Amount, amounts due pursuant to Section
22.2 of the Lease, or interest or, subject to clause (iii) above, any
other amount payable under the Lease or this Participation Agreement,
or modify the definition or method of calculation of Rent (other than
pursuant to the terms of any Operative Agreement), Participation
Interest, Asset Termination Value, Commitment Fee, Shortfall Amount,
Residual Value Guarantee Amount, Required Supplemental Payments,
Property Improvements Cost, Participant Balance, Tranche A
Participation Interest Balance, Tranche B Participation Interest
Balance, Lease Balance or any other definition which would affect the
amounts to be advanced or which are payable under the Operative
Documents;
(v) release any lien or the Guarantor; or
(vi) consent to any assignment of the Lease,
releasing the Lessee from its obligations in respect of the payments
of Rent and the Asset Termination Value or changing the absolute and
unconditional character of such obligation; and
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(y) no other termination, amendment, supplement, waiver or
modification shall, without the written agreement or consent of the Lessor and
the Required Participants, be made to the Lease or Section 6 of this
Participation Agreement or the definition of "Event of Default".
SECTION 15.6. Headings, etc.
The Table of Contents and headings of the various Sections of this
Agreement are for convenience of reference only and shall not modify, define,
expand or limit any of the terms or provisions hereof.
SECTION 15.7. Parties in Interest.
Except as expressly provided herein, none of the provisions of this
Participation Agreement are intended for the benefit of any Person except the
parties hereto. Subject to the provisions of Section 25.1 of the Lease, the
Lessee shall not assign or transfer any of its rights or obligations under the
Operative Documents without the prior written consent of the Lessor, the Agent
and the Participants, except that the Lessee may without such consent assign
rights or obligations of the Lessee under the Operative Documents to an
Affiliate of the Lessee, provided that the Lessee remains primarily liable with
respect to such obligations and provides its full unconditional and irrevocable
guaranty of such Subsidiary's obligations under the Operative Documents, such
guaranty to be in form and substance reasonably satisfactory to the Required
Participants.
SECTION 15.8. GOVERNING LAW.
THIS PARTICIPATION AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE
LAW OF THE STATE OF ILLINOIS (EXCLUDING ANY CONFLICT-OF-LAW OR CHOICE-OF-LAW
RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF ANY OTHER
JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
SECTION 15.9. Severability.
Any provision of this Participation Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 15.10. Liability Limited.
(a) The Lessee, the Agent, and the Participants each acknowledge and
agree that the Lessor shall not be liable or accountable under any
circumstances whatsoever in its individual
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capacity for or on account of any statements, representations, warranties,
covenants or obligations stated to be those of the Lessor, except for its own
gross negligence or willful misconduct and as otherwise expressly provided
herein or in the other Operative Documents, and it is understood and agreed
that all obligations of the Lessor to the Lessee, the Agent and any Participant
under the Operative Documents are solely nonrecourse obligations (except as
otherwise expressly provided therein) enforceable only against the Lessor's
interest in the Property.
(b) No Participant shall have any obligation to any other
Participant or to the Lessee, the Lessor or the Agent with respect to
transactions contemplated by the Operative Documents, except those obligations
of such Participant expressly set forth in the Operative Documents or except as
set forth in the instruments delivered in connection therewith, and no
Participant shall be liable for performance by any other party hereto of such
other party's obligations under the Operative Documents except as otherwise so
set forth.
SECTION 15.11. Further Assurances.
The parties hereto shall promptly cause to be taken, executed,
acknowledged or delivered, at the sole expense of the Lessee, all such further
acts, conveyances, documents and assurances as the other parties may from time
to time reasonably request in order to carry out and effectuate the intent and
purposes of this Participation Agreement, the other Operative Documents, and
the transactions contemplated hereby and thereby (including, without
limitation, the preparation, execution and filing of any and all Uniform
Commercial Code financing statements and other filings or registrations which
the parties hereto may from time to time request to be filed or effected). The
Lessee, at its own expense and without need of any prior request from any other
party, shall take such action as may be necessary (including any action
specified in the preceding sentence), or (if the Lessor shall so request) as so
requested, in order to maintain and protect all security interests provided for
hereunder or under any other Operative Document.
SECTION 15.12. Submission to Jurisdiction.
The Lessee hereby submits to the nonexclusive jurisdiction of the
United States District Court for the Northern District of Illinois and of any
Illinois State court sitting in Cook County for purposes of all legal
proceedings arising out of or relating to the Operative Documents or the
transactions contemplated hereby. The Lessee 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.
SECTION 15.13. Confidentiality.
The Lessor, the Agent and each Participant represent that they will
maintain the confidentiality of the transactions contemplated by, and of any
written or oral information provided under, the Operative Documents by or on
behalf of the Lessee (hereinafter collectively called "Confidential
Information"), subject to the Lessor's, the Agent's and each Participant's (a)
obligation to disclose any such Confidential Information pursuant to a request
or order under applicable laws and regulations or pursuant to a subpoena or
other legal process, (b) right to disclose any such Confidential Information to
its bank examiners, Affiliates, auditors, counsel
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and other professional advisors who are advised as to the confidential nature
of such Confidential Information and to other Participants, (c) right to
disclose any such Confidential Information in connection with any litigation or
dispute involving the Participants and the Lessee or any of its Subsidiaries
and Affiliates and (d) right to provide such information to Sub-Participants,
prospective Sub-Participants to which sales of participating interests are
permitted pursuant to this Participation Agreement and prospective assignees to
which assignments of interests are permitted pursuant to this Participation
Agreement, but only if (i) such Sub-Participant, prospective Sub-Participant or
prospective assignee agrees in writing to maintain the confidentiality of such
information on terms substantially similar to those of this Section as if it
were a "Participant" party hereto and (ii) the Lessee receives copies of such
written agreement prior to the release of such information. Notwithstanding
the foregoing, any such information supplied to a Participant, Sub-Participant,
prospective Sub-Participant or prospective assignee under this Participation
Agreement shall cease to be Confidential Information if it is or becomes known
to such Person (other than as permitted under this Agreement) by other than
unauthorized disclosure, or if it becomes a matter of public knowledge.
SECTION 15.14. WAIVER OF JURY TRIAL.
EACH OF THE LESSEE, THE AGENT, THE LESSOR, AND EACH PARTICIPANT HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THE OPERATIVE DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
SECTION 15.15. Usury Savings Clause.
Nothing contained in this Participation Agreement or the other
Operative Documents shall be deemed to require the payment of interest or other
charges by the Lessee or any other Person in excess of the amount which may be
may lawfully be charged under any applicable usury laws. In the event that the
Lessor or any other Person shall collect moneys under the Participation
Agreement or any other Operative Document which are deemed to constitute
interest (including, without limitation, the Basic Rent or Supplemental Rent)
which would increase the effect interest rate to a rate in excess of that
permitted to be charged by applicable law, all such sums deemed to constitute
interest in excess of the legal rate shall, upon such determination, at the
option of the Person to whom such payment was made, be returned to the Person
making such payment or credited against other amounts owed by the person making
such payment.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Participation Agreement to be duly executed by their respective officers
thereunto duly authorized as of the day and year first above written.
CHASE BRASS & COPPER COMPANY, INC.,
as Lessee
By: /s/ M.T. SEAGRAVES
------------------------------------------
Name: M.T. Seagraves
-------------------------------------
Title: CFO
------------------------------------
ABN AMRO BANK N.V.,
as Lessor
By: /s/ CHRISTOPHER S. HELMECI
------------------------------------------
Name: Christopher S. Helmeci
Title: Vice President
By: /s/ LOUIS K. McLINDEN, JR.
------------------------------------------
Name: Louis K. McLinden, Jr.
Title: Vice President
ABN AMRO BANK N.V.,
as Agent
By: /s/ CHRISTOPHER S. HELMECI
------------------------------------------
Name: Christopher S. Helmeci
Title: Vice President
By: /s/ LOUIS K. McLINDEN, JR.
------------------------------------------
Name: Louis K. McLinden, Jr.
Title: Vice President
[ADDITIONAL SIGNATURE PAGE FOLLOWS]
S-1
<PAGE> 75
ABN AMRO BANK N.V.,
as Participant
By: /s/ CHRISTOPHER S. HELMECI
------------------------------------------
Name: Christopher S. Helmeci
Title: Vice President
By: /s/ LOUIS K. McLINDEN, JR.
------------------------------------------
Name: Louis K. McLinden, Jr.
Title: Vice President
CREDIT AGRICOLE INDOSUEZ,
as Participant
By: /s/ DAVID BOUHL
------------------------------------------
Name: David Bouhl
-------------------------------------
Title: Executive Vice President
------------------------------------
By: /s/ KATHERINE L. ABBOTT
------------------------------------------
Name: Katherine L. Abbott
-------------------------------------
Title: First Vice President
------------------------------------
S-2
<PAGE> 1
EXHIBIT 10.19
================================================================================
MASTER LEASE
dated as of December 23, 1997
between
ABN AMRO BANK N.V.,
as the Lessor
and
CHASE BRASS & COPPER COMPANY, INC.,
as the Lessee
================================================================================
Extrusion Press Facility
================================================================================
This Lease has been executed in counterparts. To the extent, if any, that this
Lease constitutes chattel paper (as such term is defined in the Uniform
Commercial Code as in effect in any applicable jurisdiction), no lien on this
Lease may be created through the transfer or possession of any counterpart
other than the original counterpart containing the receipt therefor executed by
the Agent on the signature page hereof.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions; Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Acceptance and Lease of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Acceptance Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Lease Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Payment of Basic Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Supplemental Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Method of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1 [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.1 Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.1 Net Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.2 No Termination or Abatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.1 Ownership of the Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
8.1 Condition of the Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
8.2 Possession and Use of the Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9.1 Compliance with Requirements of Law and Insurance Requirements. . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
10.1 Maintenance and Repair; Return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
11.1 Modifications, Substitutions and Replacements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE XII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
12.1 Warranty of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
13.1 Permitted Contests Other Than in Respect of Indemnities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE XIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
14.1 Public Liability and Workers' Compensation Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
14.2 Hazard and Other Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
14.3 Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
14.4 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(cont'd)
<TABLE>
<CAPTION>
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----
<S> <C>
ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
15.1 Casualty and Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE XVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16.1 Termination by the Lessee upon Certain Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16.2 Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE XVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17.1 Lease Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
17.3 Waiver of Certain Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
17.4 Power of Sale and Foreclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
17.5 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
17.6 Lessee's Right to Cure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
18.1 The Lessor's Right to Cure the Lessee's Lease Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
19.1 Provisions Relating to the Lessee's Termination of this Lease or Exercise of Purchase Option or Obligation and
Conveyance Upon Remarketing and Conveyance Upon Certain Other Events. . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE XX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
20.1 Purchase Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
20.2 Expiration Date Purchase Obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
20.3 Acceleration of Purchase Obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
21.1 Renewal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XXII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
22.1 Option to Remarket. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
22.2 Certain Obligations Continue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
22.3 Support Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XXIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
23.1 Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XXIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
24.1 Risk of Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XXV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
25.1 Subletting and Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XXVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
26.1 Estoppel Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XXVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
27.1 Right to Inspect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
27.2 No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE XXVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
28.1 Acceptance of Surrender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XXVIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
29.1 [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XXX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XXXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
31.1 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
31.2 Amendments and Modifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
31.3 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
31.4 Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
31.5 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
31.6 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
31.7 Limitations on Recourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
31.8 Original Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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<PAGE> 5
APPENDICES
APPENDIX I DEFINITIONS AND INTERPRETATION
EXHIBITS
EXHIBIT A FORM OF LEASE SUPPLEMENT
EXHIBIT B FORM OF EQUIPMENT SCHEDULE
<PAGE> 6
MASTER LEASE
THIS MASTER LEASE (including all Lease Supplements from time to time
executed and delivered, this "Lease"), dated as of December 23, 1997, between
ABN AMRO BANK N.V., a bank organized under the laws of The Netherlands, having
its principal office at 135 S. LaSalle Street, Chicago, Illinois 60603, as the
lessor (the "Lessor"), and CHASE BRASS & COPPER COMPANY, INC., a Delaware
corporation, having a principal office at State Route 15N, 14212 County Road
M-50, Montpelier, Ohio 43543, as the lessee (the "Lessee").
W I T N E S S E T H:
WHEREAS, the Lessor intends to purchase the Equipment, from time to
time, subject to the terms and conditions of this Lease and the Participation
Agreement and, simultaneously therewith, lease the Equipment to the Lessee
pursuant to Lease Supplements to be entered into pursuant to this Lease; and
WHEREAS, the Lessee desires to lease from the Lessor, and the Lessor
is willing to lease to the Lessee, such Property pursuant to Lease Supplements
to be entered into pursuant to this Lease;
NOW, THEREFORE, in consideration of the foregoing, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
1.1 Definitions; Interpretation.
Capitalized terms used but not otherwise defined in this Lease have
the respective meanings specified in Appendix 1 to this Lease; and the rules of
interpretation set forth in Appendix 1 to this Lease shall apply to this Lease.
ARTICLE II
2.1 Acceptance and Lease of Property.
Effective as of the applicable Closing Date, the Lessor, subject to
the satisfaction or waiver of the conditions set forth in Section 6 of the
Participation Agreement, hereby agrees to accept delivery of and lease the
Equipment which may be purchased pursuant to this Lease or the Participation
Agreement, and the Lessee hereby agrees, expressly for the direct benefit of
the Lessor, to lease any such Equipment pursuant to the Lease or the
Participation Agreement.
2.2 Acceptance Procedure.
(a) The Lessor hereby authorizes one or more employees of the
Lessee, to be designated by the Lessee, as the authorized representative or
representatives of the Lessor to accept delivery on behalf of the Lessor of the
Property identified on an Equipment Schedule.
<PAGE> 7
(b) The Lessee hereby agrees that such acceptance of delivery by
such authorized representative or representatives and the execution and
delivery by the Lessee on the applicable Closing Date of a Lease Supplement in
the form of Exhibit A hereto (appropriately completed) shall, without further
act, constitute the irrevocable acceptance by the Lessee of the Property which
is the subject thereof for all purposes of this Lease and the other Operative
Documents on the terms set forth therein and herein, and that the Property
shall be subject to the terms and conditions of this Lease as of such Closing
Date.
(c) The Lessee hereby agrees that such acceptance of delivery by
such authorized representative or representatives and the execution and
delivery by the Lessee of an Equipment Schedule in the form of Exhibit B hereto
(appropriately completed) on or prior to the applicable Funding Date with
respect to the acquisition of Equipment shall, without further act, constitute
the irrevocable acceptance of the Equipment which is the subject thereof for
all purposes of this Lease and the other Operative Documents on the terms set
forth therein and herein, and that the Equipment shall be subject to the terms
and conditions of this Lease as of such Closing Date.
2.3 Lease Term.
The term of this Lease (the "Term") shall begin on the Closing Date
with respect to such Equipment and shall end on the third anniversary of such
Closing Date, unless the Term is renewed or earlier terminated in accordance
with the provisions of this Lease.
2.4 Title.
The Property is leased to the Lessee without any representation or
warranty of title, condition of the Equipment or permitted uses, express or
implied, by the Lessor and subject to the rights of parties in possession, the
existing state of title and all applicable Requirements of Law. The Lessee
shall in no event have any recourse against the Lessor for any defect in or
exception to title to the Property, other than for any such defect or exception
constituting a Lessor Lien. The Lessee expressly waives and releases the
Lessor from any common law or statutory covenant of quiet enjoyment.
ARTICLE III
3.1 Rent.
(a) During the Term, the Lessee shall pay Basic Rent on each
Payment Date, on the date required under Section 22.1(i) in connection with the
Lessee's exercise of the Remarketing Option and on any date on which this Lease
shall terminate.
(b) Basic Rent shall be due and payable in lawful money of the
United States and shall be paid by wire transfer of immediately available funds
on the due date therefor to such account or accounts at such bank or banks or
to the Agent or in such other manner as the Agent shall from time to time
direct.
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<PAGE> 8
(c) Neither the Lessee's inability or failure to take possession
of all or any portion of the Property when delivered by the Lessor, nor the
Lessor's inability or failure to deliver all or any portion of the Property to
the Lessee on or before the applicable Closing Date, whether or not
attributable to any act or omission of the Lessee or any act or omission of the
Lessor, or for any other reason whatsoever, shall delay or otherwise affect the
Lessee's obligation to pay Rent for the Property from and after commencement of
the Term.
3.2 Payment of Basic Rent.
Basic Rent shall be paid absolutely net to the Lessor, so that this
Lease shall yield to the Lessor the full amount thereof, without setoff,
deduction or reduction, whether or not the Lessee's quiet possession of the
Property is disturbed.
3.3 Supplemental Rent.
The Lessee shall pay to the Lessor or the Person entitled thereto any
and all Supplemental Rent promptly as the same shall become due and payable,
and if the Lessee fails to pay any Supplemental Rent, the Lessor shall have all
rights, powers and remedies provided for herein or by law or equity or
otherwise in the case of nonpayment of Basic Rent. The Lessee shall pay to the
Lessor, as Supplemental Rent, among other things, on demand, to the extent
permitted by Applicable Law, interest at the applicable Overdue Rate on any
installment of Basic Rent not paid when due for the period for which the same
shall be overdue and on any payment of Supplemental Rent not paid when due or
demanded by the Lessor for the period from the due date or the date of any such
demand, as the case may be, until the same shall be paid. The expiration or
other termination of the Lessee's obligations to pay Basic Rent hereunder shall
not limit or modify the obligations of the Lessee with respect to Supplemental
Rent. Unless expressly provided otherwise in this Lease, in the event of any
failure on the part of the Lessee to pay and discharge any Supplemental Rent as
and when due, the Lessee shall also promptly pay and discharge any fine,
penalty, interest or cost which may be assessed or added under any agreement
with a third party for nonpayment or late payment of such Supplemental Rent,
all of which shall also constitute Supplemental Rent.
3.4 Method of Payment.
Each payment of Rent shall be made by the Lessee to the Agent by 12:00
noon, Chicago time at the place of payment in funds consisting of lawful
currency of the United States of America which shall be immediately available
on the scheduled date when such payment shall be due, unless such scheduled
date shall not be a Business Day, in which case such payment shall be made on
the next succeeding Business Day or as otherwise required by the definition of
the term "Interest Period" set forth in Appendix 1 hereto. Payments initiated
after 12:00 noon, Chicago time shall be deemed received on the next succeeding
Business Day.
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<PAGE> 9
ARTICLE IV
4.1 [RESERVED].
ARTICLE V
5.1 Quiet Enjoyment.
LESSEE SPECIFICALLY DISCLAIMS ANY WARRANTY OF QUIET ENJOYMENT FOR ANY
ACTION BY ANY PARTY, other than the obligations of the Lessor to remove Lessor
Liens.
ARTICLE VI
6.1 Net Lease.
This Lease shall constitute a net lease. It is the further express
intent of Lessor and Lessee that the obligations of Lessor and Lessee hereunder
shall be separate and independent covenants and agreements and that the Basic
Rent and Supplemental Rent, and all other charges and sums payable by Lessee
hereunder, shall commence at the times provided herein and shall continue to be
payable in all events unless the obligations to pay the same shall be
terminated pursuant to an express provision in this Lease. Any present or
future law to the contrary notwithstanding, this Lease shall not terminate, nor
shall the Lessee be entitled to any abatement, suspension, deferment,
reduction, setoff, counterclaim, or defense with respect to the Rent, nor shall
the obligations of the Lessee hereunder be affected (except as expressly herein
permitted and by performance of the obligations in connection therewith) by
reason of: (i) any defect in the condition, merchantability, design,
construction, quality or fitness for use of the Property or any part thereof,
or the failure of the Property to comply with all Requirements of Law,
including any inability to occupy or use the Property by reason of such
non-compliance; (ii) any damage to, removal, abandonment, salvage, loss,
contamination of or Release from, scrapping or destruction of or any
requisition or taking of the Property or any part thereof; (iii) any
restriction, prevention or curtailment of or interference with any use of the
Property or any part thereof including eviction; (iv) any defect in title to or
rights to the Property or any Lien on such title or rights or on the Property
(other than Lessor Liens); (v) any change, waiver, extension, indulgence or
other action or omission or breach in respect of any obligation or liability of
or by the Lessor, the Agent or any Participant; (vi) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation
or other like proceedings relating to the Lessee, the Lessor, the Agent, any
Participant or any other Person, or any action taken with respect to this Lease
by any trustee or receiver of the Lessee, the Lessor, the Agent, any
Participant or any other Person, or by any court, in any such proceeding; (vii)
any claim that the Lessee has or might have against any Person, including
without limitation the Lessor, any vendor, manufacturer, contractor of or for
the Property, the Agent or any Participant; (viii) any failure on the part of
the Lessor to perform or comply with any of the terms of this Lease, any other
Operative Document or any other agreement; (ix) any invalidity or
unenforceability or illegality or disaffirmance of this Lease against or by the
Lessee or any provision hereof or any of the other Operative Documents
- 4 -
<PAGE> 10
or any provision of any thereof; (x) the impossibility or illegality of
performance by the Lessee, the Lessor or both; (xi) any action by any court,
administrative agency or other Governmental Authority; (xii) any restriction,
prevention or curtailment of or interference with the construction on or any
use of the Property or any part thereof; or (xiii) any other cause or
circumstances whether similar or dissimilar to the foregoing and whether or not
the Lessee shall have notice or knowledge of any of the foregoing. The parties
intend that the obligations of the Lessee hereunder shall be covenants and
agreements that are separate and independent from any obligations of the Lessor
hereunder or under any other Operative Documents and the obligations of the
Lessee shall continue unaffected unless such obligations shall have been
modified or terminated in accordance with an express provision of this Lease.
6.2 No Termination or Abatement.
The Lessee shall remain obligated under this Lease in accordance with
its terms and shall not take any action to terminate, rescind or avoid this
Lease, notwithstanding any action for bankruptcy, insolvency, reorganization,
liquidation, dissolution, or other proceeding affecting the Lessor, the Agent
or any Participant, or any action with respect to this Lease or any Operative
Document which may be taken by any trustee, receiver or liquidator of the
Lessor, the Agent or any Participant or by any court with respect to the
Lessor, the Agent or any Participant. The Lessee hereby waives all right (i)
to terminate or surrender this Lease (except as provided herein) or (ii) to
avail itself of any abatement, suspension, deferment, reduction, setoff,
counterclaim or defense (other than the defense of payment) with respect to any
Rent. The Lessee shall remain obligated under this Lease in accordance with
its terms and the Lessee hereby waives any and all rights now or hereafter
conferred by statute or otherwise to modify or to avoid strict compliance with
its obligations under this Lease. Notwithstanding any such statute or
otherwise, the Lessee shall be bound by all of the terms and conditions
contained in this Lease.
ARTICLE VII
7.1 Ownership of the Property.
(a) It is the intent of the parties hereto that: (i) this Lease
constitutes an "operating lease" pursuant to Statement of Financial Accounting
Standards No. 13, as amended, for purposes of Lessee's financial reporting, and
(ii) for purposes of federal, state, and local income or franchise taxes and
for any other tax imposed on or measured by income, the transaction
contemplated hereby is a financing arrangement and preserves ownership in the
Property in the Lessee. Nevertheless, the Lessee acknowledges and agrees that
neither the Agent, the Lessor nor any Participant has made any representations
or warranties to the Lessee concerning the tax, accounting or legal
characteristics of the Operative Documents and that the Lessee has obtained and
relied upon such tax, accounting and legal advice concerning the Operative
Documents as it deems appropriate.
(b) Anything to the contrary in the Operative Documents
notwithstanding, the Lessor and the Lessee intend and agree that with respect
to the nature of the transactions evidenced by
- 5 -
<PAGE> 11
this Lease, this Lease grants a security interest and mortgage or deed of trust
or lien, as the case may be, in the Property to the Lessor and the Participants
to secure the Lessee's performance under and payment of all amounts under this
Lease and the other Operative Documents.
(c) Specifically, without limiting the generality of subsection
(b) of this Section 7.1, the Lessor and the Lessee further intend and agree
that (i) this Lease shall also be deemed to be a security agreement and
financing statement within the meaning of Article 9 of the Uniform Commercial
Code; (ii) the possession by the Lessor or any of its agents of notes and such
other items of property as constitute instruments, money, negotiable documents
or chattel paper shall be deemed to be "possession by the secured party" for
purposes of perfecting the security interest pursuant to Section 9-305 of the
Uniform Commercial Code, (iii) Lessee does hereby grant and assign to Lessor a
security interest in and to all right, title and interest of the Lessee in and
to the Property as collateral for the payment of all amounts payable by Lessee
under this Lease and the Operative Documents; and (iv) notifications to Persons
holding such property, and acknowledgments, receipts or confirmations from
financial intermediaries, bankers or agents (as applicable) of the Lessee shall
be deemed to have been given for the purpose of perfecting such security
interest under Applicable Law. The Lessor and the Lessee shall, to the extent
consistent with this Lease, take such actions and execute, deliver, file and
record such other documents, financing statements, mortgages and deeds of trust
as may be necessary to ensure that, if this Lease were deemed to create a
security interest in the Property in accordance with this Section, such
security interest would be deemed to be a perfected security interest of first
priority under Applicable Law and will be maintained as such throughout the
Term.
ARTICLE VIII
8.1 Condition of the Property.
THE LESSEE ACKNOWLEDGES AND AGREES THAT ALTHOUGH THE LESSOR WILL HOLD
TITLE TO THE EQUIPMENT, THE LESSEE IS SOLELY RESPONSIBLE FOR THE EQUIPMENT AND
ANY ALTERATIONS OR MODIFICATIONS. THE LESSEE FURTHER ACKNOWLEDGES AND AGREES
THAT IT IS LEASING THE PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR
COVENANT (EXPRESS OR IMPLIED) BY THE LESSOR, THE AGENT OR ANY PARTICIPANT AND
IN EACH CASE SUBJECT TO (A) THE EXISTING STATE OF TITLE, (B) THE RIGHTS OF ANY
PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF FACTS WHICH AN ACCURATE SURVEY
OR PHYSICAL INSPECTION MIGHT SHOW, AND (D) VIOLATIONS OF REQUIREMENTS OF LAW
WHICH MAY EXIST ON THE DATE HEREOF. NEITHER THE LESSOR, THE AGENT NOR ANY
PARTICIPANT HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION,
WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO HAVE ANY
LIABILITY WHATSOEVER AS TO THE TITLE (INCLUDING BUT NOT LIMITED TO ANY IMPLIED
LIABILITY RELATING TO A COVENANT OF QUIET ENJOYMENT, WHICH THE LESSEE HEREBY
EXPRESSLY WAIVES), VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, OR
FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF), OR ANY OTHER
REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE PROPERTY (OR ANY
- 6 -
<PAGE> 12
PART THEREOF) AND NEITHER THE LESSOR, THE AGENT NOR ANY PARTICIPANT SHALL BE
LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE OF THE
PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY REQUIREMENT OF LAW.
8.2 Possession and Use of the Property.
The Property shall be used in a manner consistent with properties of a
similar nature in the businesses in which the Lessee is engaged or as permitted
by a sublessee or assignee in Section 25.1 hereof and in compliance with any
covenants, conditions and restrictions of record and any ordinance or law
affecting the use and occupancy of the Property. At all times during the Term
following installation and delivery of the Equipment, the Property shall be
continuously used by the Lessee or a permitted assignee or sublessee in the
ordinary course of its business. The Lessee shall pay, or cause to be paid,
all charges and costs required in connection with the use of the Property as
contemplated by this Lease.
ARTICLE IX
9.1 Compliance with Requirements of Law and Insurance
Requirements.
Subject to the terms of Article XIII relating to permitted contests,
the Lessee, at its sole cost and expense, shall (a) comply with all
Requirements of Law (including all Environmental Laws) and comply with all
Insurance Requirements relating to the Property, including the construction,
use, operation, maintenance, repair and restoration thereof and the remarketing
thereof pursuant to Article XXII, whether or not compliance therewith shall
interfere with the use and enjoyment of the Property, and (b) procure, maintain
and comply with all licenses, permits, orders, approvals, consents and other
authorizations required for the construction, use, maintenance, repair and
operation of the Property.
ARTICLE X
10.1 Maintenance and Repair; Return.
(a) The Lessee, at its sole cost and expense, shall maintain the
Property in good working order, mechanical condition and repair, subject in
each case to ordinary wear and tear, and make all necessary repairs thereto, of
every kind and nature whatsoever, whether interior or exterior, ordinary or
extraordinary, structural or nonstructural or foreseen or unforeseen, in each
case as required by all Requirements of Law and Insurance Requirements and on a
basis consistent with the operation and maintenance of properties comparable in
type to the Property and in compliance with prudent industry practice.
(b) The Lessor shall under no circumstances be required to build
any improvements on the Property, make any repairs, replacements, alterations
or renewals of any nature or description to the Property, make any expenditure
whatsoever in connection with this Lease or maintain the Property in any way.
The Lessor shall not be required to maintain, repair or rebuild all or any part
of the Property, and the Lessee waives any right to (i) require the Lessor to
- 7 -
<PAGE> 13
maintain, repair, or rebuild all or any part of the Property, or (ii) make
repairs at the expense of the Lessor pursuant to any Requirement of Law,
Insurance Requirement, contract, agreement, or covenant, condition or
restriction in effect at any time during the Term.
(c) The Lessee shall, upon the expiration or earlier termination
of this Lease, surrender the Property to the Lessor in its then-current, "AS
IS" condition, subject to the Lessee's obligations under Sections 9.1, 10.1(a),
11.1, 12.1, 15.1(e), 15.2, 22.1 and 23.1.
(d) The Lessee warrants that it shall cause the Equipment
currently being delivered and installed on the Site to be designed and
constructed in a workmanlike manner and in accordance with all Requirements of
Law, so that such Equipment will be fit for its intended purpose.
ARTICLE XI
11.1 Modifications, Substitutions and Replacements.
(a) The Lessee, at its sole cost and expense, may at any time and
from time to time make alterations, renovations, improvements and additions to
the Property or any part thereof and substitutions and replacements therefor
(collectively, "Modifications"); provided that: (i) no Modification shall
impair the value, utility or useful life of the Property or any part thereof
from that which existed immediately prior to such Modification; (ii) the
Modification shall be done expeditiously and in a good and workmanlike manner;
(iii) the Lessee shall comply with all Requirements of Law (including all
Environmental Laws) and comply with all Insurance Requirements applicable to
the Modification, including the obtaining of all permits and certificates of
occupancy, and the structural integrity of the Property shall not be adversely
affected in any material respect; (iv) subject to the terms of Article XIII
relating to permitted contests, the Lessee shall pay all costs and expenses and
shall discharge (or cause to be insured or bonded over) within sixty (60) days
after the same shall be filed (or otherwise become effective) any Liens arising
with respect to the Modification; and (v) such Modifications shall comply with
Sections 8.2 and 10.1. All Modifications (other than those that both are not
Modifications required to be made pursuant to a Requirement of Law or an
Insurance Requirement ("Required Modification") and are readily removable
without impairing the value, utility or remaining useful life of the Property)
shall remain part of the Property and shall be subject to this Lease, and title
thereto shall immediately vest in the Lessor. The Lessee may place upon the
Site any trade fixtures, machinery, equipment or other property belonging to
the Lessee or third parties and may remove the same at any time during the
Term, subject, however, to the terms of Section 10.1(a); provided that such
trade fixtures, machinery, equipment or other property do not impair the value,
utility or remaining useful life of the Property in any material respect;
provided, further, that the Lessee shall keep and maintain at the Property and
shall not remove from the Property any Equipment financed or otherwise paid for
(directly or indirectly) by the Lessor or any Participant pursuant to the
Participation Agreement.
- 8 -
<PAGE> 14
(b) The Lessee shall deliver to the Lessor and the Agent a brief
written narrative of the work to be done in connection with any Modification to
the Property the cost of which is anticipated to exceed $500,000 in the
aggregate.
ARTICLE XII
12.1 Warranty of Title.
(a) The Lessee agrees that except as otherwise provided herein and
subject to the terms of Article XIII relating to permitted contests, the Lessee
shall not directly or indirectly create or allow to remain, and shall promptly
discharge at its sole cost and expense, any Lien, defect, attachment, levy,
title retention agreement or claim upon the Property (or the Lessor's interest
therein) or any Modifications or any Lien, attachment, levy or claim with
respect to the Rent or with respect to any amounts held by the Agent pursuant
to the Participation Agreement or the other Operative Documents, other than
Permitted Liens and Lessor Liens.
(b) Nothing contained in this Lease shall be construed as
constituting the consent or request of the Lessor, expressed or implied, to or
for the performance by any contractor, mechanic, laborer, materialman, supplier
or vendor of any labor or services or for the furnishing of any materials for
any construction, alteration, addition, repair or demolition of or to the
Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER THE LESSOR,
ANY PARTICIPANT NOR THE AGENT IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR
MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE OR TO ANYONE HOLDING THE
PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE AND THAT NO MECHANICS'
OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR
AFFECT THE INTEREST OF THE LESSOR IN AND TO THE PROPERTY.
ARTICLE XIII
13.1 Permitted Contests Other Than in Respect of Indemnities.
Except to the extent otherwise provided for in Section 13 of the
Participation Agreement, the Lessee, on its own or on the Lessor's behalf but
at the Lessee's sole cost and expense, may contest, by appropriate
administrative or judicial proceedings conducted in good faith and with due
diligence, the amount, validity or application, in whole or in part, of any
Requirement of Law, or any Lien, attachment, levy, encumbrance or encroachment,
and the Lessor agrees not to pay, settle or otherwise compromise any such item,
provided that (a) the commencement and continuation of such proceedings shall
suspend the collection thereof from, and suspend the enforcement thereof
against, the Property, the Lessor, the Agent and the Participants or the
Lessee shall have bonded or otherwise secured such amount in a manner
satisfactory to the Lessor and the Agent; (b) there shall be no risk of the
imposition of a Lien (other than Permitted Liens) on the Property and no part
of the Property nor any Rent would be in any danger of being sold, forfeited,
lost or deferred; (c) at no time during the permitted contest shall there be a
risk of
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the imposition of criminal liability or material civil liability on the Lessor,
the Agent or any Participant for failure to comply therewith (unless, in the
case of civil liability, the Lessee shall have bonded or otherwise secured such
amount in a manner satisfactory to the Lessor and the Agent); and (d) in the
event that, at any time, there shall be a material risk of extending the
application of such item beyond the end of the Term, then the Lessee shall
deliver to the Lessor a Responsible Officer's Certificate certifying as to the
matters set forth in clauses (a), (b) and (c) of this Section 13.1. The Lessor,
at the Lessee's sole cost and expense, shall execute and deliver to the Lessee
such authorizations and other documents as may reasonably be required or
reasonably requested by Lessee in connection with any such contest and, if
reasonably requested by the Lessee, shall join as a party therein at the
Lessee's sole cost and expense.
ARTICLE XIV
14.1 Public Liability and Workers' Compensation Insurance.
During the Term, the Lessee shall procure and carry, at the Lessee's
sole cost and expense, commercial general liability insurance, including
contractual liability, for claims for injuries or death sustained by persons or
damage to property while on the Site and such other public liability coverages
as are ordinarily procured by Persons who own or operate similar properties and
consistent with prudent business practice, which policies shall include
contractual liability endorsements covering the Lessee's indemnification
obligations in Section 14.4. Such insurance shall be on terms and in amounts
(which shall be acceptable to the Lessor, which acceptance shall not be
unreasonably withheld) that are no less favorable than insurance maintained by
the Lessee with respect to similar properties that it owns and that are in
accordance with prudent business practice and may be provided under blanket
policies maintained by or on behalf of the Lessee. The policy shall be
endorsed to name the Lessor, the Agent and each Participant as additional
insureds. The policy shall also specifically provide that the policy shall be
considered primary insurance which shall apply to any loss or claim before any
contribution by any insurance which the Lessor, the Agent or the Participants
may have in force. The Lessee shall, in the delivery and installation of the
Equipment and the operation of the Property (including in connection with any
Modifications thereof) comply with the applicable workers' compensation laws
and protect the Lessor, the Agent and the Participants against any liability
under such laws.
14.2 Hazard and Other Insurance.
During the Term, the Lessee shall keep, or cause to be kept, the
Property insured against loss or damage by fire and other risks in an amount
not less than the then current Asset Termination Value and on terms that are no
less favorable than insurance covering other similar properties owned or leased
by the Lessee and that are in accordance with prudent business practice. The
Lessee may provide such coverage under blanket policies maintained by the
Lessee. During the delivery and installation of any Equipment the Lessee shall
also maintain builders' risk insurance. Each policy of insurance maintained by
the Lessee pursuant to this Section 14.2 shall provide that all insurance
proceeds in respect of any loss or occurrence shall be paid to and adjusted
solely by the Lessee except from and after the date on which the insurer
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receives written notice from the Lessor or the Agent that a Lease Event of
Default exists (and unless and until such insurer receives written notice from
the Lessor or the Agent that all Lease Events of Default have been cured), all
losses shall be adjusted solely by, and all insurance proceeds shall be paid
solely to, the Agent (or the Lessor if the Participation Interests have been
fully paid) for application pursuant to Article XV.
14.3 Coverage.
(a) The Lessee shall furnish the Lessor and the Agent with
certificates showing the insurance required under Sections 14.1 and 14.2 to be
in effect and naming the Lessor, the Agent and each Participant as additional
insureds and, with respect to the insurance required under Section 14.2, loss
payees, and showing the mortgagee endorsement required by Section 14.3(c). All
such insurance shall be at the cost and expense of the Lessee. Such
certificates shall include a provision for thirty (30) days' advance written
notice by the insurer to the Lessor and the Agent in the event of cancellation
of or any significant reduction in the coverage provided by such insurance.
(b) The Lessee agrees that the insurance policy or policies
required by Sections 14.1 and 14.2 shall include (i) an appropriate clause
pursuant to which such policy shall provide that it will not be invalidated
should the Lessee waive, in writing, prior to a loss, any or all rights of
recovery against any party for losses covered by such policy, and that the
insurance in favor of the Lessor, the Agent and the Participants, and their
respective rights under and interests in said policies shall not be invalidated
or reduced by any act or omission or negligence of the Lessee or any other
Person having any interest in the Property, and (ii) a so-called "Waiver of
Subrogation Clause". The Lessee hereby waives any and all such rights against
the Lessor, the Agent and the Participants to the extent of payments made under
such policies.
(c) All such insurance shall be written by reputable insurance
companies that are financially sound and solvent and otherwise reasonably
appropriate considering the amount and type of insurance being provided by such
companies. Any insurance company selected by the Lessee which is rated in
Best's Key Rating Guide or any successor thereto (or if there be none, an
organization having a similar national reputation) shall have a general
policyholder rating of "A" and a financial rating of at least 12 in Best's Key
Rating Guide or be otherwise acceptable to the Lessor, the Agent and the
Required Participants. All insurance policies required by Section 14.2 shall
include a standard form mortgagee endorsement in favor of the Agent.
Notwithstanding the other provisions of this Article XIV, in the absence of a
continuing Event of Default, the Lessee may provide the insurance coverage
required under this Article XIV through its self-insurance program.
(d) The Lessor shall not carry separate insurance concurrent in
kind or form or contributing in the event of loss with any insurance required
under this Article XIV except that the Lessor may carry separate liability
insurance (at its sole cost) so long as (i) the Lessee's insurance is
designated as primary and in no event excess or contributory to any insurance
the Lessor may have in force which would apply to a loss covered under the
Lessee's policy and (ii) each such insurance policy will not cause the Lessee's
insurance required under this Article XIV to be subject to a coinsurance
exception of any kind.
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(e) The Lessee shall pay as they become due all premiums for the
insurance required by Section 14.1 and Section 14.2, and shall renew or replace
each policy prior to the expiration date thereof. Throughout the Term, at the
time each of the Lessee's insurance policies is renewed (but in no event less
frequently than once each year), the Lessee shall deliver to the Lessor and the
Agent certificates of insurance evidencing that all insurance required by this
Article XIV is being maintained by the Lessee with respect to the Property and
is in effect.
(f) The Lessee hereby waives, releases and discharges the Lessor,
the Agent and each Participant and their agents and employees from all claims
whatsoever arising out of loss, claim, expense or damage to or destruction
covered or coverable by insurance required under this Article XIV
notwithstanding that such loss, claim, expense or damage may have been caused
by the Lessor, the Agent or any Participant or any of their agents or
employees, and the Lessee agrees to look to the insurance coverage only in the
event of such loss.
14.4 Indemnification.
In addition to the indemnification provisions provided for in Section
13 of the Participation Agreement, to the fullest extent allowed by law, the
Lessee shall at all times indemnify, defend and hold each Indemnitee harmless
against and from any and all Claims by or on behalf of any Person arising from
the delivery or installation of the Equipment or conduct of management, or from
any work or things whatsoever done in or about the Property, and will further
indemnify, defend and hold each Indemnitee harmless against and from any and
all Claims arising during the term of this Lease, from any condition of the
Property or arising from any breach or default on the part of the Lessee in the
performance of any covenant or agreement on the part of the Lessee to be
performed, pursuant to the terms of this Lease or arising from any act or
negligence of the Lessee, its agents, servants, employees or licensees, or
arising from any accident, injury or damage whatsoever caused to any Person
occurring during the term of this Lease, in or about the Property. The
indemnification provisions of this Section 14.4 shall be subject to the
indemnification provisions of Section 13.1 of the Participation Agreement
(including the limitations to the Lessee's obligation to indemnify as set forth
in clauses (1) through (6) of the proviso of such Section 13.1) and any action,
suit or proceeding in respect of any such Claim shall be handled in the manner
set forth in Section 13.4 of the Participation Agreement.
ARTICLE XV
15.1 Casualty and Condemnation.
(a) Subject to the provisions of this Article XV and Article XVI
(in the event the Lessee delivers, or is obligated to deliver, a Termination
Notice), and prior to the occurrence and continuation of a Lease Default, the
Lessee shall be entitled to receive (and the Lessor shall pay over to the
Lessee, if received by the Lessor, and hereby irrevocably assigns to the Lessee
all of the Lessor's right, title and interest in) any award, compensation or
insurance proceeds to which the Lessee or the Lessor may become entitled by
reason of their respective interests in the Property (i) if all or a portion of
the Property is damaged or destroyed in whole or in part by a Casualty or (ii)
if the use, access, occupancy, easement rights or title to the Property or any
part
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thereof, is the subject of a Condemnation; provided, however, if a Lease
Default shall have occurred and be continuing, such award, compensation or
insurance proceeds shall be paid directly to the Agent or, if received by the
Lessee, shall be held in trust for the Agent, and shall be paid over by the
Lessee to the Agent (or, if the Participation Interests have been fully paid,
to the Lessor) and held in accordance with the terms of this paragraph (a).
If, contrary to such provision, any such award, compensation or insurance
proceeds are paid to the Lessor or the Lessee rather than to the Agent, the
Lessor and the Lessee, as the case may be, hereby agree to transfer any such
payment to the Agent. All amounts held by the Lessor or the Agent when a Lease
Default exists hereunder on account of any award, compensation or insurance
proceeds either paid directly to the Lessor or the Agent or turned over to the
Lessor or the Agent shall either be (i) paid to the Lessee for the repair of
damage caused by such Casualty or Condemnation in accordance with paragraph (e)
of this Section 15.1, or (ii) applied to the purchase price of the Property on
the Termination Date, with any Excess Proceeds being payable to the Lessee.
(b) Prior to the occurrence of an Event of Default the Lessee may
appear in any proceeding or action to negotiate, prosecute, adjust or appeal
any claim for any award, compensation or insurance payment on account of any
such Casualty or Condemnation and shall pay all expenses thereof. At the
Lessee's reasonable request, and at the Lessee's sole cost and expense, the
Lessor and the Agent shall participate in any such proceeding, action,
negotiation, prosecution or adjustment. The Lessor and the Lessee agree that
this Lease shall control the rights of the Lessor and the Lessee in and to any
such award, compensation or insurance payment.
(c) If the Lessor or the Lessee shall receive notice of a Casualty
or of an actual, pending or threatened Condemnation of the Property or any
interest therein, the Lessor or the Lessee, as the case may be, shall give
notice thereof to the other and to the Agent promptly after the receipt of such
notice.
(d) In the event of a Casualty or receipt of notice by the Lessee
or the Lessor of a Condemnation, the Lessee may deliver to the Lessor and the
Agent a Termination Notice with respect to all or a portion of the Property
pursuant to Section 16.1. If the Lessee does not deliver a Termination Notice
within thirty (30) days after such occurrence, then this Lease shall (subject
to the terms and conditions thereof) remain in full force and effect, and the
Lessee shall, at the Lessee's sole cost and expense, promptly and diligently
restore the Property pursuant to paragraph (e) of this Section 15.1 and
otherwise in accordance with this Lease. If the Lessee delivers a Termination
Notice within thirty (30) days after such occurrence, a Significant Event shall
irrevocably be deemed to have occurred with respect to the Property, and, in
such event, this Lease shall terminate and the Lessee shall purchase the
Property or such portion thereof on the next Payment Date (or, if such Payment
Date is within fifteen (15) days of the Lessor's receipt of such Termination
Notice, on the Payment Date next following such Payment Date) (a "Termination
Date") pursuant to Article XVI hereof.
(e) If pursuant to this Section 15.1 this Lease shall continue in
full force and effect following a Casualty or Condemnation, the Lessee shall,
at its sole cost and expense (and, without limitation, if any award,
compensation or insurance payment is not sufficient to restore
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the Property in accordance with this paragraph, the Lessee shall pay the
shortfall), promptly and diligently repair any damage to the Property caused by
such Casualty or Condemnation or substitute new Equipment for the affected
Equipment in conformity with the requirements of Sections 10.1 and 11.1 using
the as-built Plans and Specifications for the Equipment (as modified to give
effect to any subsequent Modifications, any Condemnation affecting the Property
and all applicable Requirements of Law) so as to restore the Property to at
least the same condition, operation, function and value as existed immediately
prior to such Casualty or Condemnation; provided, the substitution of any
Property for any such affected Property shall, at the Lessor's reasonable
request, be subject to delivery of an independent third-party appraisal
reasonably satisfactory to the Lessor and the Required Participants by an
appraiser satisfactory to the Lessor and the Required Participants showing both
(i) a current Fair Market Sales Value and (ii) expected Fair Market Sales Value
as of the than current Expiration Date and the dates on which any potential
Renewal Term would expire, in each case equal to or greater than such values at
such dates for the Property being replaced. In the event of such restoration,
title to the Property shall remain with the Lessor; provided, that (i) title to
any such substituted property shall vest in the Lessor and such property shall
constitute Property thereafter for all purposes of this Lease, and (ii) the
Lessor shall assign all of its right, title and interest to the Lessee in any
such replaced property without representation or warranty of any kind other
than that such property is free of Lessor Liens. Upon completion of such
restoration, the Lessee shall furnish the Lessor an architect's certificate of
substantial completion and a Responsible Officer's Certificate confirming that
such restoration has been completed pursuant to this Lease.
(f) In no event shall a Casualty or Condemnation with respect to
which this Lease remains in full force and effect under this Section 15.1
affect the Lessee's obligations to pay Rent pursuant to Section 3.1 or to
perform its obligations and pay any amounts due on the Expiration Date or
pursuant to Articles XIX and XX.
(g) Any Excess Proceeds received by the Lessor or the Agent in
respect of a Casualty or Condemnation shall be turned over to the Lessee,
provided that no Lease Event of Default or Lease Default has occurred and is
continuing.
ARTICLE XVI
16.1 Termination by the Lessee upon Certain Events.
If either: (i) the Lessee or the Lessor shall have received notice of
a Condemnation, and the Lessee shall have delivered to the Lessor a Responsible
Officer's Certificate that such Condemnation is a Significant Condemnation; or
(ii) a Casualty occurs, and the Lessee shall have delivered to the Lessor a
Responsible Officer's Certificate that such Casualty is a Significant Casualty;
then, the Lessee shall, simultaneously with the delivery of the Responsible
Officer's Certificate pursuant to the preceding clause (i) or (ii) deliver a
written notice in the form described in Section 16.2(a) (a "Termination
Notice").
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16.2 Procedures.
(a) A Termination Notice shall contain: (i) notice of termination
of this Lease with respect to the Property or the affected portion thereof on a
date that is no later than thirty (30) days after the occurrence of the
applicable event described in clause (i) or (ii) of Section 16.1 (the
"Termination Date"), such termination to be effective upon the Lessee's payment
of the Asset Termination Value (or portion thereof representing the Property
Improvement Cost of the affected portion of the Property); and (ii) a binding
and irrevocable agreement of the Lessee to pay the Asset Termination Value (or
such portion thereof) and purchase the Property or the affected portion thereof
on the Termination Date.
(b) On the Termination Date, the Lessee shall pay to the Lessor
the Asset Termination Value (or such portion thereof, as applicable), including
all other amounts owing in respect of Rent for the Property (including
Supplemental Rent) theretofore accruing, and the Lessor shall convey the
Lessor's interest in the Property or such portion thereof to the Lessee (or the
Lessee's designee) all in accordance with Section 19.1, as well as any Net
Proceeds with respect to the Casualty or Condemnation giving rise to the
termination of this Lease with respect to the Property theretofore received by
the Lessor.
ARTICLE XVII
17.1 Lease Events of Default.
The occurrence of any one or more of the following events (whether
such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body) shall constitute a "Lease Event of Default":
(a) the Lessee shall fail to make payment of (i) any Basic Rent
(other than a payment of Basic Rent due on the Expiration Date or Termination
Date) within five (5) Business Days after the same has become due and payable
or (ii) Basic Rent, Purchase Option Price, Asset Termination Value or Residual
Value Guarantee Amount or other amounts due on the Expiration Date or the
Termination Date, including, without limitation, amounts due pursuant to
Sections 16.2, 20.1, 20.2, 20.3 or 22.1, after the same has become due and
payable;
(b) Lessee shall fail to make payment of any Supplemental Rent
(other than Supplemental Rent referred to in clause (a) of this Section) due
and payable within five (5) Business Days after the same has become due and
payable;
(c) the Lessee shall fail to maintain insurance as required by
Article XIV of this Lease;
(d) the Lessee shall fail to observe or perform any term, covenant
or condition of the Lessee under this Lease, the Participation Agreement or any
other Operative Document to which it is a party other than those described in
Section 17.1(a), (b), (c) or (m) hereof, or any representation or warranty set
forth in this Lease or in any other Operative Document or in any document
entered into in connection herewith or therewith or in any document,
certificate or financial or other statement delivered in connection herewith or
therewith shall be false or inaccurate in any Material way, and such failure or
misrepresentation or breach of warranty shall
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remain uncured for a period of thirty (30) days after receipt of written notice
thereof; provided, that if such failure to perform is not capable of being
cured within such period but is capable of being cured within one hundred
eighty (180) days after the occurrence of such default and the Lessee is
proceeding diligently to cure such default, the Lessee shall be entitled to
request an additional period (not to exceed one hundred eighty (180) days from
the date of such default) to cure such default, which consent may be granted by
the Lessor in its sole discretion;
(e) the Lessee shall (i) admit in writing its inability to pay its
debts generally as they become due, (ii) file a petition under the United
States bankruptcy laws or any other applicable insolvency law or statute of the
United States of America or any State or Commonwealth thereof, (iii) make a
general assignment for the benefit of its creditors, (iv) consent to the
appointment of a receiver of itself or the whole or any substantial part of its
property, or (v) file a petition or answer seeking or consenting to
reorganization under the United States bankruptcy laws or any other applicable
insolvency law or statute of the United States of America or any State or
Commonwealth thereof;
(f) insolvency proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency law or statute of the United
States of America or any State or Commonwealth thereof shall be filed against
the Lessee and shall remain undismissed or unstayed and in effect for a period
of sixty (60) consecutive days from the date of its filing, or a court of
competent jurisdiction shall enter an order or decree appointing, without the
consent of the Lessee, a custodian, trustee or receiver for the Lessee or the
whole or a substantial part of its property, and such order or decree shall not
be vacated or set aside within sixty (60) days from the date of the entry
thereof;
(g) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $1,000,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to terminate
a Material Plan shall be 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 shall institute 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 shall exist by reason of which the PBGC would be entitled
to obtain a decree adjudicating that any Material Plan must be terminated; or
there shall occur 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 $1,000,000;
(h) a final judgment for the payment of money in excess of
$3,000,000 shall be entered against the Lessee or any Subsidiary and such
judgment is not discharged, vacated, bonded or stayed pending appeal (pursuant
to laws, rules or court orders) within a period of thirty (30) days from the
date of entry of such judgment;
(i) the Lessee or any of its Subsidiaries (i) shall default in the
payment when due, whether at stated maturity or otherwise, of principal or
interest in respect of Indebtedness having an aggregate principal amount in
excess of $3,000,000 (including, without limitation,
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Indebtedness outstanding under the Credit Agreement) and such payment default
continues unremedied until the expiration of any applicable grace period; or
(ii) shall fail to perform or observe any other condition or covenant, or any
other event shall occur or condition exist, under any agreement or instrument
relating to any such Indebtedness, if the effect of any such failure, event or
condition is to cause, or to permit the holder or holders of such Indebtedness
or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries) to cause such
Indebtedness to be declared to be due and payable prior to its stated maturity,
or cash collateral in respect thereof to be demanded;
(j) a Guarantee Event of Default shall have occurred and be
continuing;
(k) if the Lessee shall not have exercised its Purchase Option
pursuant to Section 20.1 hereof and the Lessee shall have validly exercised its
Remarketing Option pursuant to Section 22.1 hereof, the Lessee shall have
failed (A) to consummate a sale of the Property in the manner provided therein
on the Expiration Date and to pay to the Agent (or such other Person as the
Agent may direct) pursuant to such Section the Residual Value Guarantee Amount
and the other amounts required thereby, or (B) to purchase the Lessor's
interest in the Property on the Expiration Date as provided in Section 20.2
hereof and to pay to the Lessor the Asset Termination Value therefor on the
Expiration Date as required thereby;
(l) the Lessee shall have abandoned or constructively abandoned
all or any material portion of the Property for a period of 30 consecutive
days;
(m) the Lessee shall have elected to or be required to purchase
the Property pursuant to Section 16.2 hereof and such purchase shall not have
been consummated on the Termination Date pursuant to either such Section;
(n) an Event of Default (as such term is defined in the Credit
Agreement) shall have occurred and be continuing; or
(o) the Lessee shall fail to have delivered to the Agent, each
Participant and the Lessor, on or before the tenth Business Day after the date
hereof, an opinion of counsel to the Lessee addressing those matters set forth
in Exhibit C-3 of the Participation Agreement in form and substance reasonably
satisfactory to the Agent, each Participant and the Lessor.
17.2 Remedies.
Upon the occurrence of any Lease Event of Default and at any time
thereafter, the Lessor may, so long as such Lease Event of Default is
continuing, do one or more of the following as the Lessor in its sole
discretion shall determine, without limiting any other right or remedy the
Lessor may have on account of such Lease Event of Default (including, without
limitation, the obligation of the Lessee to purchase the Property as set forth
in Section 20.3):
(a) The Lessor may, by notice to the Lessee, rescind or terminate
this Lease as to all or any portion of the Property as of the date specified in
such notice; however, (i) no reletting or taking of possession of the Property
(or any portion thereof) by the Lessor will be construed as an election on the
Lessor's part to terminate this Lease unless a written notice of such intention
is
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given to the Lessee, (ii) notwithstanding any reletting or taking of
possession, the Lessor may at any time thereafter elect to terminate this Lease
for a continuing Lease Event of Default, and (iii) no act or thing done by the
Lessor or any of its agents, representatives or employees and no agreement
accepting a surrender of the Property shall be valid unless the same be made in
writing and executed by the Lessor;
(b) The Lessor may (i) demand that the Lessee, and the Lessee
shall upon the written demand of the Lessor, return the Property promptly to
the Lessor in the manner and condition required by, and otherwise in accordance
with all of the provisions of, Articles VIII, IX and X hereof as if the
Property were being returned at the end of the Term, and the Lessor shall not
be liable for the reimbursement of the Lessee for any costs and expenses
incurred by the Lessee in connection therewith and (ii) without prejudice to
any other remedy which the Lessor may have for possession of the Property, and
to the extent and in the manner permitted by Applicable Law, enter upon the
Property and take immediate possession of (to the exclusion of the Lessee) and
remove all of the Property or any part thereof, by summary proceedings or
otherwise, all without liability to the Lessee for or by reason of such entry
or taking of possession, whether for the restoration of damage to property
caused by such taking or otherwise and, in addition to the Lessor's other
damages, the Lessee shall be responsible for all costs and expenses incurred by
the Lessor and/or the Agent or the Participants in connection with any
reletting, including, without limitation, brokers' fees and all costs of any
alterations or repairs made by the Lessor;
(c) The Lessor may (i) sell all or any part of the Property at
public or private sale, as the Lessor may determine, free and clear of any
rights of the Lessee and without any duty to account to the Lessee with respect
to such action or inaction or any proceeds with respect thereto (except to the
extent required by clause (ii) below if the Lessor shall elect to exercise its
rights thereunder) in which event the Lessee's obligation to pay Basic Rent
hereunder for periods commencing after the date of such sale shall be
terminated or proportionately reduced, as the case may be; and (ii) if the
Lessor shall so elect, demand that the Lessee pay to the Lessor, and the Lessee
shall pay to the Lessor, on the date of such sale, as liquidated damages for
loss of a bargain and not as a penalty (the parties agreeing that the Lessor's
actual damages would be difficult to predict, but the aforementioned liquidated
damages represent a reasonable approximation of such amount) (in lieu of Basic
Rent due for periods commencing on or after the Payment Date coinciding with
such date of sale (or, if the sale date is not a Payment Date, the Payment Date
next preceding the date of such sale)), an amount equal to (A) the excess, if
any, of (1) the Asset Termination Value calculated as of such Payment Date
(including all Rent due and unpaid to and including such Payment Date), over
(2) the net proceeds of such sale, if any (that is, after deducting all costs
and expenses incurred by the Lessor, the Agent and the Participants incident to
such conveyance, including, without limitation, repossession costs, brokerage
commissions, prorations, transfer taxes, fees and expenses for counsel, title
insurance fees, survey costs, recording fees, and any repair or alteration
costs) plus (B) interest at the Overdue Rate on the foregoing amount from such
Payment Date until the date of payment;
(d) The Lessor may, at its option, not terminate the Lease with
respect to the Property, and continue to collect all Basic Rent, Supplemental
Rent, and all other amounts due the Lessor (together with all costs of
collection) and enforce the Lessee's obligations under this Lease as and when
the same become due, or are to be performed, and at the option of the Lessor,
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upon any abandonment of the Property by the Lessee or repossession of same by
the Lessor, the Lessor may, in its sole and absolute discretion, elect not to
terminate this Lease and may make such reasonable alterations and necessary
repairs in order to relet the Property, and relet the Property or any part
thereof for such term or terms (which may be for a term extending beyond the
Term of this Lease) and at such rental or rentals and upon such other terms and
conditions as the Lessor in its reasonable discretion may deem advisable; and
upon each such reletting all rentals actually received by the Lessor from such
reletting shall be applied to the Lessee's obligations hereunder and the other
Operative Documents in such order, proportion and priority as the Lessor may
elect in the Lessor's sole and absolute discretion. If such rentals received
from such reletting during any period be less than the Rent with respect to the
Property to be paid during that period by the Lessee hereunder, the Lessee
shall pay any deficiency, as calculated by the Lessor, to the Lessor on the
next Payment Date;
(e) Unless the Property has been sold in its entirety, the Lessor
may, whether or not the Lessor shall have exercised or shall thereafter at any
time exercise any of its rights under paragraph (b), (c) or (d) of this Section
17.2 with respect to the Property or portions thereof, demand, by written
notice to the Lessee specifying a date (a "Termination Date") not earlier than
10 days after the date of such notice, that the Lessee purchase, on such
Termination Date, the Property (or the remaining portion thereof) in accordance
with the provisions of Article XIX and Section 20.2;
(f) The Lessor may exercise any other right or remedy that may be
available to it under Applicable Law, or proceed by appropriate court action
(legal or equitable) to enforce the terms hereof or to recover damages for the
breach hereof. Separate suits may be brought to collect any such damages for
any period(s), and such suits shall not in any manner prejudice the Lessor's
right to collect any such damages for any subsequent period(s), or the Lessor
may defer any such suit until after the expiration of the Term, in which event
such suit shall be deemed not to have accrued until the expiration of the Term;
or
(g) The Lessor may retain and apply against the Lessor's damages
all sums which the Lessor would, absent such Lease Event of Default, be
required to pay to, or turn over to, the Lessee pursuant to the terms of this
Lease.
17.3 Waiver of Certain Rights.
If this Lease shall be terminated pursuant to Section 17.2, the Lessee
waives, to the fullest extent permitted by law, (a) any notice of re-entry or
the institution of legal proceedings to obtain re-entry or possession; (b) any
right of redemption, re-entry or repossession; (c) the benefit of any laws now
or hereafter in force exempting property from liability for rent or for debt or
limiting the Lessor with respect to the election of remedies; and (d) any other
rights which might otherwise limit or modify any of the Lessor's rights or
remedies under this Article XVII.
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17.4 Power of Sale and Foreclosure.
In the event that a court of competent jurisdiction rules that this
Lease constitutes a mortgage, deed of trust or other secured financing as is
the intent of the parties pursuant to Section 7.1, and subject to the
availability of such remedy under applicable law, then the Lessor and the
Lessee agree that (i) the Lessee hereby grants a Lien against the Property WITH
POWER OF SALE, and that, upon the occurrence of any Lease Event of Default the
Lessor shall have the power and authority, to the extent provided by law, after
proper notice and lapse of such time as may be required by law, to sell the
Property at the time and place of sale fixed by the Lessor in said notice of
sale, either as a whole, or in separate lots or parcels or items and in such
order as the Lessor may elect, at auction to the highest bidder for cash in
lawful money of the United States payable at the time of sale; accordingly, it
is acknowledged that A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT; A
POWER OF SALE MAY ALLOW THE LESSOR TO TAKE THE PROPERTY AND SELL IT WITHOUT
GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE LESSEE UNDER THIS
INSTRUMENT, and (ii) upon the occurrence of a Lease Event of Default, the
Lessor, in lieu of or in addition to exercising any power of sale hereinabove
given, may proceed by a suit or suits in equity or at law, whether for a
foreclosure hereunder, or for the sale of the Property, or against the Lessee
on a recourse basis for the Asset Termination Value, or the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for the appointment of a receiver
pending any foreclosure hereunder or the sale of the Property, or for the
enforcement of any other appropriate legal or equitable remedy.
17.5 Remedies Cumulative.
The remedies herein provided shall be cumulative and in addition to
(and not in limitation of) any other remedies available at law, equity or
otherwise, including, without limitation, any mortgage foreclosure remedies.
17.6 Lessee's Right to Cure.
Notwithstanding any provision contained in the Lease or any other
Operative Agreement, if a Lease Event of Default has occurred and is
continuing, the Lessee shall have the right to cure such Lease Event of Default
by exercising its Purchase Option at any time prior to such time as a
foreclosure upon or sale of the Property has been completed.
ARTICLE XVIII
18.1 The Lessor's Right to Cure the Lessee's Lease Defaults.
The Lessor, without waiving or releasing any obligation or Lease Event
of Default, may (but shall be under no obligation to) remedy any Lease Default
or Lease Event of Default for the account and at the sole cost and expense of
the Lessee, including the failure by the Lessee to maintain the insurance
required by Article XIV, and may, to the fullest extent permitted by law, and
notwithstanding any right of quiet enjoyment in favor of the Lessee, enter upon
the Property for such purpose and take all such action thereon as may be
necessary or appropriate therefor. No such entry shall be deemed an eviction
of the Lessee. All out-of-pocket costs and expenses so incurred (including
fees and expenses of counsel), together with interest thereon at the
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Overdue Rate from the date on which such sums or expenses are paid by the
Lessor, shall be paid by the Lessee to the Lessor on demand, as Supplemental
Rent.
ARTICLE XIX
19.1 Provisions Relating to the Lessee's Termination of this Lease
or Exercise of Purchase Option or Obligation and Conveyance Upon
Remarketing and Conveyance Upon Certain Other Events.
(a) In connection with any termination of this Lease pursuant to
the terms of Section 16.2, or in connection with the Lessee's exercise of its
Purchase Option or Expiration Date Purchase Obligation, upon the date on which
this Lease is to terminate or upon the Expiration Date, and upon tender by the
Lessee of the amounts set forth in Sections 10.1(c), 16.2(b), 20.1, 20.2 or
20.3, as applicable, the Lessor shall execute and deliver to the Lessee (or to
the Lessee's designee) at the Lessee's cost and expense an assignment without
recourse of the Lessor's entire interest in the Equipment (which shall include
a release, quitclaim and assignment of all of the Lessor's right, title and
interest in and to any Net Proceeds not previously received by the Lessor),
subject to any encumbrance caused by the fault, neglect or intention of the
Lessee, in recordable form and otherwise in conformity with local custom and
free and clear of any Lessor Liens attributable to the Lessor. The Equipment
shall be conveyed to the Lessee "AS IS" and in its then present condition of
title and physical condition.
(b) If the Lessee properly exercises the Remarketing Option, then
the Lessee shall, on the Expiration Date, and at its own cost, transfer
possession of the Property to the independent purchaser thereof, by
surrendering the same into the possession of the Lessor or such purchaser, as
the case may be, free and clear of all Liens other than Lessor Liens and
Permitted Liens of the type described in clause (vii) of the definition of
Permitted Liens, in good condition (as modified by Modifications permitted by
this Lease), ordinary wear and tear excepted and in compliance with Applicable
Law. The Lessee shall cooperate reasonably with the Lessor and the independent
purchaser of the Property in order to facilitate the purchase by such purchaser
of the Property which cooperation shall include the following, all of which the
Lessee shall do on or before the Expiration Date: providing all books and
records regarding the maintenance and ownership of the Property and all
know-how, data and technical information relating thereto in the possession of
the Lessee or as to which the Lessee shall have rights therein, providing a
current copy of the "as built" Plans and Specifications for the Property,
granting or assigning all licenses necessary for the operation and maintenance
of the Property and cooperating reasonably in seeking and obtaining all
necessary Governmental Action. The obligations of the Lessee under this
paragraph shall survive the expiration or termination of this Lease.
ARTICLE XX
20.1 Purchase Option.
Without limitation of the Lessee's purchase obligation pursuant to
Sections 20.2 or 20.3, unless the Lessee shall have given notice of its
intention to exercise the Remarketing Option and the Lessor shall have entered
into a binding contract to sell the Property, the Lessee shall have
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the option (exercisable by giving the Lessor irrevocable written notice (the
"Purchase Notice") of the Lessee's election to exercise such option) to
purchase, or to designate a third party to purchase, the Property on the date
specified in such Purchase Notice, which date shall be a Payment Date. The
purchase price shall be equal to the Asset Termination Value (including all
amounts owing in respect of Rent (including Supplemental Rent) theretofore
accruing) (the "Purchase Option Price"). The Lessee shall deliver the Purchase
Notice to the Lessor not less than thirty (30) days prior to the purchase date.
If the Lessee exercises its option to purchase the Property pursuant to this
Section 20.1 (the "Purchase Option"), the Lessor shall transfer to the Lessee
all of the Lessor's right, title and interest in and to the Property as of the
date specified in the Purchase Notice upon receipt of the Purchase Option Price
(including all Rent and other amounts then due and payable under this Lease and
any other Operative Document), in accordance with Section 19.l(a).
20.2 Expiration Date Purchase Obligation.
Unless (a) the Lessee shall have properly exercised the Purchase
Option pursuant to Section 20.1 and purchased the Property pursuant thereto,
(b) the Lessee shall have properly exercised the Remarketing Option and shall
have fulfilled all of the conditions of clauses (a) through (k) of Section 22.1
hereof and the Lessor shall have sold its interest in the Property pursuant
thereto, or (c) the Lessee shall have properly exercised the Renewal Option
pursuant to Section 21.1, then, subject to the terms, conditions and provisions
set forth in this Article, and in accordance with the terms of Section 19.1(a),
the Lessee shall purchase from the Lessor, and the Lessor shall assign to the
Lessee without recourse, on the Expiration Date of the Term (as such Term may
be renewed pursuant to Section 21.1) all of the Lessor's right, title and
interest in the Property for an amount equal to the Asset Termination Value.
The Lessee may designate, in a notice given to the Lessor not less than ten
(10) Business Days prior to the closing of such purchase (time being of the
essence), the transferee or transferees to whom the conveyance shall be made
(if other than to the Lessee), in which case such conveyance shall (subject to
the terms and conditions set forth herein) be made to such designee; provided,
however, that such designation of a transferee or transferees shall not cause
the Lessee to be released, fully or partially, from any of its obligations
under this Lease, including, without limitation, the obligation to pay the
Lessor an amount equal to the Asset Termination Value that was not fully and
finally paid by such designee on such Expiration Date.
20.3 Acceleration of Purchase Obligation.
(a) The Lessee shall be obligated to purchase for an amount equal
to the Asset Termination Value the Lessor's interest in the Property
(notwithstanding any prior election to exercise its Purchase Option pursuant to
Section 20.1) (i) automatically and without notice upon the occurrence of any
Lease Event of Default specified in clause (f) or (g) of Section 17.1, and (ii)
as provided for at Section 17.2(e) immediately upon written demand of the
Lessor upon the occurrence of any other Lease Event of Default.
(b) The Lessee shall be obligated to purchase for an amount equal
to the Asset Termination Value (including all amounts owing in respect of Rent
(including Supplemental Rent) theretofore accruing) immediately upon written
demand of the Lessor the Lessor's interest
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in the Property at any time during the Term when the Lessor ceases to have
title as contemplated by Section 12.1.
ARTICLE XXI
21.1 Renewal.
(a) Subject to the conditions set forth herein, the Lessee shall
have three options (the "Renewal Options") by written notice (the "Renewal
Request") to the Lessor, each Participant and the Agent given not later than
120 days prior to the Expiration Date then in effect, to renew the Term for
periods of one-year each commencing on the date following the Expiration Date
then in effect. The renewal of the Term contemplated by any Renewal Request
shall become effective as of the date following the Expiration Date then in
effect; provided that such renewal shall be subject to and conditioned upon the
following:
(A) on both the Expiration Date then in effect
and the date of the Renewal Request, (i) no Lease
Default or Lease Event of Default shall have occurred
and be continuing, and (ii) the Lessor and the Agent
shall have received a Responsible Officer's
Certificate of the Lessee as to the matters set forth
in clause (i) above, and
(B) the Lessee shall not have exercised the
Remarketing Option.
(b) Each renewal of this Lease shall be on the same terms and
conditions as are set forth in this Lease for the original Term, with such
modifications thereto, if any, as the parties hereto and to the other Operative
Documents may negotiate based upon the current credit information regarding the
Lessee, interest rates and such other factors as the Lessor may consider
relevant. No more than three Renewal Terms shall be permitted hereunder.
ARTICLE XXII
22.1 Option to Remarket.
Subject to the fulfillment of each of the conditions set forth in this
Section 22.1, the Lessee shall have the option (the "Remarketing Option") to
market for the Lessor and complete the sale of all, but not less than all, of
the Lessor's interest in the Property on the Expiration Date for the Lessor.
The Lessee's effective exercise and consummation of the Remarketing Option
shall be subject to the due and timely fulfillment of each of the following
provisions as of the dates set forth below.
(a) Not later than one hundred twenty (120) days prior to the
Expiration Date, the Lessee shall give to the Lessor written notice of the
Lessee's exercise of the Remarketing Option, which exercise shall be
irrevocable (except by delivery of a Purchase Notice and consummation of the
exercise of the Purchase Option prior to the earlier of (i) the Expiration Date
or (ii) the date on which the Lessor enters into a binding contract to sell the
Property pursuant to the exercise of the Remarketing Option).
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<PAGE> 29
(b) [RESERVED].
(c) On the date of the Lessee's notice to the Lessor of the
Lessee's exercise of the Remarketing Option, no Lease Event of Default or Lease
Default shall exist, and thereafter, no uncured Lease Event of Default or Lease
Default shall exist.
(d) The Lessee shall have completed all Modifications, restoration
and rebuilding of the Property pursuant to Sections 11.1 and 15.1 (as the case
may be) and shall have fulfilled all of the conditions and requirements in
connection therewith pursuant to said Sections, in each case by the date on
which the Lessor receives the Lessee's notice of the Lessee's exercise of the
Remarketing Option (time being of the essence), regardless of whether the same
shall be within the Lessee's control. The Lessee shall have also paid the cost
of all Modifications commenced prior to the Expiration Date. The Lessee shall
not have been excused pursuant to Section 13.1 from complying with any
Applicable Law that involved the extension of the ultimate imposition of such
Applicable Law beyond the last day of the Term. Any Permitted Liens on the
Property that were contested by the Lessee shall have been removed.
(e) During the Marketing Period, the Lessee shall, as nonexclusive
agent for the Lessor, use commercially reasonable efforts to sell the Lessor's
interest in the Property on or prior to the Expiration Date (without
diminishing the Lessee's obligation to consummate the sale on the Expiration
Date) and will attempt to obtain the highest purchase price therefor and for
not less than the Fair Market Sales Value. The Lessee will be responsible for
hiring and compensating brokers and making the Property available for
inspection by prospective purchasers. The Lessee shall promptly upon request
permit inspection of the Property and any maintenance records relating to the
Property by the Lessor, any Participant and any potential purchasers, and shall
otherwise do all things necessary to sell and deliver possession of the
Property to any purchaser. All such marketing of the Property shall be at the
Lessee's sole expense. The Lessee shall allow the Lessor and any potential
qualified purchaser reasonable access to the Property for the purpose of
inspecting the same.
(f) The Lessee shall submit all bids to the Lessor, the Agent and
the Participants, and the Lessor will have the right to review the same and the
right to submit any one or more bids. All bids shall be on an all-cash basis
unless the Lessor, the Agent and the Participants shall otherwise agree in
their sole discretion. The Lessee shall procure bids from one or more bona
fide prospective purchasers and shall deliver to the Lessor, the Agent and the
Participants not less than ninety (90) days prior to the Expiration Date a
binding written unconditional (except as set forth below), irrevocable offer by
such purchaser or purchasers offering the highest bid to purchase the Property.
No such purchaser shall be the Lessee, or any Subsidiary or Affiliate of the
Lessee. The written offer must specify the Expiration Date as the closing date
unless the Lessor, the Agent and the Participants shall otherwise agree in
their sole discretion.
(g) In connection with any such sale of the Property, the Lessee
will provide to the purchaser all customary "seller's" indemnities,
representations and warranties regarding title, absence of Liens (except Lessor
Liens) and the condition of the Property, as well as such other terms and
conditions as may be negotiated between the Lessee and the purchaser. The
Lessee shall have obtained, at its cost and expense, all required governmental
and regulatory consents
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and approvals and shall have made all filings as required by Applicable Law in
order to carry out and complete the transfer of the Property. As to the
Lessor, any such sale shall be made on an "as is, with all faults" basis
without representation or warranty by the Lessor other than the absence of
Lessor Liens. Any agreement as to such sale shall be made subject to the
Lessor's rights hereunder.
(h) The Lessee shall pay directly, and not from the sale proceeds,
all prorations, credits, costs and expenses of the sale of the Property,
whether incurred by the Lessor or the Lessee, including without limitation, the
cost of all title insurance, surveys, environmental reports, appraisals,
transfer taxes, the Lessor's and the Agent's reasonable attorneys' fees, the
Lessee's attorneys' fees, commissions, escrow fees, recording fees, and all
applicable documentary and other transfer taxes.
(i) The Lessee shall pay to the Agent on or prior to the
Expiration Date (or to such other Person as the Agent shall notify the Lessee
in writing, or in the case of Supplemental Rent, to the Person entitled
thereto) an amount equal to the Residual Value Guarantee Amount, including all
Rent and all other amounts hereunder which have accrued or will accrue prior to
or as of the Expiration Date, in the type of funds specified in Section 3.4
hereof.
(j) If the selling price of the Property is less than the
difference between the Asset Termination Value minus the Residual Value
Guarantee Amount, then the Lessee shall have caused to be delivered to the
Lessor, the Agent and each Participant the appraisal required by Section 13.2
of the Participation Agreement thirty (30) Business Days prior to the
Expiration Date and shall pay to the Agent on or prior to the Expiration Date
(or to such other person as the Agent shall notify the Lessee in writing) the
amounts required to be paid pursuant to Section 13.2 of the Participation
Agreement.
(k) The purchase of the Property shall be consummated on the
Expiration Date following the payment by the Lessee pursuant to paragraphs (i)
and (j) above and contemporaneously with the Lessee's surrender of the Property
pursuant to Section 19.1(b) and the gross proceeds (the "Gross Proceeds") of
the sale of the Property (i.e., without deduction for any marketing, closing or
other costs, prorations or commissions) shall be paid directly to the Agent;
provided, however, that if the sum of the Gross Proceeds from such sale plus
the Residual Value Guarantee Amount paid by the Lessee pursuant to paragraph
(i) above exceeds the Asset Termination Value as of such date, then the excess
shall be paid to the Lessee on the Expiration Date.
If one or more of the foregoing provisions shall not be fulfilled as of the
date set forth above, or the Property is not purchased as aforesaid, then the
Lessor shall declare by written notice to the Lessee the Remarketing Option to
be null and void (whether or not it has been theretofore exercised by the
Lessee) as to the Property, in which event all of the Lessee's rights under
this Section 22.1 shall immediately terminate and the Lessee shall be obligated
to purchase all of the Lessor's interest in the Property pursuant to Section
20.2 on the Expiration Date. Except as expressly set forth herein, the Lessee
shall have no right, power or authority to bind the Lessor in connection with
any proposed sale of the Property.
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22.2 Certain Obligations Continue.
During the Marketing Period, the obligation of the Lessee to pay Rent
(including the installment of Basic Rent due on the third anniversary of the
Closing Date or at the end of a Renewal Term, or on the Expiration Date, as the
case may be) shall continue undiminished until payment in full to the Agent of
the Gross Proceeds, the Residual Value Guarantee Amount, and all other amounts
due to the Lessor with respect to the Property under the Operative Documents.
The Lessor shall have the right, but shall be under no duty, to solicit bids,
to inquire into the efforts of the Lessee to obtain bids or otherwise to take
action in connection with any such sale, other than as expressly provided in
this Article XXII.
22.3 Support Obligations.
In the event that the Lessee does not elect to purchase the Property
on the Expiration Date or, pursuant to the Lessor's exercise of remedies under
Article XVII, this Lease is terminated, the Lessee shall provide the Lessor,
effective on the Expiration Date, with (i) all permits, certificates of
occupancy, governmental licenses and authorizations necessary to use and
operate the Property for its intended purposes (to the extent such items are
transferable or may be obtained by the Lessee on behalf of another party), (ii)
such easements, licenses, rights-of-way and other rights and privileges in the
nature of an easement as are reasonably necessary or desirable in connection
with the use, repair, access to or maintenance of the Property as the Lessor
shall request, and (iii) a services agreement covering such services as the
Lessor may request in order to use and operate the Property for its intended
purposes at such rates (not in excess of arm's length fair market rates) as
shall be acceptable to the Lessor and the Lessee. All assignments, licenses,
easements, agreements and other deliveries required by clauses (i) and (ii) of
this Section 22.3 shall be in form satisfactory to the Lessor and shall be
fully assignable (including both primary assignments and assignments given in
the nature of security) without payment of any fee, cost or other charge.
ARTICLE XXIII
23.1 Holding Over.
If the Lessee shall for any reason remain in possession of the
Property after the expiration or earlier termination of this Lease (unless the
Property is conveyed to the Lessee), such possession shall be as a tenancy at
sufferance during which time the Lessee shall continue to pay Supplemental Rent
that would be payable by the Lessee hereunder were the Lease then in full force
and effect and the Lessee shall continue to pay Basic Rent at an annual rate
equal to 110% of the average rate of Basic Rent payable hereunder during the
Term. Such Basic Rent shall be payable from time to time upon demand by the
Lessor. During any period of tenancy at sufferance, the Lessee shall, subject
to the second preceding sentence, be obligated to perform and observe all of
the terms, covenants and conditions of this Lease, but shall have no rights
hereunder other than the right, to the extent given by law to tenants at
sufferance, to continue its occupancy and use of the Property and to exercise
its Purchase Option at any time prior to such time as a foreclosure upon or
sale of the Property has been completed. Nothing contained in this Article
XXIII shall constitute the consent, express or implied, of the Lessor to the
holding over of
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the Lessee after the expiration or earlier termination of this Lease (unless
the Property is conveyed to the Lessee), and nothing contained herein shall be
read or construed to relieve the Lessee of its obligations to purchase or
remarket the Property on the Expiration Date pursuant to Article XX or Article
XXII or as preventing the Lessor from maintaining a suit for possession of the
Property or exercising any other remedy available to the Lessor at law or in
equity or hereunder.
ARTICLE XXIV
24.1 Risk of Loss.
During the Term the risk of loss of or decrease in the enjoyment and
beneficial use of the Property as a result of the damage or destruction thereof
by fire, the elements, casualties, thefts, riots, wars or otherwise is assumed
by the Lessee, and the Lessor shall in no event be answerable or accountable
therefor.
ARTICLE XXV
25.1 Subletting and Assignment.
The Lessee may assign with recourse this Lease or any of its rights or
obligations hereunder in whole or in part to any Person, in which case the
Lessee and the Guarantor shall guarantee performance of the obligations of such
assignee under this Lease by a guaranty in form and substance acceptable to the
Lessor and the Required Participants. The Lessee may, without the consent of
the Lessor, sublease the Property or portion thereof to any Person, provided,
that no such sublease shall, in the opinion of the Lessor, adversely affect any
of the Lessor's interests, rights or remedies under the Lease or the Lessor's
title to the Property. No assignment, sublease or other relinquishment of
possession of the Property shall in any way discharge or diminish any of the
Lessee's obligations to the Lessor hereunder and the Lessee shall remain
directly and primarily liable under this Lease as to the Property, or portion
thereof, so assigned or sublet. Any sublease of the Property shall be made
subject to and subordinated to this Lease and to the rights of the Lessor
hereunder, and shall expressly provide for the surrender of the Property (or
portion thereof) after a Lease Event of Default hereunder. All such subleases
shall expressly provide for termination at or prior to the earlier of the
applicable Expiration Date or other date of termination of this Lease unless
the Lessee shall have purchased the Property pursuant to Article XX. No
assignee or sublessee shall be permitted to engage in any activities on the
Property that are substantially different from those engaged in by the Lessee
without the prior written consent of the Lessor. The Lessee shall furnish a
copy of all subleases to the Lessor and the Agent promptly after their
execution.
ARTICLE XXVI
26.1 Estoppel Certificates.
At any time and from time to time upon not less than twenty (20) days'
prior request by the Lessor or the Lessee (the "Requesting Party"), the other
party (whichever party shall have received such request, the "Certifying
Party") shall furnish to the Requesting Party (but not more
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than four times per year unless required to satisfy the requirements of any
sublessees and only to the extent that the required information has been
provided to the Certifying Party by the other party) a certificate signed by an
individual having the office of vice president or higher in the Certifying
Party certifying that this Lease is in full force and effect (or that this
Lease is in full force and effect as modified and setting forth the
modifications); the dates to which the Basic Rent and Supplemental Rent have
been paid; to the best knowledge of the signer of such certificate, whether or
not the Requesting Party is in default under any of its obligations hereunder
(and, if so, the nature of such alleged default); and such other matters under
this Lease as the Requesting Party may reasonably request. Any such
certificate furnished pursuant to this Article XXVI may be relied upon by the
Requesting Party, and any existing or prospective mortgagee, purchaser or
lender, and any accountant or auditor, of, from or to the Requesting Party (or
any Affiliate thereof).
ARTICLE XXVII
27.1 Right to Inspect.
During the Term, the Lessee shall upon reasonable notice from the
Lessor (except that no notice shall be required if a Lease Event of Default has
occurred and is continuing), permit the Lessor, the Agent and their respective
authorized representatives to inspect the Property during normal business
hours, provided that such inspections shall not unreasonably interfere with the
Lessee's business operations at the Property.
27.2 No Waiver.
No failure by the Lessor or the Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy upon a
default hereunder, and no acceptance of full or partial payment of Rent during
the continuance of any such default, shall constitute a waiver of any such
default or of any such term. To the fullest extent permitted by law, no waiver
of any default shall affect or alter this Lease, and this Lease shall continue
in full force and effect with respect to any other then existing or subsequent
default.
ARTICLE XXVIII
28.1 Acceptance of Surrender.
No surrender to the Lessor of this Lease or of all or any portion of
any Property or of any part of any thereof or of any interest therein shall be
valid or effective unless agreed to and accepted in writing by the Lessor and,
prior to the payment or performance of all obligations under the Participation
Agreement and termination of the Commitments, the Agent, and no act by the
Lessor or the Agent or any representative or agent of the Lessor or the Agent,
other than a written acceptance, shall constitute an acceptance of any such
surrender.
- 28 -
<PAGE> 34
ARTICLE XXVIX
29.1 [RESERVED].
ARTICLE XXX
30.1 Notices.
All notices, demands, requests, consents, approvals and other
communications hereunder shall be in writing and delivered (i) personally, (ii)
by a nationally recognized overnight courier service, (iii) by mail (by
registered or certified mail, return receipt requested, postage prepaid) or
(iv) by facsimile, addressed to the respective parties, as follows:
If to the Lessee:
Chase Brass & Copper Company, Inc.
State Route 15N
14212 Country Road M-50
Montpelier, Ohio 43543
Attention: Corporate Secretary
Telephone: (419) 485-3193
Facsimile: (419) 485-8150
If to the Lessor:
ABN AMRO Bank N.V., Chicago Branch
Central Processing Unit
135 South LaSalle Street
Suite 2805
Chicago, Illinois 60603
Attention: Credit Administration
Telephone: (312) 904-8840
Facsimile: (312) 904-8835
with a copy to:
ABN AMRO Bank N.V.,
One PPG Place, Suite 2950
Pittsburgh, Pennsylvania 15222-5401
Attention: Mr. Christopher S. Helmeci
Telephone: (412) 566-0984
Facsimile: (412) 566-2266
- 29 -
<PAGE> 35
If to the Agent:
ABN AMRO Bank N.V., Chicago Branch
Central Processing Unit
135 South LaSalle Street
Suite 2805
Chicago, Illinois 60603
Attention: Credit Administration
Telephone: (312) 904-8840
Facsimile: (312) 904-8835
with a copy to:
ABN AMRO Bank N.V.,
One PPG Place, Suite 2950
Pittsburgh, Pennsylvania 15222-5401
Attention: Mr. Christopher S. Helmeci
Telephone: (412) 566-0984
Facsimile: (412) 566-2266
or such additional parties and/or other address as such party may hereafter
designate (provided, however, in no event shall either party be obligated to
notify, in the aggregate, more than five (5) designees of the other party), and
shall be effective upon receipt or refusal thereof.
ARTICLE XXXI
31.1 Miscellaneous.
Anything contained in this Lease to the contrary notwithstanding, all
claims against and liabilities of the Lessee or the Lessor arising from events
commencing prior to the expiration or earlier termination of this Lease shall
survive such expiration or earlier termination. If any term or provision of
this Lease or any application thereof shall be declared invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby. If any right or option of the
Lessee provided in this Lease, including any right or option described in
Articles XV, XVI, XX, XXI or XXII, would, in the absence of the limitation
imposed by this sentence, be invalid or unenforceable as being in violation of
the rule against perpetuities or any other rule of law relating to the vesting
of an interest in or the suspension of the power of alienation of property,
then such right or option shall be exercisable only during the period which
shall end twenty-one (21) years after the date of death of the last survivor of
the descendants of Franklin D. Roosevelt, the former president of the United
States, Henry Ford, the deceased automobile manufacturer, and John D.
Rockefeller, the founder of the Standard Oil Company, known to be alive on the
date of the execution, acknowledgment and delivery of this Lease.
- 30 -
<PAGE> 36
31.2 Amendments and Modifications.
Subject to the requirements, restrictions and conditions set forth in
the Participation Agreement, neither this Lease, any Lease Supplement nor any
provision hereof may be amended, waived, discharged or terminated except by an
instrument in writing in recordable form signed by the Lessor and the Lessee.
31.3 Successors and Assigns.
All the terms and provisions of this Lease shall inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
31.4 Headings and Table of Contents.
The headings and table of contents in this Lease are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
31.5 Counterparts.
This Lease may be executed in any number of counterparts, each of
which shall be an original, but all of which shall together constitute one and
the same instrument.
31.6 GOVERNING LAW.
THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS
OF LAW PRINCIPLES. WITHOUT LIMITING THE FOREGOING, IN THE EVENT THAT THIS
LEASE IS DEEMED TO CONSTITUTE A FINANCING, WHICH IS THE INTENTION OF THE
PARTIES, THE LAW OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, SHALL GOVERN THE CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS
EVIDENCED HEREBY, BUT THE LIEN CREATED HEREBY AND THE ENFORCEMENT OF SAID LIEN
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE IN
WHICH THE PROPERTY IS LOCATED.
31.7 Limitations on Recourse.
The parties hereto agree that the Lessor shall have no personal
liability whatsoever to the Lessee or its respective successors and assigns for
any claim based on or in respect of this Lease or any of the other Operative
Documents or arising in any way from the transactions contemplated hereby or
thereby; provided, however, that the Lessor shall be liable in its individual
capacity (a) for its own willful misconduct or gross negligence (or negligence
in the handling of funds), (b) for liabilities that may result from the
incorrectness of any representation or warranty expressly made by it in Section
8.1 of the Participation Agreement or (c) for any Taxes based on or measured by
any fees, commission or compensation received by it for acting as the Lessor as
contemplated by the Operative Documents. It is understood and agreed that,
except as provided in the preceding proviso: (i) the Lessor shall have no
personal liability under
- 31 -
<PAGE> 37
any of the Operative Documents as a result of acting pursuant to and consistent
with any of the Operative Documents; (ii) all obligations of the Lessor to the
Lessee are solely nonrecourse obligations, except to the extent that it has
received payment from others and are enforceable solely against the Lessor's
interest in the Property; and (iii) all such personal liability of the Lessor
is expressly waived and released as a condition of, and as consideration for,
the execution and delivery of the Operative Documents by the Lessor.
31.8 Original Lease.
The single executed original of this Lease marked "THIS COUNTERPART IS
THE ORIGINAL EXECUTED COUNTERPART" on the signature page thereof and containing
the receipt of the Agent therefor on or following the signature page thereof
shall be the Original Executed Counterpart of this Lease (the "Original
Executed Counterpart"). To the extent that this Lease constitutes chattel
paper, as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction, no security interest in this Lease may be created
through the transfer or possession of any counterpart other than the Original
Executed Counterpart.
[SIGNATURE PAGE FOLLOWS]
- 32 -
<PAGE> 38
IN WITNESS WHEREOF, the parties have caused this Lease be duly
executed and delivered as of the date first above written.
ABN AMRO BANK N.V., as Lessor
By: /s/ CHRISTOPHER S. HELMECI
--------------------------------
Name: Christopher S. Helmeci
Title: Vice President
By: /s/ LOUIS K. MCLINDEN, JR.
--------------------------------
Name: Louis K. McLinden, Jr.
Title: Vice President
CHASE BRASS & COPPER COMPANY, INC.,
a Delaware corporation, as Lessee
By: /s/ M.T. SEGRAVES
--------------------------------
Name: M.T. Segraves
------------------------------
Title: CFO
-----------------------------
S-1
<PAGE> 39
COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF ALLEGHENY )
Before me, the undersigned, a Notary Public within and for the State and County
aforesaid, personally appeared Christopher S. Helmeci, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged himself to be an Vice President of ABN AMRO
BANK N.V., the within named bargainor, a corporation, and that he as such Vice
President, being duly authorized so to do, executed the foregoing instrument
for the purposes therein contained by signing the name of the corporation by
himself as such Vice President.
WITNESS my hand and seal, at office, on this the 22nd day of December, 1997.
/s/ SUSAN T. MARTIN
--------------------------------
Notary Public
My Commission Expires:
Notary Seal
Susan T. Martin, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Oct. 3, 1993
- --------------------------------------------
Member, Pennsylvania Association of Notaries
<PAGE> 40
COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF ALLEGHENY )
Before me, the undersigned, a Notary Public within and for the State and County
aforesaid, personally appeared Louis K. McLinden, Jr., with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged himself to be an Vice President of ABN AMRO
BANK N.V., the within named bargainor, a corporation, and that he as such Vice
President, being duly authorized so to do, executed the foregoing instrument
for the purposes therein contained by signing the name of the corporation by
himself as such Vice President.
WITNESS my hand and seal, at office, on this the 22nd day of December, 1997.
/s/ SUSAN T. MARTIN
--------------------------------
Notary Public
My Commission Expires:
Notary Seal
Susan T. Martin, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Oct. 3, 1993
- --------------------------------------------
Member, Pennsylvania Association of Notaries
<PAGE> 41
STATE OF OHIO )
) SS.:
COUNTY OF WILLIAMS )
Before me, the undersigned, a Notary Public within and for the State and County
aforesaid, personally appeared M.T. Segraves, with whom I am personally
acquainted (or proved to me on the basis of satisfactory evidence), and who,
upon oath, acknowledged himself to be the CFO of CHASE BRASS & COPPER COMPANY,
INC., the within named bargainor, a corporation, and that he as such CFO, being
duly authorized so to do, executed the foregoing instrument for the purposes
therein contained by signing the name of the corporation by himself as such CFO.
WITNESS my hand and seal, at office, on this the 22nd day of December, 1997.
/s/ LORI M. DOUGLASS
--------------------------------
Notary Public
My Commission Expires:
LORI M. DOUGLASS
Notary Public, State of Ohio
My Commission Expires Oct. 28, 2000
- -----------------------------------------
<PAGE> 42
THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART.
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged as of December 23, 1997.
ABN AMRO BANK N.V., as Agent
By: /s/ CHRISTOPHER S. HELMECI
-----------------------------------
Name: Christopher S. Helmeci
Title: Vice President
By: /s/ LOUIS K. McLINDEN, JR.
-----------------------------------
Name: Louis K. McLinden, Jr.
Title: Vice President
<PAGE> 1
EXHIBIT 10.20
LEASE SUPPLEMENT NO. 1
THIS LEASE SUPPLEMENT NO. 1 (this "Lease Supplement") dated as of
December 23, 1997, between ABN AMRO Bank N.V., a bank organized under the laws
of The Netherlands, not in its individual capacity but solely as lessor (the
"Lessor"), and Chase Brass & Copper Company, Inc., a Delaware corporation, as
lessee (the "Lessee").
WITNESSETH:
WHEREAS, the Lessor and the Lessee have entered into that certain
Master Lease, dated as of December 23, 1997 (the "Lease");
WHEREAS, the Participation Agreement and the Lease provide that on
each Closing Date, the Lessee shall deliver to the Lessor a Bill of Sale dated
such date by which the Lessee bargains, conveys, assigns, sets over, sells and
delivers to the Lessor, and the Lessor purchases and accepts from the Lessee,
the Equipment to be conveyed on such Closing Date, and said Bill of Sale has
been delivered by the Lessee and accepted by the Lessor on such Closing Date;
WHEREAS, the Lease provides for the execution and delivery of a Lease
Supplement substantially in the form hereof for the purpose of confirming the
acceptance and lease of such Equipment under the Lease as and when delivered by
the Lessor to the Lessee in accordance with the terms thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. Definitions; Interpretation. For purposes of this
Lease Supplement, capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to them in Appendix 1 to the Lease and
the rules of interpretation set forth in Appendix 1 to the Lease shall apply to
this Lease Supplement.
SECTION 2. Equipment. The Equipment leased hereunder shall be
as set forth in the schedule attached hereto as Annex A.
TOTAL PROPERTY IMPROVEMENTS COST: $10,000,000.00
SECTION 3. Term. Effective upon the execution and delivery of
this Lease Supplement by the Lessor and the Lessee, the Property shall be
subject to the terms and provisions provided herein and in the Lease (which is
incorporated herein by reference). Subject to the terms and conditions of the
Lease, the Lessor hereby leases to the Lessee for the Term (as defined below)
of the Lease, the
<PAGE> 2
Lessor's interest in the Property, and the Lessee hereby agrees, expressly for
the direct benefit of the Lessor, to lease from the Lessor for the Term, the
Lessor's interest in the Property.
SECTION 4. Rent. From and after the date hereof, the Basic Rent
for said Equipment during the Basic Lease Term shall be payable on the dates
and in the amounts as more particularly set forth in Annex B attached hereto
and Article III of the Lease which is incorporated herein by reference.
SECTION 5. Lessee Confirmation. Lessee hereby confirms and
warrants to Lessor that the Equipment: (a) was duly delivered to Lessee on or
prior to the date hereof at the locations specified in Section 6 hereof; (b)
has been received, inspected and determined to be in compliance with all
applicable specifications and that the Equipment is hereby accepted for all
purposes of the Lease; and (c) is a part of the "Equipment" referred to in the
Lease and is taken subject to all terms and conditions therein and herein
provided.
SECTION 6. Location of Equipment. The locations of the
Equipment are specified on the Schedule of Equipment attached hereto as Annex
A.
SECTION 7. Financing Statements. Annex C attached hereto
specifies the location of all UCC financing statements or other similar
documents under applicable law covering the Equipment.
SECTION 8. Parties and Addresses. The Lease is dated as of
December 23, 1997, between the Lessor, whose principal office is at 135 South
LaSalle Street, Chicago, Illinois 60603 and the Lessee, whose principal office
is State Route 15N, 14212 County Road M-50, Montpelier, Ohio 43543.
SECTION 9. Lease Term. The term of this Lease (the "Term")
shall begin on December 23, 1997, and shall end on the third anniversary of the
applicable Closing Date, unless the Term is renewed or earlier terminated in
accordance with the provisions of the Lease. The Lease contains three
successive option periods of one year each, which give Lessee the right,
subject to the terms thereof, to extend the term of the Lease to the sixth
anniversary of the applicable Closing Date.
SECTION 10. Ownership of the Property. It is the intent of the
parties hereto that: (i) the Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, for purposes of
Lessee's financial reporting, and (ii) for purposes of Federal and state income
tax, the transaction contemplated hereby and by the Lease is a financing
arrangement and preserves ownership in the Property in the Lessee.
Nevertheless, the Lessee acknowledges and agrees that neither the Agent, the
Lessor nor any Participant has made any representations or warranties to the
Lessee concerning the tax, accounting or legal characteristics of the Operative
Documents and that the Lessee has obtained and relied upon such tax, accounting
and legal advice concerning the Operative Documents as it deems appropriate.
Anything to the contrary in the Operative Documents notwithstanding,
the Lessor and the Lessee intend and agree that with respect to the nature of
the transactions evidenced by the Lease, the
2
<PAGE> 3
Lease grants a security interest and mortgage or deed of trust or lien, as the
case may be, in the Property to the Lessor and the Participants to secure the
Lessee's performance under and payment of all amounts under the Lease and the
other Operative Documents.
Specifically, but without limiting the generality of subsection (b) of
this Section 10, the Lessor and the Lessee further intend and agree that (i)
the Lease shall also be deemed to be a security agreement and financing
statement within the meaning of Article 9 of the Uniform Commercial Code; (ii)
the possession by the Lessor or any of its agents of notes and such other items
of property as constitute instruments, money, negotiable documents or chattel
paper shall be deemed to be "possession by the secured party" for purposes of
perfecting the security interest pursuant to Section 9-305 of the Uniform
Commercial Code; and (iii) notifications to Persons holding such property, and
acknowledgments, receipts or confirmations from financial intermediaries,
bankers or agents (as applicable) of the Lessee shall be deemed to have been
given for the purpose of perfecting such security interest under Applicable
Law. The Lessor and the Lessee shall, to the extent consistent with the Lease,
take such actions and execute, deliver, file and record such other documents,
financing statements, mortgages and deeds of trust as may be necessary to
ensure that, if the Lease and this Lease Supplement were deemed to create a
security interest in the Property in accordance with this Section, such
security interest would be deemed to be a perfected security interest of first
priority under Applicable Law and will be maintained as such throughout the
Term.
SECTION 11. Remedies. Without limiting any other remedies set
forth in the Lease, in the event that a court of competent jurisdiction rules
that the Lease constitutes a mortgage, deed or trust or other secured financing
as is the intent of the parties, then the Lessor and the Lessee agree that (i)
the Lessee hereby grants a Lien against the Property WITH POWER OF SALE, and
that upon the occurrence of a Lease Event of Default, the Lessor shall have the
power and authority, to the extent provided by law, after proper notice and
lapse of such time as may be required by law, to sell the Property at the time
and place of sale fixed by the Lessor in said notice of sale, either as a
whole, or in separate lots or parcels or items and in such order as the Lessor
may elect, at auction to the highest bidder for cash in lawful money of the
United States payable at the time of sale; accordingly, it is acknowledged that
A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT; A POWER OF SALE MAY ALLOW
THE LESSOR TO TAKE THE PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A
FORECLOSURE ACTION UPON DEFAULT BY THE LESSEE UNDER THIS INSTRUMENT, and (ii)
upon the occurrence of a Lease Event of Default, the Lessor, in lieu of or in
addition to exercising any power of sale hereinabove given, may proceed by a
suit or suits in equity or at law, whether for a foreclosure hereunder, or for
the sale of the Property, or against the Lessee on a recourse basis for the
Asset Termination Value, or for the specific performance of any covenant or
agreement herein contained or in aid of the execution of any power herein
granted, or for the appointment of a receiver pending any foreclosure hereunder
or the sale of the Property, or for the enforcement of any other appropriate
legal or equitable remedy.
SECTION 12. Purchase Option. Sections 19 and 20 of the Lease
contain various purchase options which may be exercised by Lessee during the
term of the Lease subject to the terms and conditions of said Sections 19 and
20 of the Lease.
3
<PAGE> 4
SECTION 13. Liens.
NOTICE IS HEREBY GIVEN THAT NEITHER THE LESSOR, ANY PARTICIPANT NOR
THE AGENT IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED
OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING THE PROPERTY OR ANY
PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANICS' OR OTHER LIENS
FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL HAVE SUPERIOR PRIORITY OR
RIGHTS THAN THE RIGHTS AND PRIORITIES OF THE INTEREST OF THE LESSOR IN AND TO
THE PROPERTY.
SECTION 14. Ratification. Except as specifically modified
hereby, the terms and provisions of the Lease are hereby ratified and confirmed
and remain in full force and effect.
SECTION 15. Original Lease Supplement. The single executed
original of this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL
EXECUTED COUNTERPART" on the signature page thereof and containing the receipt
of the Agent therefor on or following the signature page thereof shall be the
Original Executed Counterpart of this Lease Supplement (the "Original Executed
Counterpart"). To the extent that this Lease Supplement constitutes chattel
paper, as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction, no security interest in this Lease Supplement may
be created through the transfer or possession of any counterpart other than the
Original Executed Counterpart.
SECTION 16. GOVERNING LAW. THE LEASE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS TO MATTERS RELATING TO
THE CREATION OF THE LEASEHOLD ESTATE THEREUNDER AND THE EXERCISE OF RIGHTS AND
REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE IN WHICH THE EQUIPMENT IS LOCATED.
WITHOUT LIMITING THE FOREGOING, IN THE EVENT THAT THE LEASE IS DEEMED TO
CONSTITUTE A FINANCING, WHICH IS THE INTENTION OF THE PARTIES, THE LAW OF THE
STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, SHALL GOVERN
THE CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS EVIDENCED HEREBY, BUT
THE LIEN CREATED HEREBY AND THE ENFORCEMENT OF SAID LIEN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE IN WHICH THE EQUIPMENT IS
LOCATED.
SECTION 17. Counterpart Execution. This Lease Supplement may be
executed in any number of counterparts and by each of the parties hereto in
separate counterparts, all such counterparts together constituting but one and
the same instrument.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE> 5
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease
Supplement to be duly executed by an officer thereunto duly authorized as of
the date and year first above written.
ABN AMRO BANK N.V., as Lessor
By: /s/ CHRISTOPHER H. HELMECI
-----------------------------------
Name: Christopher S. Helmeci
Title: Vice President
By: /s/ LOUIS K. McLINDEN, JR.
-----------------------------------
Name: Louis K. McLinden, Jr.
Title: Vice President
CHASE BRASS & COPPER COMPANY, INC.,
a Delaware corporation, as Lessee
By: M.T. SEAGRAVES
-----------------------------------
Name: M.T. Seagraves
---------------------------------
Title: CFO
--------------------------------
5
<PAGE> 6
COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF ALLEGHENY )
Before me, the undersigned, a Notary Public within and for the State and County
aforesaid, personally appeared Christopher S. Helmeci, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged himself to be an Vice President of ABN AMRO
BANK N.V., the within named bargainor, a corporation, and that he as such Vice
President, being duly authorized so to do, executed the foregoing instrument
for the purposes therein contained by signing the name of the corporation by
himself as such Vice President.
WITNESS my hand and seal, at office, on this the 22nd day of December, 1997.
/s/ SUSAN T. MARTIN
-------------------------------
Notary Public
My Commission Expires:
October 3, 1998
- ----------------------------
<PAGE> 7
COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF ALLEGHENY )
Before me, the undersigned, a Notary Public within and for the State and County
aforesaid, personally appeared Louis K. McLinden, Jr., with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged himself to be an Vice President of ABN AMRO
BANK N.V., the within named bargainor, a corporation, and that he as such Vice
President, being duly authorized so to do, executed the foregoing instrument
for the purposes therein contained by signing the name of the corporation by
himself as such Vice President.
WITNESS my hand and seal, at office, on this the 22nd day of December, 1997.
/s/ SUSAN T. MARTIN
------------------------------
Notary Public
My Commission Expires:
October 3, 1998
- ----------------------------
<PAGE> 8
STATE OF OHIO )
) SS.:
COUNTY OF WILLIAMS )
Before me, the undersigned, a Notary Public in and for the State and County
aforesaid, personally appeared M.T. Seagraves, with whom I am personally
acquainted (or proved to me on the basis of satisfactory evidence), and who,
upon oath, acknowledged himself to be the CFO of CHASE BRASS & COPPER COMPANY,
INC., the within named bargainor, a corporation, and that he as such CFO, being
duly authorized so to do, executed the foregoing instrument for the purposes
therein contained by signing the name of the corporation by himself as such
CFO.
WITNESS my hand and seal, at office, on this the 22 day of December, 1997.
/s/ LORI M. DOUGLASS
-------------------------------
Notary Public
My Commission Expires:
October 3, 2000
- ---------------------------------
<PAGE> 1
EXHIBIT 10.21
LEASE SUPPLEMENT NO. 2
THIS LEASE SUPPLEMENT NO. 2 (this "Lease Supplement") dated as of
February 2, 1998, between ABN AMRO Bank N.V., a bank organized under the laws
of The Netherlands, not in its individual capacity but solely as lessor (the
"Lessor"), and Chase Brass & Copper Company, Inc., a Delaware corporation, as
lessee (the "Lessee").
WITNESSETH:
WHEREAS, the Lessor and the Lessee have entered into that certain
Master Lease, dated as of December 23, 1997 (the "Lease");
WHEREAS, the Participation Agreement and the Lease provide that on
each Closing Date, the Lessee shall deliver to the Lessor a Bill of Sale dated
such date by which the Lessee bargains, conveys, assigns, sets over, sells and
delivers to the Lessor, and the Lessor purchases and accepts from the Lessee,
the Equipment to be conveyed on such Closing Date, and said Bill of Sale has
been delivered by the Lessee and accepted by the Lessor on such Closing Date;
WHEREAS, the Lease provides for the execution and delivery of a Lease
Supplement substantially in the form hereof for the purpose of confirming the
acceptance and lease of such Equipment under the Lease as and when delivered by
the Lessor to the Lessee in accordance with the terms thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. Definitions; Interpretation. For purposes of this
Lease Supplement, capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to them in Appendix 1 to the Lease and
the rules of interpretation set forth in Appendix 1 to the Lease shall apply to
this Lease Supplement.
SECTION 2. Equipment. The Equipment leased hereunder shall be
as set forth in the schedule attached hereto as Annex A.
TOTAL PROPERTY IMPROVEMENTS COST: $2,000,000.00
SECTION 3. Term. Effective upon the execution and delivery of
this Lease Supplement by the Lessor and the Lessee, the Property shall be
subject to the terms and provisions provided herein and in the Lease (which is
incorporated herein by reference). Subject to the terms and conditions of the
Lease, the Lessor hereby leases to the Lessee for the Term (as defined below)
of the Lease, the
<PAGE> 2
Lessor's interest in the Property, and the Lessee hereby agrees, expressly for
the direct benefit of the Lessor, to lease from the Lessor for the Term, the
Lessor's interest in the Property.
SECTION 4. Rent. From and after the date hereof, the Basic Rent
for said Equipment during the Basic Lease Term shall be payable on the dates
and in the amounts as more particularly set forth in Annex B attached hereto
and Article III of the Lease which is incorporated herein by reference.
SECTION 5. Lessee Confirmation. Lessee hereby confirms and
warrants to Lessor that the Equipment: (a) was duly delivered to Lessee on or
prior to the date hereof at the locations specified in Section 6 hereof; (b)
has been received, inspected and determined to be in compliance with all
applicable specifications and that the Equipment is hereby accepted for all
purposes of the Lease; and (c) is a part of the "Equipment" referred to in the
Lease and is taken subject to all terms and conditions therein and herein
provided.
SECTION 6. Location of Equipment. The locations of the
Equipment are specified on the Schedule of Equipment attached hereto as Annex
A.
SECTION 7. Financing Statements. Annex C attached hereto
specifies the location of all UCC financing statements or other similar
documents under applicable law covering the Equipment.
SECTION 8. Parties and Addresses. The Lease is dated as of
December 23, 1997, between the Lessor, whose principal office is at 135 South
LaSalle Street, Chicago, Illinois 60603 and the Lessee, whose principal office
is State Route 15N, 14212 County Road M-50, Montpelier, Ohio 43543.
SECTION 9. Lease Term. The term applicable to this Lease
Supplement (the "Term") shall begin on February 2, 1998 (the "Second Closing
Date"), and shall end on the third anniversary of the Second Closing Date,
unless the Term is renewed or earlier terminated in accordance with the
provisions of the Lease. The Lease contains three successive option periods of
one year each, which give Lessee the right, subject to the terms thereof, to
extend the term of the Lease to the sixth anniversary of the Second Closing
Date.
SECTION 10. Ownership of the Property. It is the intent of the
parties hereto that: (i) the Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, for purposes of
Lessee's financial reporting, and (ii) for purposes of Federal and state income
tax, the transaction contemplated hereby and by the Lease is a financing
arrangement and preserves ownership in the Property in the Lessee.
Nevertheless, the Lessee acknowledges and agrees that neither the Agent, the
Lessor nor any Participant has made any representations or warranties to the
Lessee concerning the tax, accounting or legal characteristics of the Operative
Documents and that the Lessee has obtained and relied upon such tax, accounting
and legal advice concerning the Operative Documents as it deems appropriate.
2
<PAGE> 3
Anything to the contrary in the Operative Documents notwithstanding,
the Lessor and the Lessee intend and agree that with respect to the nature of
the transactions evidenced by the Lease, the Lease grants a security interest
and mortgage or deed of trust or lien, as the case may be, in the Property to
the Lessor and the Participants to secure the Lessee's performance under and
payment of all amounts under the Lease and the other Operative Documents.
Specifically, but without limiting the generality of subsection (b) of
this Section 10, the Lessor and the Lessee further intend and agree that (i)
the Lease shall also be deemed to be a security agreement and financing
statement within the meaning of Article 9 of the Uniform Commercial Code; (ii)
the possession by the Lessor or any of its agents of notes and such other items
of property as constitute instruments, money, negotiable documents or chattel
paper shall be deemed to be "possession by the secured party" for purposes of
perfecting the security interest pursuant to Section 9-305 of the Uniform
Commercial Code; and (iii) notifications to Persons holding such property, and
acknowledgments, receipts or confirmations from financial intermediaries,
bankers or agents (as applicable) of the Lessee shall be deemed to have been
given for the purpose of perfecting such security interest under Applicable
Law. The Lessor and the Lessee shall, to the extent consistent with the Lease,
take such actions and execute, deliver, file and record such other documents,
financing statements, mortgages and deeds of trust as may be necessary to
ensure that, if the Lease and this Lease Supplement were deemed to create a
security interest in the Property in accordance with this Section, such
security interest would be deemed to be a perfected security interest of first
priority under Applicable Law and will be maintained as such throughout the
Term.
SECTION 11. Remedies. Without limiting any other remedies set
forth in the Lease, in the event that a court of competent jurisdiction rules
that the Lease constitutes a mortgage, deed or trust or other secured financing
as is the intent of the parties, then the Lessor and the Lessee agree that (i)
the Lessee hereby grants a Lien against the Property WITH POWER OF SALE, and
that upon the occurrence of a Lease Event of Default, the Lessor shall have the
power and authority, to the extent provided by law, after proper notice and
lapse of such time as may be required by law, to sell the Property at the time
and place of sale fixed by the Lessor in said notice of sale, either as a
whole, or in separate lots or parcels or items and in such order as the Lessor
may elect, at auction to the highest bidder for cash in lawful money of the
United States payable at the time of sale; accordingly, it is acknowledged that
A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT; A POWER OF SALE MAY ALLOW
THE LESSOR TO TAKE THE PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A
FORECLOSURE ACTION UPON DEFAULT BY THE LESSEE UNDER THIS INSTRUMENT, and (ii)
upon the occurrence of a Lease Event of Default, the Lessor, in lieu of or in
addition to exercising any power of sale hereinabove given, may proceed by a
suit or suits in equity or at law, whether for a foreclosure hereunder, or for
the sale of the Property, or against the Lessee on a recourse basis for the
Asset Termination Value, or for the specific performance of any covenant or
agreement herein contained or in aid of the execution of any power herein
granted, or for the appointment of a receiver pending any foreclosure hereunder
or the sale of the Property, or for the enforcement of any other appropriate
legal or equitable remedy.
3
<PAGE> 4
SECTION 12. Purchase Option. Sections 19 and 20 of the Lease
contain various purchase options which may be exercised by Lessee during the
term of the Lease subject to the terms and conditions of said Sections 19 and
20 of the Lease.
SECTION 13. Liens.
NOTICE IS HEREBY GIVEN THAT NEITHER THE LESSOR, ANY PARTICIPANT NOR
THE AGENT IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED
OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING THE PROPERTY OR ANY
PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANICS' OR OTHER LIENS
FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL HAVE SUPERIOR PRIORITY OR
RIGHTS THAN THE RIGHTS AND PRIORITIES OF THE INTEREST OF THE LESSOR IN AND TO
THE PROPERTY.
SECTION 14. Ratification. Except as specifically modified
hereby, the terms and provisions of the Lease are hereby ratified and confirmed
and remain in full force and effect.
SECTION 15. Original Lease Supplement. The single executed
original of this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL
EXECUTED COUNTERPART" on the signature page thereof and containing the receipt
of the Agent therefor on or following the signature page thereof shall be the
Original Executed Counterpart of this Lease Supplement (the "Original Executed
Counterpart"). To the extent that this Lease Supplement constitutes chattel
paper, as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction, no security interest in this Lease Supplement may
be created through the transfer or possession of any counterpart other than the
Original Executed Counterpart.
SECTION 16. GOVERNING LAW. THE LEASE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS TO MATTERS RELATING TO
THE CREATION OF THE LEASEHOLD ESTATE THEREUNDER AND THE EXERCISE OF RIGHTS AND
REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE IN WHICH THE EQUIPMENT IS LOCATED.
WITHOUT LIMITING THE FOREGOING, IN THE EVENT THAT THE LEASE IS DEEMED TO
CONSTITUTE A FINANCING, WHICH IS THE INTENTION OF THE PARTIES, THE LAW OF THE
STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, SHALL GOVERN
THE CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS EVIDENCED HEREBY, BUT
THE LIEN CREATED HEREBY AND THE ENFORCEMENT OF SAID LIEN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE IN WHICH THE EQUIPMENT IS
LOCATED.
4
<PAGE> 5
SECTION 17. Counterpart Execution. This Lease Supplement may be
executed in any number of counterparts and by each of the parties hereto in
separate counterparts, all such counterparts together constituting but one and
the same instrument.
[SIGNATURE PAGE FOLLOWS]
5
<PAGE> 6
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease
Supplement to be duly executed by an officer thereunto duly authorized as of
the date and year first above written.
ABN AMRO BANK N.V., as Lessor
By: /s/ CHRISTOPHER S. HELMECI
--------------------------------------
Name: Christopher S. Helmeci
Title: Vice President
By: /s/ LOUIS K. McLINDEN, JR.
--------------------------------------
Name: Louis K. McLinden, Jr.
Title: Vice President
CHASE BRASS & COPPER COMPANY, INC.,
a Delaware corporation, as Lessee
By: /s/ M.T. SEAGRAVES
--------------------------------------
Name: M.T. Seagraves
------------------------------------
Title: CFO
-----------------------------------
(Execution)
6
<PAGE> 7
COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF ALLEGHENY )
Before me, the undersigned, a Notary Public within and for the State and County
aforesaid, personally appeared Christopher S. Helmeci, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged himself to be an Vice President of ABN AMRO
BANK N.V., the within named bargainor, a corporation, and that he as such Vice
President, being duly authorized so to do, executed the foregoing instrument
for the purposes therein contained by signing the name of the corporation by
himself as such Vice President.
WITNESS my hand and seal, at office, on this the 2nd day of February, 1998.
/s/ SUSAN T. MARTIN
-----------------------------
Notary Public
My Commission Expires:
Oct. 3, 1998
- -------------------------
(Execution)
<PAGE> 8
COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF ALLEGHENY )
Before me, the undersigned, a Notary Public within and for the State and County
aforesaid, personally appeared Louis K. McLinden, Jr., with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged himself to be an Vice President of ABN AMRO
BANK N.V., the within named bargainor, a corporation, and that he as such Vice
President, being duly authorized so to do, executed the foregoing instrument
for the purposes therein contained by signing the name of the corporation by
himself as such Vice President.
WITNESS my hand and seal, at office, on this the 2nd day of February, 1998.
/s/ SUSAN T. MARTIN
--------------------------
Notary Public
My Commission Expires:
Oct. 3, 1998
- ---------------------------
(Execution)
<PAGE> 9
STATE OF OHIO )
) SS.:
COUNTY OF WILLIAMS )
Before me, the undersigned, a Notary Public in and for the State and County
aforesaid, personally appeared M.T. Seagraves, with whom I am personally
acquainted (or proved to me on the basis of satisfactory evidence), and who,
upon oath, acknowledged himself to be the CFO of CHASE BRASS & COPPER COMPANY,
INC., the within named bargainor, a corporation, and that he as such CFO, being
duly authorized so to do, executed the foregoing instrument for the purposes
therein contained by signing the name of the corporation by himself as such
CFO.
WITNESS my hand and seal, at office, on this the 2nd day of February, 1998.
/s/ CHERYL K. NOFZIGER
----------------------------
Notary Public
My Commission Expires:
July 26, 1998
- -------------------------
(Execution)
<PAGE> 1
EXHIBIT 10.22
APPENDIX 1
to
Participation Agreement and Master Lease
each dated as of December 23, 1997
(Extrusion Press Facility)
DEFINITIONS AND INTERPRETATION
A. Interpretation. In each Operative Document, unless a clear
contrary intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors and
assigns are permitted by the Operative Documents, and reference to a
Person in a particular capacity excludes such Person in any other
capacity or individually;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Operative
Document), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in
accordance with the terms thereof and, if applicable, the terms of the
other Operative Documents and reference to any promissory note
includes any promissory note which is an extension or renewal thereof
or a substitute or replacement therefor;
(v) reference to any Applicable Law means such Applicable
Law as amended, modified, codified, replaced or reenacted, in whole or
in part, and in effect from time to time, including rules and
regulations promulgated thereunder, and reference to any section or
other provision of any Applicable Law means that provision of such
Applicable Law from time to time in effect and constituting the
substantive amendment, modification, codification, replacement or
reenactment of such section or other provision;
(vi) reference in any Operative Document to any Article,
Section, Appendix, Schedule, or Exhibit means such Article or Section
thereof or Appendix, Schedule or Exhibit thereto;
(vii) "hereunder", "hereof", "hereto" and words of similar
import shall be deemed references to an Operative Document as a whole
and not to any particular Article, Section or other provision thereof;
<PAGE> 2
(viii) "including" (and with correlative meaning "include")
means including without limiting the generality of any description
preceding such term;
(ix) "or" is not exclusive; and
(x) relative to the determination of any period of time,
"from" means "from and including" and "to" means "to but excluding".
B. Accounting Terms. In each Operative Document, unless
expressly otherwise provided, accounting terms shall be construed and
interpreted, and accounting determinations and computations shall be made, in
accordance with GAAP.
C. Conflict in Operative Documents. If there is any conflict
between any Operative Documents, such Operative Document shall be interpreted
and construed, if possible, so as to avoid or minimize such conflict but, to
the extent (and only to the extent) of such conflict, the Participation
Agreement shall prevail and control.
D. Legal Representation of the Parties. The Operative Documents
were negotiated by the parties with the benefit of legal representation and any
rule of construction or interpretation otherwise requiring the Operative
Document to be construed or interpreted against any party shall not apply to
any construction or interpretation hereof or thereof.
E. Defined Terms. Unless a clear contrary intention appears,
terms defined herein have the respective indicated meanings when used in each
Operative Document.
"Account" is defined in Section 3.10 of the Participation Agreement.
"Adjusted Percentage" is defined in Section 11.6 of the Participation
Agreement.
"Advance" means an advance of funds by the Lessor pursuant to Section
3 of the Participation Agreement which will be used to pay Property
Improvements Costs.
"Affiliate" means, when used with respect to any Person, any other
Person directly or indirectly Controlling or Controlled by or under direct or
indirect common control with such Person.
"After Tax Basis" means, with respect to any payment to be received,
the amount of such payment increased so that, after deduction of the amount of
all taxes required to be paid by the recipient calculated at the then maximum
marginal rates generally applicable to Persons of the same type as the
recipient (less any tax savings realized as a result of the payment of the
indemnified amount) with respect to the receipt by the recipient of such
amounts, such increased payment (as so reduced) is equal to the payment
otherwise required to be made.
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<PAGE> 3
"Agent" means ABN AMRO Bank N.V., as agent for the Participants
pursuant to the Participation Agreement, or any successor or additional agent
appointed in accordance with the terms of the Participation Agreement.
"Agent Financing Statements" means UCC financing statements
appropriately completed and executed for filing in the applicable jurisdiction
in order to perfect a security interest in favor of the Agent for the ratable
benefit of the Participants in the Equipment located on the Site.
"Alternate Base Rate" means the higher of (i) the rate of interest
most recently announced by the Agent as its reference, base or prime lending
rate, as the case may be, for Dollar loans in the United States and (ii) the
Federal Funds Rate (as in effect from time to time) plus one-half of one
percent (1/2%) per annum. Any change in the interest rate on an Advance
resulting from a change in the Alternate Base Rate shall become effective as of
the opening of business on the day on which such change in the Alternate Base
Rate is announced.
"Alternate Base Rate Advance" means a Type of Advance which bears
interest at the Alternate Base Rate in accordance with the provisions of
Section 13.6 of the Participation Agreement.
"Applicable Law" means all existing and future applicable laws, rules,
regulations (including Environmental Laws), statutes, treaties, codes,
ordinances, permits, certificates, covenants, restrictions, requirements,
orders and licenses of and interpretations by, any Governmental Authorities,
and applicable judgments, decrees, injunctions, writs, orders or like action of
any court, arbitrator or other administrative, judicial or quasi-judicial
tribunal or agency of competent jurisdiction (including those pertaining to
health, safety or the environment (including, without limitation, wetlands) and
those pertaining to the construction, use or occupancy of the Property) and any
restrictive covenant or deed restriction or easement affecting the Property.
"Applicable Margin" means, with respect to any Eurodollar Rate Advance
at any time of determination, so long as no Event of Default has occurred and
is continuing, a margin above the Eurodollar Rate as set forth opposite the
applicable Leverage Ratio of the Loan Parties:
<TABLE>
<CAPTION>
Leverage Ratio of the Loan Parties Margin Above Eurodollar
Rate
<S> <C>
Less than 1.0:1.0 .375%
1.0:1.0 or greater but less than 1.5:1.0 .500%
1.5:1.0 or greater but less than 2.0:1.0 .625%
2.0:1.0 or greater but less than 2.5:1.0 .750%
2.5:1.0 or greater but less than 3.0:1.0 1.00%
Greater than 3.0:1.0 1.25%
</TABLE>
The initial Applicable Margin for Eurodollar Rate Advances shall be .500%.
Subject to the provisions of the immediately succeeding sentence, the grid
reflecting "Leverage Ratio of the
3
<PAGE> 4
Loan Parties" and "Margin Above Euro Dollar Rate" set forth above shall be
deemed amended simultaneously with any amendment to the grid in Section
4.1(a)(ii) of the Credit Agreement and/or any amendment to the definition of
"Leverage Ratio Level" contained in the Credit Agreement, with any change to
either of such provisions of the Credit Agreement resulting in a corresponding
modification to the definition of Applicable Margin and the grid set forth
hereinabove to the extent necessary to give effect to any such amendments to
the Credit Agreement. Notwithstanding the foregoing sentence, in the event
that Credit Agricole Indosuez shall not consent to any such amendment to the
grid in Section 4.1(a)(ii) of the Credit Agreement and/or any such amendment to
the definition of "Leverage Ratio Level" contained in the Credit Agreement,
then the provisions of Section 11.4(b) of the Participation Agreement shall
apply and become operative.
"Appraisal" means, with respect to the Property, an appraisal,
prepared by a reputable appraiser approved by the Lessor, the Agent and the
Required Participants, which in the judgment of counsel to the Lessor, the
Agent and the Required Participants, complies with all of the provisions of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, as
amended, the rules and regulations adopted pursuant thereto, and all other
applicable Requirements of Law, which appraisal will (i) appraise the Fair
Market Sales Value of the Property as built in accordance with the Plans and
Specifications: on the projected Closing Dates; on the third anniversary of
each Closing Date; as of the commencement of each Renewal Term, if any; and at
the end of each Renewal Term, if any; and (ii) contain an estimate of the
useful life of the Equipment as of each such date, all in a form satisfactory
to the Lessor, the Agent and the Required Participants.
"Appurtenant Rights" means (i) all agreements, easements, rights of
way or use, rights of ingress or egress, privileges, appurtenances, tenements,
hereditaments and other rights and benefits at any time belonging or pertaining
to the Equipment, including, without limitation, the use of any streets, ways,
alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to
the Site and (ii) all permits, licenses and rights, whether or not of record,
appurtenant to the Site.
"Arranger" means ABN AMRO Bank N.V.
"Asset Termination Value" means, as of any date of determination, an
amount equal to the aggregate sum of the outstanding balance of all Advances,
all accrued and unpaid interest on the Advances, and all other amounts owing by
the Lessee under the Operative Documents, including, without limitation, any
amounts owing by the Lessee under Section 13.9 of the Participation Agreement.
"Assignment and Acceptance" is defined in Section 12.1(b) of the
Participation Agreement.
"Assignment of Lease" means the Assignment of Lease, dated as of the
Closing Date, from the Lessor to the Agent for the benefit of the Participants,
and consented to by the Lessee
4
<PAGE> 5
pursuant to that certain Lessee's Consent, dated as of the First Closing Date
(the "Consent to Assignment") by the Lessee, as obligor, in favor of the Agent
for the benefit of the Participants, in each case in the respective forms set
forth in Exhibit H to the Participation Agreement.
"Assignment of Warranties" means each of the Assignment of Warranties,
dated the applicable Closing Date between the Lessee and the Lessor covering
the Equipment delivered on such Closing Date, in the form of Exhibit M to the
Participation Agreement.
"Available Commitments" means as to any Participant at any time, an
amount equal to the excess, if any, of (a) the amount of such Participant's
Commitment over (b) the aggregate amount of its Participation Interest in all
Advances made by the Lessor then outstanding.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect.
"Basic Rent" means the sum of (i) that portion of the Property
Improvement Costs due on any Payment Date, if any, as set forth under the
heading "Principal Component of Basic Rent Applied to Tranche A" on Annex B to
the applicable Lease Supplement and (ii) the interest on Advances in respect of
any such Property Improvement Costs due on any Payment Date as set forth in
Section 3.7 of the Participation Agreement.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Bill of Sale" shall mean the bill of sale, dated the applicable
Closing Date, from the Lessee to the Lessor covering the Equipment delivered on
such Closing Date, substantially in the form of Exhibit L to the Participation
Agreement.
"Board" means the Board of Governors of the Federal Reserve System of
the United States (or any successor).
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banks in Chicago, Illinois, Pittsburgh,
Pennsylvania, Montpelier, Ohio, or (if interest is being determined by
reference to the Eurodollar Rate) London, England, are generally authorized or
obligated, by law or executive order, to close.
"Capital Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is, or is required to be, accounted for as a capital
lease on the balance sheet of that Person.
"Capitalized Lease Obligations" shall mean any amount payable with
respect to any Capital Lease or any lease of any tangible or intangible
property (whether real, personal or mixed), however denoted, which either (i)
is required by GAAP to be reflected as a liability on
5
<PAGE> 6
the face of the balance sheet of the lessee thereunder or (ii) based on actual
circumstances existing and ascertainable, either at the commencement of the
term of such lease or at any subsequent time at which any property becomes
subject thereto, can reasonably be anticipated to impose on such lessee
substantially the same economic risks and burdens, having regard to such
lessee's obligations and the lessor's rights thereunder both during and at the
termination of such lease, as would be imposed on such lessee by any lease
which is required to be so reflected or by the ownership of the leased
property.
"Casualty" means any damage or destruction of all or any portion of
the Property as a result of a fire or other casualty.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S.C. '' 9601 et seq., as amended.
"Certifying Party" is defined in Section 26.1 of the Lease.
"CII Guarantee" means the Guarantee executed by the Guarantor in favor
of the Agent, for the benefit of the Participants, in the form of Exhibit J to
the Participation Agreement.
"Claims" means any and all obligations, liabilities, losses, actions,
suits, judgments, penalties, fines, claims, demands, settlements, costs and
expenses (including, without limitation, reasonable legal fees and expenses) of
any nature whatsoever, including, as they relate to issues involving any
Environmental Law or Environmental Violation, those matters set forth in
Section 13.3 of the Participation Agreement.
"Closing Date" is defined in Section 3.1 of the Participation
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute thereto.
"Commitment" means (i) as to any Participant, the obligation of such
Participant to purchase a Participation Interest in Advances to be made by the
Lessor under the Participation Agreement, in an aggregate amount at any one
time outstanding not to exceed the amount set forth opposite such Participant's
name on Schedule I to the Participation Agreement, as such amount may be
reduced from time to time in accordance with the provisions of the
Participation Agreement, and (ii) as to the Lessor, the obligation of the
Lessor to make Advances from amounts received from the Participants pursuant to
the purchase of Participation Interests under the Participation Agreement.
"Commitment Fee" is defined in Section 4.1 of the Participation
Agreement.
"Commitment Percentage" means, as to any Participant at any time, the
percentage which such Participant's Commitment then constitutes of the
aggregate Commitments of the Participants (or, at any time after the
Commitments of the Participants shall have expired or
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<PAGE> 7
terminated, the percentage which the aggregate amount of such Participant's
Participant Balance then outstanding constitutes of the aggregate amount of the
Participant Balances then outstanding).
"Commitment Period" means the period from and including the date
hereof to but not including February 15, 1998, or such earlier date on which
the Commitments shall terminate as provided in the Operative Documents.
"Compliance Certificate" means a certificate duly executed by a
Responsible Officer of the Lessee in substantially the form of Exhibit K to the
Participation Agreement, together with such changes as the Required
Participants may request from time to time for purposes of monitoring the
Lessee's compliance with the terms of the Participation Agreement.
"Condemnation" means any condemnation, requisition, confiscation,
seizure or other taking or sale of the use, access, occupancy, easement rights
or title to the Property or any part thereof, wholly or partially (temporarily
or permanently), by or on account of any actual or threatened eminent domain
proceeding or other taking of action by any Person having the power of eminent
domain, or by or on account of an eviction by paramount title or any transfer
made in lieu of any such proceeding or action. A "Condemnation" shall be
deemed to have occurred on the earliest of the dates that use, occupancy or
title is taken.
"Confidential Information" is defined in Section 15.13 of the
Participation Agreement.
"Consent to Assignment" is defined in the definition of the term
"Assignment of Lease".
"Control" means (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
Person, the possession directly or indirectly, of the power to direct or cause
the direction of the management policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"Covered Liabilities" is defined in Section 11.6 of the Participation
Agreement.
"Credit Agreement" means the $100,000,000 Credit Agreement dated as of
August 30, 1996 among Chase Brass & Copper Company, Inc., as Borrower, the
Banks named therein and PNC Bank, National Association, as agent and other
agents named therein, under which ABN AMRO Bank N.V., acting through its
Pittsburgh Branch, is a Bank, as the same may be amended, modified or otherwise
supplemented from time to time. References in the Operative Documents to
Sections of the Credit Agreement are to such Sections as in effect on the
Closing Date.
"Default" means any event or condition which, with the lapse of time
or the giving of notice, or both, would constitute an Event of Default.
"Defaulted Amount" is defined in Section 11.7 of the Participation
Agreement.
7
<PAGE> 8
"Defaulting Participant" means, at any time, any of the Participants
which at such time has (i) failed to make a payment when due to the Lessor
equal to its Commitment Percentage of an Advance, (ii) has been notified of
such failure by the Lessor, and (iii) has not cured such failure by making such
payment, together with interest at the Late Payment Rate.
"Designated Payment Date" means the Expiration Date, the Termination
Date or other date of termination of the Lease.
"Dollars" and "$" mean dollars in lawful currency of the United States
of America.
"End of the Term Report" is defined in Section 13.2 of the
Participation Agreement.
"Environmental Audit" means a Phase One environmental site assessment
(the scope and performance of which meets or exceeds ASTM Standard Practice
E1527-93 Standard Practice for Environmental Site Assessments: Phase One
Environmental Site Assessment Process) of the Property to be remarketed under
the Remarketing Option under the Lease.
"Environmental Law" means, whenever enacted or promulgated, any
Federal, state, county or local law, statute, ordinance, rule, regulation,
license, permit, authorization, approval, covenant, criteria, guideline,
administrative or court order, judgment, decree, injunction, code or
requirement or any agreement with a Governmental Authority:
(x) relating to pollution (or the cleanup, removal,
remediation or encapsulation thereof, or any other response thereto),
or the regulation or protection of human health, safety or the
environment, including air, water, vapor, surface water, groundwater,
drinking water, land (including surface or subsurface), plant, aquatic
and animal life, or
(y) concerning exposure to, or the use, containment,
storage, recycling, treatment, generation, discharge, emission,
Release or threatened Release, transportation, processing, handling,
labeling, containment, production, disposal or remediation of any
Hazardous Substance, Hazardous Condition or Hazardous Activity;
in each case as amended and as now or hereafter in effect, and any common law
or equitable doctrine (including, without limitation, injunctive relief and
tort doctrines such as negligence, nuisance, trespass and strict liability)
that may impose liability or obligations for injuries (whether personal or
property) or damages due to or threatened as a result of the presence of,
exposure to, or ingestion of, any Hazardous Substance, whether such common law
or equitable doctrine is now or hereafter recognized or developed. Applicable
laws include, but are not limited to, CERCLA; the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. Section 6901 et seq.; the Federal Water
Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Clean Air Act, 42
U.S.C. Section 7401 et seq.; the National Environmental Policy Act, 42 U.S.C
Section 4321; the Refuse Act, 33 U.S.C. Section 401 et seq.; the Hazardous
Materials Transportation Act of 1975, 49 U.S.C. Sections 1801-1812; the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Federal
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Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Section 136 et seq.; the
Safe Drinking Water Act, 42 U.S.C. Section 300f et seq.; and the Occupational
Safety and Health Act of 1970, each as amended and as now or hereafter in
effect, and their state and local counterparts or equivalents, including any
regulations promulgated thereunder.
"Environmental Violation" means any activity, occurrence or condition
or omission that violates or results in non-compliance with any Environmental
Law.
"Equipment" means equipment, apparatus, furnishings, fittings and
personal property of every kind and nature whatsoever purchased, leased or
otherwise acquired by the Lessor using the proceeds of the Participation
Interests in the Advances now or subsequently attached to, contained in or used
or usable in any way in connection with any operation or letting of the
Property, including but without limiting the generality of the foregoing, all
chip dryers, air compressors and associated support equipment, billet heaters,
water treatment equipment, exhaust air handling systems, heat exchange systems,
water cooling towers, pick and place gantry apparatus, electrical substation
equipment, piping, conveyors, indoor air handling equipment, electronic
spectrometers, extrusion press container shells, electrical switchgear,
automatic C-hooks, substation replacements, extrusion press containers,
straight rod pickling equipment, filter press/dryer-sludge dryer equipment,
autobander upgrade equipment, furnace linings, natural gas heating units, spare
parts, mechanical scrap pushers, Raymond sideloader-material handling
equipment, five and six line saw upgrades, air compressor equipment, extrusion
press systems, billet heater spare parts and capital items, three-piece
extrusion press container assemblies, replacement of #9 substation, electrical
distribution panels, rod "buck" transport cart, extrusion press production
monitoring systems, pump sets, three-line rotary straighteners, billet lanes
modicon upgrades, extrusion press modicon upgrades, runout table hydraulic lift
systems, 953 Bobcats with grapple buckets, spare Coreco drums, plant
ventilation upgrades, Hyster fork lift trucks, waste water treatment system
upgrades, UPS System - battery back-ups, computers, printers, furniture and
furnishings, heating, electrical and mechanical equipment, lighting,
switchboards, plumbing, ventilation, air conditioning and air-cooling
apparatus, refrigerating, and incinerating equipment, escalators, elevators,
loading and unloading equipment and systems, cleaning systems, telephones,
communication systems (including satellite dishes and antennae), televisions,
computers, sprinkler systems and other fire prevention and extinguishing
apparatus and materials, security systems, motors, engines, machinery, pipes,
pumps, tanks, conduits, appliances, fittings and fixtures of every kind and
description, including all substitutions, repairs and replacements of any of
the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time or any successor Federal statute.
"ERISA Affiliate" means each entity required to be aggregated with the
Lessee pursuant to the requirements of Section 414(b) or (c) of the Code.
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"ERISA Group" means the Lessee 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 Lessee, are treated as a single
employer under Section 414 of the Code.
"Eurocurrency Reserve Requirements" means, for any day as applied to
an Advance or any Participation Interest therein, the aggregate (without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on such day (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the
Board or other Governmental Authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for Eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of the
Board) maintained by a member bank of the Federal Reserve System.
"Eurodollar Rate" means, with respect to any Interest Period, the rate
per annum equal to the London InterBank offered rate for deposits in Dollars
for such Interest Period which appears on Telerate Page 3750 as of 11:00 a.m.,
London time, two (2) Business Days prior to the beginning of such Interest
Period.
"Eurodollar Rate Advance" means a Type of Advance which bears interest
at the Eurodollar Rate plus the Applicable Margin.
"Event of Default" means a Lease Event of Default or a Guarantee Event
of Default.
"Excepted Payments" means:
(a) all indemnity payments (including indemnity payments
made pursuant to Section 13 of the Participation Agreement) to which
the Lessor, or any of its Affiliates, agents, officers, directors or
employees is entitled;
(b) any amounts (other than Basic Rent or amounts payable by
Lessee pursuant to Section 16.2, Section 16.3 or Articles XVII, XX or
XXII of the Lease) payable under any Operative Document to reimburse
the Lessor or any of its respective Affiliates (including the
reasonable expenses of the Lessor incurred in connection with any such
payment) for performing or complying with any of the obligations of
the Lessee under and as permitted by any Operative Document, except to
the extent that one or more Participants have indemnified the Lessor
with respect thereto pursuant to the Participation Agreement;
(c) any amount payable to the Lessor by any Participant or
transferee permitted under the Operative Documents of the interest of
the Lessor as the purchase price of such Participant's Participation
Interest;
(d) any insurance proceeds (or payments with respect to
risks self-insured or policy deductibles) under liability policies
other than such proceeds or payments payable
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to the Agent or the Lessor and assigned to the Agent, for the benefit
of the Participants under the Operative Documents;
(e) any insurance proceeds under policies maintained by the
Lessor;
(f) Transaction Expenses or other amounts or expenses paid
or payable to or for the benefit of the Lessor;
(g) all right, title and interest of the Lessor to the
Property or any portion thereof or any other property to the extent
any of the foregoing has been released from the Lien of the Assignment
of Lease pursuant to the terms thereof following the payment of the
Participant Balances of all of the Participants and all amounts due
and owing to the Agent; and
(h) any payments in respect of interest to the extent
attributable to payments referred to in clauses (a) through (g) above.
"Excess Investment" of the Lessor means the excess (if any) of the
outstanding Participant Balance of the Lessor in the Property from time to time
over the amount that would have been the Lessor's Participant Balance if, in
connection with all Advances actually made under the Participation Agreement,
all Participants had paid to the Lessor an amount equal to such Advances times
their respective Commitment Percentages, as such excess may be determined by
the Lessor. Absent the existence of a Defaulting Participant, a failure by
Participant to make a payment required by Section 3.4 of the Participation
Agreement or some other unexpected contingency, it is expected that the Lessor
will have no Excess Investment.
"Excess Proceeds" means the excess, if any, of the aggregate of all
awards, compensation or insurance proceeds payable in connection with a
Casualty or Condemnation over the Asset Termination Value paid by the Lessee
pursuant to Articles XIV and XV of the Lease with respect to such Casualty or
Condemnation.
"Excess Reimbursement" is defined in Section 11.6 of the Participation
Agreement.
"Exempt Environmental Conditions" means all of the conditions,
including the presence of Hazardous Substances, described on Schedule III to
the Participation Agreement and all environmental conditions, including the
presence of Hazardous Substances, discovered pursuant to or as a result of the
activities being conducted as described in paragraph 9 of Schedule III to the
Participation Agreement or any subsequent sampling and/or testing activities
conducted at the Site under, pursuant to or as contemplated by the Remediation
Agreement and any and all other environmental conditions, including the
presence of Hazardous Substances, at, on, under or adjacent to the Site, or
otherwise existing, the sampling, investigation, cleanup or other remedial
activity with respect to which is to be conducted in accordance with or as
contemplated by the terms of the Remediation Agreement. It is the intent that
the term Exempt Environmental
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Conditions include all environmental conditions covered by or otherwise subject
to the Remediation Agreement, whether now existing or hereafter arising or
discovered.
"Expiration Date" means the later to occur of (i) the third
anniversary of the applicable Closing Date, (ii) the scheduled expiration of
the then current Renewal Term, if any or (iii) the Maturity Date.
"Expiration Date Purchase Obligation" means the Lessee's obligation,
pursuant to Section 20.2 of the Lease, to purchase all (but not less than all)
of the Property on the Expiration Date.
"Extension Request" is defined in Section 3.7(b) of the Participation
Agreement.
"Extension Response Date" is defined in Section 3.7(b) of the
Participation Agreement.
"Fair Market Sales Value" means, with respect to the Property, the
amount, which in any event shall not be less than zero, that would be paid in
cash in an arm's-length transaction between an informed and willing purchaser
and an informed and willing seller, neither of whom is under any compulsion to
purchase or sell, respectively, for the ownership of the Property. The Fair
Market Sales Value of the Property shall be determined based on the assumption
that, except for purposes of Article XVII of the Lease and Section 13.2 of the
Participation Agreement, the Property is in the condition and state of repair
required under Section 10.1 of the Lease and the Lessee is in compliance with
the other requirements of the Operative Documents.
"Federal Funds Effective Rate" means, for any day, an interest rate
per annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Business Day,
the average of quotations for such day on such transaction received by the
Agent from three Federal funds brokers of recognized standing selected by it.
"First Closing Date" is defined in Section 3.1 of the Participation
Agreement.
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" means, with respect to the Lessee, any period of twelve
consecutive fiscal months ending on the 31st day of December of any calendar
year; references to a Fiscal Year with a number corresponding to any calendar
year (e.g., the "1996 Fiscal Year") refer to the Fiscal Year ending on the 31st
day of December occurring during such calendar year.
"Fixtures" means all fixtures relating to the Equipment, including all
components thereof, located in or on the Equipment, together with all
replacements, modifications, alterations and additions thereto.
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"Force Majeure Event" means with respect to the Property any event
(the existence or potentiality of which was not known and could not have been
discovered through the exercise of due diligence by the Lessee prior to the
Closing Date) beyond the control of the Construction Agent, other than a
Casualty or Condemnation, including, but not limited to, strikes, lockouts,
adverse soil conditions, acts of God, adverse weather conditions, inability to
obtain labor or materials, government activities, civil commotion and enemy
action; but excluding any event, cause or condition that results from any
event, cause or condition which could be remedied through the exercise of
commercially reasonable efforts or the commercially reasonable expenditure of
funds.
"Funding Office" means the office of each Participant identified on
Schedule II to the Participation Agreement as its Funding Office.
"Funding Request" is defined in Section 3.4 of the Participation
Agreement.
"GAAP" means United States generally accepted accounting principles
(including principles of consolidation), in effect from time to time.
"Governmental Action" means all permits, authorizations,
registrations, consents, approvals, waivers, exceptions, variances, orders,
judgments, written interpretations, decrees, licenses, exemptions,
publications, filings, notices to and declarations of or with, or required by,
any Governmental Authority, or required by any Applicable Law, and shall
include, without limitation, all environmental and operating permits and
licenses that are required for the full use, occupancy, zoning and operation of
the Property.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Gross Proceeds" is defined in Section 22.1(k) of the Lease.
"Guarantee" means the Guarantee executed by the Lessee, as guarantor,
in favor of the Agent, for the benefit of the Participants, in the form of
Exhibit I to the Participation Agreement.
"Guarantee Event of Default" is defined in the Guarantee and the CII
Guarantee.
"Guarantor" means Chase Industries Inc., a Delaware corporation.
"Hazardous Activity" means any activity, process, procedure or
undertaking that directly or indirectly (i) produces, generates or creates any
Hazardous Substance; (ii) causes or results in (or threatens to cause or result
in) the Release of any Hazardous Substance into the environment (including air,
water vapor, surface water, groundwater, drinking water, land (including
surface or subsurface), plant, aquatic and animal life); (iii) involves the
containment or storage of any
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Hazardous Substance; or (iv) would be regulated as hazardous waste treatment,
storage or disposal within the meaning of any Environmental Law.
"Hazardous Condition" means any condition that violates or threatens
to violate, or that results in or threatens noncompliance with, any
Environmental Law.
"Hazardous Substance" means any of the following: (i) any petroleum or
petroleum product, explosives, radioactive materials, asbestos, formaldehyde,
polychlorinated biphenyls, lead and radon gas; (ii) any substance, material,
product, derivative, compound or mixture, mineral, chemical, waste, gas,
medical waste or pollutant, in each case whether naturally occurring, man-made
or the by-product of any process, that is toxic, harmful or hazardous to the
environment or human health or safety; or (iii) any substance, material,
product, derivative, compound or mixture, mineral, chemical, waste, gas,
medical waste or pollutant that would support the assertion of any claim under
any Environmental Law, whether or not defined as hazardous as such under any
Environmental Law.
"Hedge Breaking Fees" means, to the extent required pursuant to the
terms of any Interest Rate Protection Agreements, the Lessee shall pay all
reasonable costs, fees and expenses incurred by the Lessor, Agent, or
applicable Participant in connection with any unwinding, breach or termination
of any transactions arising under any Interest Rate Protection Agreements, all
as calculated pursuant to the applicable Interest Rate Protection Agreements.
"Hedge Transactions" shall have the meaning ascribed to such term in
Section 3.21 of the Participation Agreement.
"Impositions" means, except to the extent described in the following
sentence, any and all liabilities, losses, expenses, costs, charges and Liens
of any kind whatsoever for fees, taxes, levies, imposts, duties, charges,
assessments or withholdings ("Taxes") including (i) real and personal property
taxes, including personal property taxes on any property covered by the Lease
that is classified by Governmental Authorities as personal property, and real
estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes,
use taxes and other similar taxes (including rent taxes and intangibles taxes);
(iii) any excise taxes; (iv) real estate transfer taxes, mortgage taxes,
conveyance taxes, stamp taxes and documentary recording taxes and fees; (v)
taxes that are or are in the nature of franchise, income, value added,
privilege and doing business taxes, license and registration fees; (vi)
assessments on the Property, including all assessments for public improvements
or benefits, whether or not such improvements are commenced or completed within
the Term; and (vii) any tax, Lien, assessment or charge asserted, imposed or
assessed by the PBGC or any governmental authority succeeding to or performing
functions similar to, the PBGC, and in each case all interest, additions to tax
and penalties thereon, which at any time prior to, during or with respect to
the Term or in respect of any period for which the Lessee shall be obligated to
pay Supplemental Rent, may be levied, assessed or imposed by any Governmental
Authority upon or with respect to (a) the Property or any part thereof or
interest therein; (b) the leasing, financing, refinancing, demolition,
construction, substitution, subleasing, assignment, control, condition,
occupancy, servicing, maintenance, repair, ownership,
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<PAGE> 15
possession, activity conducted on, delivery, insuring, use, operation,
improvement, transfer of title, return or other disposition of the Property or
any part thereof or interest therein; (c) the Participation Interests with
respect to the Property or any part thereof or interest therein; (d) the
rentals, receipts or earnings arising from the Property or any part thereof or
interest therein; (e) the Operative Documents, the performance thereof, or any
payment made or accrued pursuant thereto; (f) the income or other proceeds
received with respect to the Property or any part thereof or interest therein
upon the sale or disposition thereof; (g) any contract relating to the
construction, acquisition, installation or delivery of the Equipment or any
part thereof or interest therein; or (h) otherwise in connection with the
transactions contemplated by the Operative Documents.
The term "Imposition" shall not mean or include:
(i) Taxes and impositions (other than Taxes that are, or are
in the nature of, sales, use, transfer or property taxes) that are
imposed on an Indemnitee by the United States federal government that
are based on or measured by the net income (including taxes based on
capital gains and minimum taxes) of such Person; provided, that this
clause (i) shall not be interpreted to prevent a payment from being
made on an After Tax Basis if such payment is otherwise required to be
so made;
(ii) Taxes and impositions (other than Taxes that are, or are
in the nature of, sales, use, transfer or property taxes) that are
imposed by any state or local jurisdiction or taxing authority within
any state or local jurisdiction and that are franchise taxes or are
based upon or measured by the net income or net receipts except that
this clause (ii) shall not apply to (and thus shall not exclude) any
such net incremental Taxes imposed on an Indemnitee with respect to
the transactions contemplated by the Operative Documents by a state
(or any local taxing authority thereof or therein) where the Property
is located, possessed or used under the Lease by reason of the
transactions contemplated by the Operative Documents being
characterized by such state authority as something other than a loan;
provided, that this clause (ii) shall not be interpreted to prevent a
payment from being made on an After Tax Basis if such payment is
otherwise required to be so made (anything to the contrary
notwithstanding, nothing in the Operative Documents shall be construed
to impose upon Lessee any liability for Taxes imposed upon an
Indemnitee to the extent imposed with respect to any activities of
such Indemnitee other than under the transactions contemplated by the
Operative Documents);
(iii) any Tax or imposition to the extent, but only to such
extent, it relates to any act, event or omission that occurs after the
termination of the Lease and redelivery or sale of the Property in
accordance with the terms of the Lease (but not any Tax or imposition
that relates to any period prior to such termination and redelivery);
(iv) any Tax or imposition for so long as, but only for so
long as, it is being contested in accordance with the provisions of
Section 13.5 of the Participation Agreement; or
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(v) any Taxes which are imposed on an Indemnitee as a result
of the gross negligence or wilful misconduct of such Indemnitee itself
(as opposed to gross negligence or wilful misconduct imputed to such
Indemnitee), but not Taxes imposed as a result of ordinary negligence
of such Indemnitee.
Any Tax excluded from the defined term "Imposition" in any one of the foregoing
clauses (i) through (v) shall not be construed as constituting an Imposition by
any provision of any other of the aforementioned clauses.
"Indebtedness" with respect to any Person means, as of the date of
determination thereof, (i) all items which in accordance with GAAP would be
included in determining total liabilities on the liability side of such
Person's balance sheet as at such date, (ii) all indebtedness of such Person or
any Person secured by any Lien with respect to any property or asset owned or
held by such Person, regardless of whether the indebtedness secured thereby
shall have been assumed by such Person, (iii) all indebtedness of other Persons
which such Person has directly or indirectly guaranteed (whether by discount or
otherwise), endorsed (otherwise than for collection or deposit in the ordinary
course of business), discounted with recourse to such Person or with respect to
which such Person is otherwise directly or indirectly liable, including,
without limitation, indebtedness in effect guaranteed by such Person through
any agreement (contingent or otherwise) to (A) purchase, repurchase or
otherwise acquire such Indebtedness or any security therefor, (B) provide funds
for the payment of discharge of such indebtedness or any other liability of the
obligor of such indebtedness (whether in the form of loans, advances, stock
purchases, capital contribution or otherwise), (C) maintain the solvency of any
balance sheet or other financial condition of the obligor of such indebtedness,
or (D) make payment for any products, materials or supplies or for any
transportation or services regardless of the non-delivery or non- furnishing
thereof, if in any such case the purpose or intent of such agreement is to
provide assurance that such indebtedness will be paid or discharged or that any
agreements relating thereto will be complied with or that the holders of such
indebtedness will be protected against loss in respect thereof, (iv) all of
such Person's Capitalized Lease Obligations, and (v) all actual or contingent
reimbursement obligations with respect to letters of credit issued for such
Person's account.
"Indemnitee" means the Lessor, the Agent, the Participants, their
respective Affiliates and their respective successors, assigns, directors,
shareholders, partners, officers, employees and agents.
"Insurance Requirements" means all terms and conditions of any
insurance policy required by the Lease to be maintained by the Lessee, and all
requirements of the issuer of any such policy.
"Interest Period" means, with respect to any Advance based upon the
Eurodollar Rate:
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(a) initially, the period commencing on the funding with
respect to such Advance and ending three, six, nine or twelve months
thereafter, as selected by the Lessee in its Funding Request given
with respect thereto; and
(b) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such Advance and
ending three, six, nine or twelve months thereafter, as selected by
the Lessee by irrevocable notice to the Lessor and the Agent not less
than three Business Days prior to the last day of the then current
Interest Period with respect thereto; provided, if the Lessee shall
not have given such notice of the length of any succeeding Interest
Period or Interest Periods to follow such then current Interest Period
with respect to any Advance, the Lessee shall be deemed to have
selected an Interest period of three month's duration;
provided further, that, the foregoing provisions relating to Interest Periods
are subject to the following:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless the result of such extension would
be to carry such Interest Period into another calendar month in which
event such Interest Period shall end on the immediately preceding
Business Day;
(ii) any Interest Period that would otherwise extend beyond
the Expiration Date shall end on the Expiration Date;
(iii) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month; and
(iv) the Lessee shall select Interest Periods so as not to
require a payment or prepayment of any Advance during an Interest
Period for such Advance.
"Interest Rate Protection Agreement" shall mean any interest rate
exchange, collar, cap or similar agreements providing interest rate protection,
entered into by the Lessee with a Participant, in accordance with Section
6.1(z) of the Participation Agreement or at anytime after the First Closing
Date.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, together with the rules and regulations promulgated thereunder.
"Late Payment Rate" means (a) for each day (other than as set forth in
clause (b) of this definition) the Federal Funds Effective Rate or (b) for the
purpose of computing interest on past due payments for each day following the
fifth day after such payments first became due, a rate of
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two percent (2%) per annum in excess of the Alternate Base Rate then in effect;
provided, the Late Payment Rate shall not, notwithstanding anything to the
contrary herein contained, exceed the maximum rate of interest permitted by
applicable law.
"Lease" means the Master Lease, dated as of the date hereof, between
the Lessor and the Lessee, together with all Lease Supplements thereto.
"Lease Balance" means, as of any date of determination, an amount
equal to the aggregate sum of the outstanding amount of the Advances, all
accrued and unpaid interest on the Advances, and all other amounts owing by the
Lessee under the Operative Documents.
"Lease Default" means any event or condition which, with the lapse of
time or the giving of notice, or both, would constitute a Lease Event of
Default.
"Lease Event of Default" is defined in Section 17.1 of the Lease.
"Lease Supplement" means the Lease Supplement substantially in the
form of Exhibit A to the Lease together with all attachments and schedules
thereto, as such Lease Supplement may be supplemented, amended or modified from
time to time.
"Lessee" means Chase Brass & Copper Company, Inc., a Delaware
corporation, as lessee under the Lease, and its successors and assigns
expressly permitted under the Operative Documents.
"Lessor" means ABN AMRO Bank N.V., as Lessor under the Lease.
"Lessor Financing Statements" means UCC financing statements
appropriately completed and executed for filing in the applicable jurisdiction
in order to protect the Lessor's interest under the Lease to the extent the
Lease is a security agreement.
"Lessor Lien" means any Lien, true lease or sublease or disposition of
title arising as a result of (a) any claim against the Lessor not resulting
from the transactions contemplated by the Operative Documents, (b) any act or
omission of the Lessor which is not required by the Operative Documents or is
in violation of any of the terms of the Operative Documents, (c) any claim
against the Lessor with respect to Taxes or Transaction Expenses against which
Lessee is not required to indemnify the Lessor, pursuant to Sections 9 or 13.5
of the Participation Agreement or (d) any claim against the Lessor arising out
of any transfer by the Lessor of all or any portion of the interest of the
Lessor in the Property or the Operative Documents other than the transfer of
title to or possession of the Property by the Lessor pursuant to and in
accordance with the Lease or the Participation Agreement or pursuant to the
exercise of the remedies set forth in Article XVII of the Lease.
"Leverage Ratio of the Loan Parties" is defined in Section 1.1 of the
Credit Agreement.
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"Lien" means any mortgage, deed of trust, pledge, security interest,
encumbrance, lien, easement, servitude or charge of any kind, including,
without limitation, any irrevocable license, conditional sale or other title
retention agreement, any lease in the nature thereof, or any other right of or
arrangement with any creditor to have its claim satisfied out of any specified
property or asset with the proceeds therefrom prior to the satisfaction of the
claims of the general creditors of the owner thereof, whether or not filed or
recorded, or the filing of, or agreement to execute as "debtor", any financing
or continuation statement under the Uniform Commercial Code of any jurisdiction
or any federal, state or local lien imposed pursuant to any Environmental Law.
"Marketing Period" means the period commencing on the date one hundred
eighty (180) days prior to the Expiration Date and ending on the Expiration
Date.
"Material", "Materially", and "Material Adverse Effect" mean material
to, or a material adverse effect on, (i) the consolidated financial position,
business or consolidated results of operations of the Lessee, (ii) the ability
of the Lessee to perform its obligations under any of the Operative Documents,
(iii) the value or condition of the Property or the Lessor's interests therein
or title thereto, or (iv) the ability of the Lessor, the Agent or any
Participant to enforce any of its rights or remedies under any Operative
Document.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $1,000,000.
"Maturity Date" means the earlier to occur of (i) the Expiration Date
or (ii) the sixth anniversary of the applicable Closing Date, as such date may
be accelerated or extended from time to time pursuant to Section 3.6 of the
Participation Agreement.
"Modifications" is defined in Section 11.1(a) of the Lease.
"Moody's" means Moody's Investors Services, Inc.
"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 Cure Proceeds" is defined in Section 11.8 of the Participation
Agreement.
"Net Proceeds" means all amounts paid in connection with any Casualty
or Condemnation, and all interest earned thereon, less the expense of claiming
and collecting such amounts, including all costs and expenses in connection
therewith for which the Agent or the Lessor is entitled to be reimbursed
pursuant to the Lease.
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<PAGE> 20
"Net Sales Proceeds" means the Gross Proceeds actually received by the
Lessor upon any sale by the Lessor of any part of the Property pursuant to
Articles XVII or XXII of the Lease, including, without limitation, (i) any such
payments made to the Lessor by the Lessee or any purchaser, (ii) any Shortfall
Amount paid to the Lessor by the Lessee, and (iii) any interest paid by the
Lessee to the Lessor on past due amounts under the Lease; but excluding any
payments applied by the Lessor to pay, or received by the Lessor as
reimbursement for, bona fide costs of the sale and further excluding any excess
net sales proceeds received from a purchaser that the Lessor is required to pay
over to the Lessee. In the event that for any reason whatsoever, including a
default by the Lessee, the Lessor does not sell the Property pursuant to the
Lease on the Designated Payment Date, "Net Sales Proceeds" shall nonetheless
include any Shortfall Amount actually received by the Lessor. Further, if the
Lessor does not sell the Property pursuant to the Lease, then "Net Sales
Proceeds" shall also include the excess, if any, of:
(A) all rents and all sales, condemnation and insurance
proceeds actually received by the Lessor from any sale or lease after
the Designated Payment Date of any interest in, or because of any
subsequent taking or damage to, the Property; over
(B) the sum of (i) all costs of collecting the rents and
proceeds described in the preceding clause (A) plus (ii) all ad
valorem taxes, insurance premiums and other costs of every kind
incurred by the Lessor with respect to the ownership, operation or
maintenance of the Property.
However, for purposes of computing any excess described in the preceding
sentence, costs described in clause (B) shall not include the Lessor's general
overhead costs or any costs for which the Participants have already paid the
Lessor their Commitment Percentages thereof as required by Section 11.6 of the
Participation Agreement.
"Non-Consenting Participant" means any Participant which has denied,
or is deemed to have denied, an Extension Request pursuant to Section 3.6 of
the Participation Agreement.
"Operative Documents" means the following:
(a) the Participation Agreement;
(b) the Lease and Lease Supplement;
(c) the Bill of Sale;
(d) the Assignment of Warranties;
(e) the Guarantee;
(f) the CII Guarantee;
(g) the Assignment of Lease and each Supplement to the
Assignment of Lease;
(h) the Consent to Assignment; and
(i) any Interest Rate Protection Agreements.
"Original Executed Counterpart" is defined in Section 31.8 of the
Lease.
20
<PAGE> 21
"Overdue Rate" means, with respect to the Advances, fees or any other
payment due under the Operative Documents, the interest rate then applicable to
the Advances plus 2% per annum.
"Participant's Letter" is defined in Section 12.1(b) of the
Participation Agreement.
"Participation Agreement" means the Participation Agreement, dated as
of the date hereof, among the Lessee, the Lessor, the Participants and the
Agent.
"Participation Interest" means, as to each Participant, a
participation interest in the Lease and the right to receive that percentage of
the following payments actually received by the Lessor from or on behalf of the
Lessee as is set forth on Schedule I to the Participation Agreement, subject to
the provisions of Sections 3.10 - 3.20 and Section 11 of the Participation
Agreement: (i) Basic Rent, (ii) Supplemental Rent, (iii) Asset Termination
Value, (iv) Purchase Option Price, (v) Net Sales Proceeds, (vi) Residual Value
Guarantee Amount, (vii) the Shortfall Amount, and (viii) other payments in
respect of indemnities or pursuant to the Guarantee or the exercise of remedies
under the Operative Documents, excluding, however, (x) any Excepted Payments
and (y) as to a particular Participant, any payments on account of any Advances
and any Required Supplemental Payments (and interest thereon) for which the
Lessor has not received payment from such Participant of such Participant's
Commitment Percentage thereof. For example, if the Lessor elects to pay for
insurance required of the Lessee by the Lease because of the Lessee's failure
to obtain such insurance, the Lessor's receipt of reimbursement for the cost of
such insurance from the Lessee shall be included within "Participation
Interest" for purposes of this Agreement only if such Participant has paid to
the Lessor such Participant's Commitment Percentage of such cost pursuant to
Section 11.6 or Section 11.7 of the Participation Agreement.
"Participants" means ABN AMRO Bank N.V., Credit Agricole Indosuez and
each Person executing the Participation Agreement or a Participant's Letter as
a Participant and purchasing a Participating Interest in the transactions
contemplated by the Participation Agreement and the other Operative Documents.
"Participant Balance" means for each Participant the sum of its
Tranche A Participation Interest Balance and its Tranche B Participation
Interest Balance.
"Payment Date" means (a) any Scheduled Payment Date and (b) any date
on which interest is payable pursuant to Section 3.7(c) of the Participation
Agreement in connection with any prepayment of the Advances.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" means:
21
<PAGE> 22
(i) the respective rights and interests of the parties to the
Operative Documents as provided in the Operative Documents;
(ii) the rights of any sublessee or assignee under a sublease
or an assignment expressly permitted by the terms of the Lease;
(iii) Liens for Taxes that either are not yet due or are being
contested in accordance with the provisions of Section 13.1 of the
Lease;
(iv) Liens arising by operation of law, materialmen's,
mechanics', workers', repairmen's, employees', carriers',
warehousemen's and other like Liens in connection with any
Modifications or arising in the ordinary course of business for
amounts that either are not more than 60 days past due or are being
diligently contested in good faith by appropriate proceedings, so long
as such proceedings satisfy the conditions for the continuation of
proceedings to contest Taxes set forth in Section 13.1 of the Lease;
(v) Liens of any of the types referred to in clause (iv) above
that have been bonded for not less than the full amount in dispute (or
as to which other security arrangements satisfactory to the Lessor
have been made), which bonding (or arrangements) shall comply with
applicable Requirements of Law, and has effectively stayed any
execution or enforcement of such Liens;
(vi) Liens arising out of judgments or awards with respect to
which appeals or other proceedings for review are being prosecuted in
good faith and for the payment of which adequate reserves have been
provided as required by GAAP or other appropriate provisions have been
made, so long as such proceedings have the effect of staying the
execution of such judgments or awards and satisfy the conditions for
the continuation of proceedings to contest set forth in Section 13.1
of the Lease;
(vii) all encumbrances, exceptions, restrictions, easements,
rights of way, servitudes, encroachments and irregularities in title,
other than Liens which, in the reasonable assessment of the Agent, do
not materially impair the value of the Property or the use of the
Property for its intended purpose;
(viii) easements, rights of way and other encumbrances on
title to real property pursuant to Section 12.2 of the Lease; and
(ix) to the extent not duplicative of clauses (i-viii), Liens
on properties of the Lessee (other than Liens on the Property)
permitted under Section 8.2(e) of the Credit Agreement.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
governmental authority or any other entity.
22
<PAGE> 23
"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 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.
"Plans and Specifications" means, with respect to the Property, the
plans and specifications for the Equipment to be installed and delivered on the
Site.
"Project" means the extrusion press facility and related capital
equipment, all as more particularly described in Schedule V to the
Participation Agreement.
"Property" means all of the Equipment and Fixtures at any time located
on or under the Site financed by an Advance, and those items of property
becoming property of the Lessor under Article XI of the Lease.
"Property Balance" means, with respect to the Property, an amount
equal to the outstanding amount of the Advances and all accrued and unpaid
interest thereon.
"Property Improvements Cost" means, with respect to the Property, the
amount funded by the Lessor under the Participation Agreement to the Lessee for
reimbursement of the cost of acquiring any Equipment, Fixtures or Modifications
in accordance with the Operative Documents, as set forth in the Funding
Requests therefor.
"Purchase Notice" is defined in Section 20.1 of the Lease.
"Purchase Option" is defined in Section 20.1 of the Lease.
"Purchase Option Price" is defined in Section 20.1 of the Lease.
"Release" means any release, pumping, pouring, emptying, injecting,
escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or
emission of a Hazardous Substance.
"Remarketing Option" is defined in Section 22.1 of the Lease.
"Remediation Agreement" means the Remediation Agreement, entered into
as of August 24, 1990, by and among BP Exploration (Alaska) Inc., The Standard
Oil Company, Chase Industries, Inc. (then named Chase Brass & Copper Holding
Company) and Lessee (then named CBC Acquisition Corporation), as such agreement
is in effect on the First Closing Date.
"Renewal Option" is defined in Section 21.1(a) of the Lease.
23
<PAGE> 24
"Renewal Request" is defined in Section 21.1(a) of the Lease.
"Renewal Response Date" is defined in Section 21.1(a) of the Lease.
"Renewal Term" means either of the three one-year periods which
immediately follow the third anniversary of the applicable Closing Date with
respect to which Lessee has exercised its Renewal Option pursuant to Section
21.1 of the Lease.
"Rent" means, collectively, the Basic Rent and the Supplemental Rent,
in each case payable under the Lease.
"Replacement Participant" is defined in Section 3.6(c) of the
Participation Agreement.
"Requesting Party" is defined in Section 26.1 of the Lease.
"Required Modification" is defined in Section 11.1(a) of the Lease.
"Required Participants" means, at any time, Participants the
Commitment Percentages of which aggregate at least 66 2/3%.
"Required Supplemental Payments" shall mean all payments of
Supplemental Rent that the Lessee has agreed to pay the Lessor under the Lease
and the other Operative Agreements, other than (i) Commitment Fees, (ii) the
Underwriting Fee, (iii) Excepted Payments, (iv) Residual Value Guarantee
Amount, (v) Asset Termination Value, (vi) Purchase Option Price and (vii)
interest accruing on any amount due from the Lessee, which amount is itself not
a Required Supplemental Payment under this definition. For example, if the
Lessor incurs attorneys' fees because of a breach by the Lessee of the Lease,
the payments required of the Lessee by the Lease as reimbursement for such fees
shall constitute a Required Supplemental Payment.
"Requirement of Law" means all Federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting the Property, the Improvements or
the demolition, construction, use or alteration thereof, whether now or
hereafter enacted and in force, including any that require repairs,
modifications or alterations in or to the Property or in any way limit the use
and enjoyment thereof (including all building, zoning and fire codes and the
Americans with Disabilities Act of 1990, 42 U.S.C. Section 1201 et. seq. and
any other similar Federal, state or local laws or ordinances and the
regulations promulgated thereunder) and any that may relate to environmental
requirements (including all Environmental Laws), and all permits, certificates
of occupancy, licenses, authorizations and regulations relating thereto, and
all covenants, agreements, restrictions and encumbrances contained in any
instruments which are either of record or known to the Lessee affecting the
Property, the Appurtenant Rights and any easements, licenses or other
agreements entered into pursuant to Section 12.2 of the Lease.
24
<PAGE> 25
"Residual Value Guarantee Amount" shall mean as of the Maturity Date
the amount set forth on Annex B to the applicable Lease Supplement.
"Response Actions" means remove, removal, remedy, and remedial action
as those terms are defined in CERCLA, 42 U.S.C. ' 9601.
"Responsible Officer" means the President, any Vice President or the
Treasurer of the Lessee or the Guarantor, as applicable.
"Responsible Officer's Certificate" means a certificate signed by any
Responsible Officer, which certificate shall certify as true and correct the
subject matter being certified to in such certificate.
"Scheduled Payment Date" means (a) as to any Advance having an
Interest Period of three months, the last day of such Interest Period, (b) as
to any Advance having an Interest Period longer than three months, each day
which is a monthly anniversary of the first day of such Interest Period and the
last day of such Interest Period and (c) as to any Alternate Basic Rate
Advance, the last day of each fiscal quarter of the Lessee.
"Second Closing Date" is defined in Section 3.1 of the Participation
Agreement.
"Secured Party" shall mean the Agent, the Participants and any
Participant which is a counterparty to an Interest Rate Protection Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Security Documents" means the collective reference to the Assignment
of Lease and all other security documents hereafter delivered to the Agent
granting a Lien on any asset or assets of any Person to secure the obligations
and liabilities of the Lessor to the Agent and the Participants under the
Participation Agreement or of the Lessee to the Lessor under the Lease.
"Shortfall Amount" means, as of the Expiration Date, the amount that
the Asset Termination Value will exceed the aggregate of the Gross Proceeds and
the Residual Value Guarantee Amount upon the completion of a sale of the
Property pursuant to Article XXII of the Lease.
"Significant Casualty" means (i) a Casualty that results in an
insurance settlement on the basis of a total loss, or a constructive or
compromised total loss, or (ii) a Casualty that in the reasonable, good faith
judgment of the Lessee (as evidenced by a Responsible Officer's Certificate
delivered to the Lessor pursuant to Section 16.1 of the Lease) either (a)
renders the Property unsuitable for continued use as a commercial property of
the type of such property immediately prior to such Casualty or (b) is so
substantial in nature that restoration of the
25
<PAGE> 26
Property to substantially its condition as existed immediately prior to such
Casualty would be impracticable or impossible.
"Significant Condemnation" means (i) a Condemnation that involves a
taking of Lessor's entire title to the related Land Interest, (ii) a
Condemnation that results in loss of possession of the Property by the Lessee
for a period in excess of one hundred eighty (180) consecutive days, or (iii) a
Condemnation that in the reasonable, good faith judgment of the Lessee (as
evidenced by a Responsible Officer's Certificate delivered to the Lessor
pursuant to Section 16.1 of the Lease) either (a) renders the Property
unsuitable for continued use as commercial of the type of such property
immediately prior to such Condemnation or (b) is such that restoration of the
Property to substantially its condition as existed immediately prior to such
Condemnation would be impracticable or impossible.
"Significant Event" means (i) a Significant Casualty, (ii) a
Significant Condemnation or (iii) an event where the restoration of the
Property subject to a Casualty or Condemnation shall not be completed prior to
the earlier of (A) the 180th day prior to the Expiration Date or (B) twelve
(12) months following the occurrence of such Casualty or Condemnation.
"Site" means the land on which the Project is to be located, as
described in Schedule IV to the Participation Agreement.
"Standard & Poor's" means Standard & Poor's Ratings Services, a
division of The McGraw Hill Companies, Inc.
"Subsidiary" means, as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of which
is otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Persons. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Lessee.
"Supplemental Rent" means all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay to Lessor or any
other Person under the Lease, or under any of the other Operative Documents,
including, without limitation, payments of the Residual Value Guarantee Amount,
the Shortfall Amount and payments pursuant to Sections 16.2, 16.3 or 17.6 of
the Lease and Articles XX and XXII of the Lease.
"Supplement to Assignment of Lease" means the Supplement substantially
in the form of Exhibit A to the Assignment of Lease together with all
attachments and schedules thereto, as such Supplement to Assignment of Lease
may be supplemented, amended or modified from time to time.
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<PAGE> 27
"Taxes" is defined in the definition of Impositions.
"Term" is defined in Section 2.3 of the Lease.
"Termination Date" is defined in Section 15.1(d), 16.2(a) and 17.2(e)
of the Lease.
"Termination Notice" is defined in Section 16.1 of the Lease.
"Tranche A Participants" means those Participants purchasing a Tranche
A Participation Interest in the Advances and maintaining a Tranche A
Participation Interest Commitment.
"Tranche A Participation Interest" means, as to each Tranche A
Participant, such Participant's Tranche A Participation Interest Commitment
Percentage, multiplied by the outstanding amount of all Advances as to which
such Participant has funded its Tranche A Participation Interest Commitment
Percentage under Section 3.4 of the Participation Agreement.
"Tranche A Participation Interest Balance" means for each Tranche A
Participant as of any date of determination an amount equal to the sum of such
Participant's Tranche A Participation Interest in all Advances less any
payments (or portions thereof) of Basic Rent comprising principal of the
Advances allocated in accordance with Section 3.11 of the Participation
Agreement, together with all accrued and unpaid interest thereon and all other
amounts owed to such Tranche A Participant under the Operative Documents.
"Tranche A Participation Interest Commitment" is defined in Section
3.5 of the Participation Agreement.
"Tranche A Participation Interest Commitment Percentage" means (i)
with respect to all Participants in the aggregate, 85.55% of the aggregate
Commitments, and (ii) with respect to each Tranche A Participant, the
percentage of the aggregate Commitments set forth after such Participant's
Tranche A Participation Interest Commitment in Schedule I to the Participation
Agreement.
"Tranche B Participants" means those Participants purchasing a Tranche
B Participation Interest in the Advances and maintaining a Tranche B
Participation Interest Commitment.
"Tranche B Participation Interest" means, as to each Tranche B
Participant, such Tranche B Participant's Tranche B Participation Interest
Commitment multiplied by the outstanding amount of all Advances as to which
such Participant has funded its Tranche B Participation Interest Commitment
Percentage under Section 3.4 of the Participation Agreement.
"Tranche B Participation Interest Balance" means for each Tranche B
Participant as of any date of determination an amount equal to the sum of such
Participant's Tranche B Participation Interest in all Advances, together with
all accrued and unpaid interest thereon and all other amounts owed to such
Tranche B Participant under the Operative Documents.
27
<PAGE> 28
"Tranche B Participation Interest Commitment" is defined in Section
3.5 of the Participation Agreement.
"Tranche B Participation Interest Commitment Percentage" means (i)
with respect to all Participants in the aggregate, 14.45% of the aggregate
Commitments, and (ii) with respect to each Tranche B Participant, the
percentage of the aggregate Commitments set forth after such Participant's
Tranche B Participation Interest Commitment in Schedule I to the Participation
Agreement.
"Transaction Expenses" means all costs and expenses incurred in
connection with the preparation, execution and delivery of the Operative
Documents and the transactions contemplated by the Operative Documents
including without limitation:
(a) the reasonable fees (up to the amount separately agreed
to by the Agent and the Lessee), out-of-pocket expenses and
disbursements of counsel for each of the Lessor, the Participants and
the Agent, in negotiating the terms of the Operative Documents and the
other transaction documents, preparing for the closing under, and
rendering opinions in connection with, such transactions and in
rendering other services customary for counsel representing parties to
transactions of the types involved in the transactions contemplated by
the Operative Documents;
(b) the reasonable fees, out-of-pocket expenses and
disbursements of counsel, and (without duplication) the reasonable
allocated cost of internal legal services and all disbursements of
internal counsel of each of the Lessor, the Participants and the Agent
in connection with (1) any amendment, supplement, waiver or consent
with respect to any Operative Documents requested or approved by the
Lessee and (2) any enforcement of any rights or remedies against the
Lessee in respect of the Operative Documents;
(c) any other reasonable fees, out-of-pocket expenses,
disbursements or costs of any party to the Operative Documents or any
of the other transaction documents;
(d) any and all search costs, Taxes and fees incurred in
recording, registering or filing any Operative Document or any other
transaction document, any deed, declaration, mortgage, security
agreement, notice or financing statement with any public office,
registry or governmental agency in connection with the transactions
contemplated by the Operative Documents;
(e) any title fees, premiums and escrow costs and other
expenses relating to title insurance and title certificates and the
closing contemplated by the Operative Documents;
(f) all expenses relating to all Environmental Audits; and
28
<PAGE> 29
(g) the fees of American Appraisal Associates, Inc. for
their services rendered in connection with delivering the Appraisal
required by Section 6.1(d) of the Participation Agreement.
"Type" of Advance refers to the manner of computing an interest charge
on a particular Advance. The Types of Advances are Alternate Base Rate
Advances and Eurodollar Rate Advances.
"UCC Financing Statements" means collectively the Agent Financing
Statements and the Lessor Financing Statements.
"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.
"Underwriting Fee" is defined in Section 4.2 of the Participation
Agreement.
"Uniform Commercial Code" and "UCC" means the Uniform Commercial Code
as in effect in any applicable jurisdiction.
"Voluntary Retention of the Property" means any election made by the
Lessor to keep the Property pursuant to the Lease when the Lessee has made and
caused to be made all payments to the Lessor required by the Operative
Documents (including the Shortfall Amount).
29
<PAGE> 1
EXHIBIT 10.23
================================================================================
GUARANTEE
dated as of December 23, 1997
from
CHASE INDUSTRIES INC.
as Obligor
to
ABN AMRO BANK N.V.,
as Agent
================================================================================
<PAGE> 2
GUARANTEE
THIS GUARANTEE (this "Guarantee"), dated as of December 23,
1997, is made by CHASE INDUSTRIES INC., a Delaware corporation ("Obligor"), in
favor of ABN AMRO BANK N.V., as Agent for the Participants referred to below.
W I T N E S S E T H:
WHEREAS, ABN AMRO Bank, N.V., a bank organized under the laws of The
Netherlands (together with its permitted successors and assigns, the "Lessor")
is to acquire title to certain property to be delivered and installed on real
property as contemplated by the Participation Agreement, dated as of the date
hereof (as amended, modified or supplemented after the date hereof, the
"Participation Agreement"), among the Lessor, Chase Brass & Copper Company,
Inc., a Delaware corporation (together with its permitted successors and
assigns, the "Lessee"), ABN AMRO Bank N.V., as a participant and agent (in such
capacities, a "Participant" and the "Agent", respectively) and the other
Participants a party thereto, which Property shall in turn be leased to the
Lessee; and
WHEREAS, it is a condition precedent to the obligations of the Lessor,
the Agent and the Participants under the Participation Agreement that the
Obligor shall have executed and delivered this Guarantee to the Agent; and
WHEREAS, it is in the best interests of Obligor to execute this
Guarantee inasmuch as Obligor derives synergistic benefits from its affiliation
with Lessee and Obligor will derive substantial direct and indirect benefits
from the transactions in favor of Lessee evidenced by the Operative Documents.
NOW, THEREFORE, in consideration of the premises and to induce the
Lessor to enter into the Lease and the other Operative Documents to which it is
a party and the Participants to enter into the Participation Agreement and to
purchase their Participation Interests, the Obligor hereby agrees as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.1. Certain Terms. The following terms (whether
or not underscored) when used in this Guarantee, including its preamble and
recitals, shall have the following respective meanings:
"Agent" is defined in the first recital.
"Guarantee" is defined in the preamble.
"Lessee" is defined in the first recital.
<PAGE> 3
"Obligations" means each and every obligation, liability, or
indebtedness, of any nature whatsoever, of Lessee (in any capacity), whether
direct or indirect, primary or secondary, joint or several, absolute or
contingent, due or to become due, now existing or hereafter incurred, which may
arise under, out of, or in connection with, the Participation Agreement or any
other Operative Document, or any other document made, delivered or given in
connection therewith (and whether on account of Advances, interest, premium,
reimbursement obligations, guarantee obligations, fees or disbursements of
counsel to the Agent or to the Participants, or otherwise, and including
without limitation all obligations, liabilities, and indebtedness arising or
asserted after the filing of any petition in bankruptcy or the commencement of
any insolvency, reorganization or like proceeding relating to any party to any
Operative Document, whether or not a claim for post-filing or post-petition
interest or other payments is allowed in such proceeding).
"Obligor" is defined in the preamble.
"Obligor Guarantee Event of Default" shall mean any of the
events specified in Section 6.1; provided, however, that any requirement for
the giving of notice, the lapse of time, or both, or any other condition, has
been satisfied.
"Participation Agreement" is defined in the first recital.
"Unmatured Event of Default" shall mean an event, act,
condition or occurrence which with the giving of notice or the lapse of time
(or both) would become an Obligor Guarantee Event of Default.
ARTICLE II
ADDITIONAL DEFINITIONS
SECTION 2.1. Additional Definitions.
Unless otherwise defined herein, terms defined in Appendix 1
to the Participation Agreement and used herein shall have the respective
meanings set forth in Appendix 1 to the Participation Agreement.
The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Guarantee shall refer to this Guarantee as a
whole and not to any particular provision of this Guarantee; Section references
are to this Guarantee unless otherwise specified; and, the word, "including,"
is not a term of limitation and means "including without limitation."
The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
-2-
<PAGE> 4
ARTICLE III
GUARANTY PROVISIONS
SECTION 3.1. Guarantee. Obligor hereby absolutely,
unconditionally and irrevocably
(a) guarantees to the Agent, for the benefit of the
Participants and their respective successors, indorsees, transferees
and assigns, the full and punctual payment and performance when due,
whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all Obligations (including,
without limitation, all such amounts which would become due but for
the operation of the automatic stay under Section 362(a) of the United
States Bankruptcy Code, 11 U.S.C. Section 362(a), or any similar
foreign law to which any Obligor is subject), and
(b) indemnifies and holds harmless each of the Agent and
each of the Participants for any and all costs and expenses (including
reasonable attorneys' fees and expenses) incurred by any of the Agent
or any Participant in enforcing any rights under this Guarantee.
provided, however, that Obligor shall only be liable under this Guarantee for
the maximum amount of such liability that can be hereby incurred without
rendering this Guarantee, as it relates to Obligor, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer, and not for any
greater amount. This Guarantee constitutes a guaranty of payment when due and
not of collection, and Obligor specifically agrees that it shall not be
necessary or required that any Agent or any Participant exercise any right,
assert any claim or demand or enforce any remedy whatsoever against the Lessee
or any other obligor (or any other Person) before or as a condition to the
obligations of Obligor hereunder.
SECTION 3.2. Acceleration of Guarantee. Obligor agrees
that, in the event of the dissolution or insolvency of the Lessee or Obligor,
or the inability or failure of the Lessee or Obligor to pay debts as they
become due, or an assignment by the Lessee or Obligor for the benefit of
creditors, or the commencement of any case or proceeding in respect of the
Lessee or Obligor under any bankruptcy, insolvency or similar laws, and if such
event shall occur at a time when any of the Obligations (including any future
Rent) may not then be due and payable, Obligor will pay to the Lenders
forthwith the full amount which would be payable hereunder by Obligor if all
such Obligations were then due and payable.
SECTION 3.3. Guarantee Absolute, etc. This Guarantee
shall in all respects be a continuing, absolute, unconditional and irrevocable
guaranty of payment, and shall remain in full force and effect until all
Obligations have been paid and performed in full, all obligations of Obligor
hereunder shall have been paid and performed in full, and all Operative
Documents (including all indemnity and reimbursement provisions thereof) shall
have terminated. Obligor guarantees that the Obligations will be paid and
performed strictly in accordance with the terms of each of the Operative
Documents under which they arise, regardless of any law, regulation or
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<PAGE> 5
order now or hereafter in effect in any jurisdiction affecting any of such
terms or the rights of any of the Participants, Agent, Lessor, or Lessee with
respect thereto. The liability of Obligor under this Guarantee shall be
absolute, unconditional and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of
any of the Operative Documents;
(b) the failure of any of the Agent, any Participant, or
Lessor
(i) to assert any claim or demand or enforce any
right or remedy against the Lessee or any other Person
(including any other guarantor or obligor) under the
provisions of any of the Operative Documents or otherwise, or
(ii) to exercise any right or remedy against any
other obligor on, guarantor of, or collateral securing, any
Obligation;
(c) any change in the time, manner or place of payment or
performance of, or in any other term of, all or any of the Obligations
or any other extension, compromise or renewal of any Obligation;
(d) any reduction, limitation, impairment or termination
of the Obligations for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and the liability of
Obligor under this Guarantee shall not be subject to (and Obligor
hereby waives any right to or claim of) any defense or set- off,
counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality, nongenuiness, irregularity, compromise,
unenforceability of, or any other event or occurrence affecting, the
Obligations or otherwise;
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
any of the Operative Documents;
(f) any addition, exchange, release, surrender or
nonperfection of any collateral, or any amendment to or waiver or
release or addition of, or consent to departure from, any other
guaranty held by any of the Agent, any Participant, or Lessor securing
any of the Obligations; or
(g) any other circumstance which might otherwise
constitute a defense available to, or a legal or equitable discharge
of, the Lessee, any surety or Obligor.
SECTION 3.4. Reinstatement, etc. Obligor agrees that this
Guarantee shall continue to be effective or be reinstated, as the case may be,
if at any time any payment (in whole or in part) of any of the Obligations is
rescinded or must otherwise be restored by any of the Agent, any Participant,
or Lessor upon the insolvency, bankruptcy or reorganization of the Lessee or
otherwise, all as though such payment had not been made.
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<PAGE> 6
SECTION 3.5. Waiver, etc. Obligor hereby waives
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Obligations and any requirement that any of the Agent, any
Participant, or Lessor protect, record, secure, perfect or insure any lease,
mortgage, security interest, or Lien, or any property subject thereto, or
exhaust any right or take any action against the Lessee, any other Obligor or
any other Person (including any other guarantor) or any collateral, securing
the Obligations.
SECTION 3.6. Subrogation. Notwithstanding any payment or
payments made by the Obligor hereunder or any setoff or application of funds of
the Obligor by the Agent, the Obligor shall be entitled to be subrogated to any
of the rights of the Agent against the Lessor, the Lessee or any other Person
or any collateral security or guarantee or right of offset held by the Agent
for the payment of the Obligations, and the Obligor shall be entitled to seek
any contribution or reimbursement from the Lessor, the Lessee or any other
Person in respect of payments made by the Obligor hereunder, after, but not
before, all amounts owing to the Agent hereunder are paid in full. If any
amount shall be paid to the Obligor on account of such subrogation rights at
any time when all of the Obligations and all amounts owing hereunder shall not
have been paid in full, such amount shall be held by the Obligor in trust for
the Agent, segregated from other funds of the Obligor, and shall, forthwith
upon receipt by the Obligor, be turned over to the Agent in the exact form
received by the Obligor (duly indorsed by the Obligor to the Agent, if
required), to be applied against the Obligations, whether matured or unmatured,
in such order as the Agent may determine.
SECTION 3.7. Successors, Transferees and Assigns; etc.
This Guarantee shall:
(a) be binding upon Obligor, and its successors,
transferees and assigns; and
(b) inure to the benefit of and be enforceable by each of
the Participants, the Agent, on behalf of itself and the Participants,
and each of their respective successors, transferees, and assigns.
SECTION 3.8. Payments Free and Clear of Taxes, etc.
Obligor hereby agrees that:
(a) Any and all payments made by Obligor hereunder shall
be made free and clear of, and without deduction for, any and all
present or future Impositions. In the event that any withholding or
deduction from any payment to be made by Obligor hereunder is required
in respect of any Impositions pursuant to any applicable law, rule or
regulation, then Obligor will
(i) pay directly to the relevant authority the
full amount required to be so withheld or deducted;
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<PAGE> 7
(ii) promptly forward to Agent an official receipt
or other documentation satisfactory to Agent evidencing such
payment to such authority; and
(iii) pay to the Agent such additional amount or
amounts as is necessary to ensure that the net amount actually
received by Agent, on behalf of itself or the relevant
Participant will equal the full amount Agent or such relevant
Participant would have received had no such withholding or
deduction been required.
Without prejudice to the survival of any other agreement of Obligor hereunder,
the agreements and obligations of Obligor contained in this Section 3.8 shall
survive the payment and performance in full of the Obligations and the
termination, cancellation or expiration of all of the Operative Documents..
SECTION 3.9. Judgment. Obligor hereby agrees that:
(a) If, for the purposes of obtaining judgment in any
court, it is necessary to convert a sum due hereunder in Dollars into
another currency, Obligor agrees, to the fullest extent permitted by
law, that the rate of exchange used shall be that which in accordance
with normal banking procedures the Agent could purchase Dollars with
such other currency on the Business Day preceding that on which final
judgment is given.
(b) The obligation of Obligor in respect of any sum due
from it to Agent or any Participant shall, notwithstanding any
judgment in a currency other than Dollars, be discharged only to the
extent that on the Business Day following receipt by Agent or such
Participant of any sum adjudged to be so due in such other currency
Agent or such Participant may, in accordance with normal banking
procedures, purchase Dollars with such other currency; in the event
that the Dollars so purchased are less than the sum originally due to
Agent or such Participant in Dollars, Obligor, as a separate
obligation and notwithstanding any such judgment, hereby indemnifies
and holds harmless Agent or such Participant against such loss, and if
the Dollars so purchased exceed the sum originally due to Agent or
such Participant, Agent or such Participant shall remit to Obligor
such excess.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Representations and Warranties. Obligor
hereby represents and warrants to Agent and each Participant as set forth in
this Article.
SECTION 4.1.1. Organization, etc. Obligor is a corporation
validly organized and existing and in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction
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<PAGE> 8
where the nature of its business requires such qualification, except for those
jurisdictions in which the failure to be so qualified could not reasonably be
likely to result in a Material adverse effect.
SECTION 4.1.2. Due Authorization, Non-Contravention, etc.
The execution, delivery and performance by Obligor of this Guarantee have been
duly authorized by all necessary corporate action, and do not
(a) contravene Obligor's bylaws, articles or certificate
of incorporation, or other organizational documents;
(b) contravene any contractual restriction (other than
any contravention that would not result in a Material adverse effect),
law or government regulation or court decree or order binding on or
affecting Obligor; or
(c) result in, or require the creation or imposition of,
any Lien on any of Obligor's properties.
SECTION 4.1.3. Authorization, Approval, etc. No
authorization, approval or other action by, and no notice to or filing with,
any governmental authority, regulatory body or any other Person is required for
the due execution, delivery or performance by Obligor of this Guarantee.
ARTICLE V
COVENANTS, ETC.
SECTION 5.1. Covenants, etc. The Guarantor shall comply
with each of the following covenants as if made herein in favor of Lessor,
Agent, and each Participant (and the Guarantor hereby promises, covenants and
restates to Lessor, Agent and each Participant those covenants) contained in
Sections 8.1(g), (h), 8.2(a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k),
(l), (m), (n), (o), (p), (q), (r), (s) and 8.3 (a), (b), (c), (d), (e), (f),
(g), (h) and (i) of the Credit Agreement which, together with their associated
definitions, are incorporated herein by reference, mutatis mutandis; provided,
that
(i) the covenants contained in Section 8.2(i) of the
Credit Agreement shall terminate as it applies under this Guarantee
and no longer be deemed incorporated into this Guarantee at such time
as the Credit Agreement shall have expired or terminated in accordance
with the terms thereof or otherwise as a result of full payment of all
amounts due thereunder;
(ii) the covenants contained in Section 8.2(j) and 8.2(p)
of the Credit Agreement shall apply only to activities described
therein undertaken or effected by
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<PAGE> 9
Lessee or any subsidiary of Lessee (provided that Guarantor shall
continue to be subject to the provisions of Section 8.2(j)(2) of the
Credit Agreement);
(iii) Lessor, Agent and each Participant agree to treat any
and all information delivered pursuant to any such covenants in
accordance with Section 15.13 of the Participation Agreement; and
(iv) the following terms when used in the Credit Agreement
shall have the meanings set forth opposite such terms for purposes of
the Operative Documents:
<TABLE>
<CAPTION>
Credit Agreement Equivalent Operative
Definition Document Definition
---------------- -------------------
<S> <C>
"Borrower" "Obligor"
"Loans" "Lease Balance"
"Default" "Default"
"Event of Default" "Event of Default"
"Closing Date" "Closing Date"
"Material Adverse Change" "Material Adverse Effect";
</TABLE>
(ii) neither the limitation on indebtedness to be created,
incurred, assumed or suffered set forth in Section 8.2(d) of the
Credit Agreement nor any other provision of the Credit Agreement shall
be deemed to restrict the Guarantor's ability to execute, deliver and
perform its obligations under this Guarantee and the other Operative
Agreements; and
(iii) Guarantor shall provide prompt written notice to each
of Agent, Lessor, and each Participant in the event of any amendment
or modification to, any expiration or termination of or any waiver of
any provision of, the Credit Agreement, or any breach, default, or
event of default of or under the Credit Agreement.
ARTICLE VI
EVENTS OF DEFAULT; REMEDIES
SECTION 6.1. Events of Default. Each of the following
events shall constitute an "Obligor Guarantee Event of Default" (whether any
such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any governmental
authority) and each such Obligor Guarantee Event of Default shall continue so
long as, but only as long as, it shall not have been remedied:
SECTION 6.1.1. The Obligor shall default in the payment when
due of any amount owing hereunder; or
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<PAGE> 10
SECTION 6.1.2. The Obligor shall fail to observe or perform
any term, covenant or condition of the Obligor under this Guarantee (other than
those described in Section 6.1.1), or any representation or warranty set forth
in this Guarantee or in any document entered into by the Obligor or the Lessee
or in any document, certificate or financial or other statement delivered by
the Lessee in connection herewith shall be false or inaccurate when made or
deemed=made in any Material way, and such failure or misrepresentation or
breach of warranty shall remain uncured for a period of thirty (30) days after
written notice thereof is given to the Obligor by the Agent; provided, that if
such failure to perform is not capable of being cured within such period but is
capable of being cured within one hundred eighty (180) days after the
occurrence of such default and the Obligor is proceeding diligently to cure
such default, the Obligor shall be entitled to request an additional period
(not to exceed one hundred eighty (180) days from the date of such default) to
cure such default, consent to which request shall not be unreasonably withheld;
or
SECTION 6.1.3. The Obligor shall (i) admit in writing its
inability to pay its debts generally as they become due, (ii) file a petition
under the United States bankruptcy laws or any other applicable insolvency law
or statute of the United States of America or any State or Commonwealth thereof
or of any other jurisdiction, (iii) make a general assignment for the benefit
of its creditors, (iv) consent to the appointment of a receiver of itself or
the whole or any substantial part of its property, or (v) file a petition or
answer seeking or consenting to reorganization under the United States
bankruptcy laws or any other applicable insolvency law or statute of the United
States of America or any State or Commonwealth thereof or of any other
jurisdiction; or
SECTION 6.1.4. Insolvency proceedings or a petition under
the United States bankruptcy laws or any other applicable insolvency law or
statute of the United States of America or any State or Commonwealth thereof or
of any other jurisdiction shall be filed against the Obligor and shall remain
undismissed or unstayed and in effect for a period of sixty (60) consecutive
days from the date of this filing, or a court of competent jurisdiction shall
enter an order or decree appointing, without the consent of the Obligor, a
custodian, trustee or receiver for the Obligor or the whole or a substantial
part of its property, and such order or decree shall not be vacated or set
aside within sixty (60) days from the date of the entry thereof; or
SECTION 6.1.5. A final judgment for the payment of money in
excess of $3,000,000 shall be entered against the Obligor or any Subsidiary and
such judgment or order is not discharged, vacated, bonded or stayed pending
appeal (pursuant to laws, rules or court orders) within a period of thirty (30)
days from the date of entry of such judgment; or
SECTION 6.1.6. The Obligor or any of its Subsidiaries (i)
shall default in the payment when due, whether at stated maturity or otherwise,
of principal or interest in respect of Indebtedness having an aggregate
principal amount in excess of $3,000,000 and such payment default continues
unremedied until the expiration of any applicable grace period(s); or (ii)
shall fail to perform or observe any other condition or covenant, or any other
event shall occur or condition exist, under any agreement or instrument
relating to any such Indebtedness, if the
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<PAGE> 11
effect of any such failure, event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause such Indebtedness to be declared to be
due and payable prior to its stated maturity, or cash collateral in respect
thereof to be demanded; or
SECTION 6.1.7. An Event of Default (as such term is defined
in the Credit Agreement) shall have occurred and be continuing.
SECTION 6.2. Remedies. Upon the occurrence of any Obligor
Guarantee Event of Default and so long as the same shall be continuing, the
Agent or its successors, indorsees, transferees and assigns, as the case may
be, may, at its option, and shall, at the request of the Required Participants,
declare a default by written notice to the Obligor and at any time thereafter
the Agent or such other authorized person may:
SECTION 6.2.1. Exercise any right or remedy that may be
available hereunder or under any other Operative Document; or
SECTION 6.2.2 Exercise any other right or remedy that may
be available under applicable law or proceed by appropriate court action to
enforce the terms hereof or to recover damages for the breach hereof.
SECTION 6.3. Costs and Expenses. The Obligor shall be
liable for any and all accrued and unpaid amounts due hereunder before, after
or during the exercise of any of the foregoing remedies, including all
reasonable legal fees and other reasonable costs and expenses incurred by the
Agent or its successors, indorsees, transferees or assigns by reason of the
occurrence of any Obligor Guarantee Event of Default or the exercise of
remedies with respect thereto.
SECTION 6.4. Remedies Cumulative. Except as expressly
provided above, no remedy under this Section 6 is intended to be exclusive, but
each shall be cumulative and in addition to any other remedy provided under
this Section 6 or otherwise available at law or in equity. The exercise by the
Agent or its successors, indorsees, transferees or assigns of any one or more
of such remedies shall not preclude the simultaneous or later exercise by any
such Person or any other Person so entitled of any other remedy or remedies.
No express or implied waiver by the Agent or its successors, indorsees,
transferees or assigns of any Obligor Guarantee Event of Default shall in any
way be, or be construed to be, a waiver of any future or subsequent Obligor
Guarantee Event of Default. The failure or delay of the Agent or its
successors, indorsees, transferees or assigns in exercising any rights granted
it hereunder upon any occurrence of any of the contingencies set forth herein
shall not constitute a waiver of any such right upon the continuation or
recurrence of any such contingencies or similar contingencies and any single or
partial exercise of any particular right by the Agent or its successors,
indorsees, transferees or assigns shall not exhaust the same or constitute a
waiver of any other right provided herein.
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<PAGE> 12
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. Operative Document. This Guarantee is an
Operative Document executed pursuant to the Participation Agreement and the
other Operative Documents and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions thereof, including Section 15 of the Participation Agreement.
SECTION 7.2. Binding on Successors, Transferees and
Assigns; Assignments. In addition to, and not in limitation of, Section 3.7,
this Guarantee shall be binding upon Obligor and its successors, transferees
and assigns and shall inure to the benefit of and be enforceable by Agent and
each Participant and each of their respective successors, transferees and
assigns (to the full extent provided pursuant to Section 3.7); provided,
however, that Obligor may not assign any of its obligations hereunder without
the prior written consent of the Agent.
SECTION 7.3. Amendments etc. No amendment to or waiver of
any provision of this Guarantee, nor consent to any departure by Obligor
herefrom, shall be effective unless the same shall be in writing and signed by
the Agent with the written consent of the Required Participants, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 7.4. Addresses for Notices to Obligor. All
notices and other communications hereunder shall be in writing (including
telegraphic and telecopy communication) and mailed, telecopied, delivered by
reputable overnight delivery service, telegraphed or delivered (i) in the case
of Obligor, addressed to it at the address or telecopy number set forth below
its signature hereto, (ii) in the case of the Agent, at its address or telecopy
number specified in the Participation Agreement or (iii) in each case, at such
other address or telecopy number as shall be designated by such party in a
written notice to the other party complying as to delivery with the terms of
this Section. All such notices and other communications shall, when mailed,
telecopied, or telegraphed, respectively, be effective when deposited in the
mails, telecopied with confirmation of transmittal, or delivered to the
telegraph company, respectively, addressed as aforesaid, provided that notices
to the Agent shall not be effective until actually received by the Agent.
SECTION 7.5. No Waiver; Remedies. In addition to, and not
in limitation of, Section 3.3 and Section 3.5, no failure on the part of Agent
or any Participant to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
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<PAGE> 13
SECTION 7.6. Section Captions. Section captions used in
this Guarantee are for convenience of reference only and shall not affect the
construction of this Guarantee.
SECTION 7.7. Set-off. In addition to, and not in
limitation of, any rights of Agent or any Participant under applicable law,
each of Agent and each Participant shall, upon the occurrence of any Event of
Default, have the right to appropriate and apply to the payment of the
obligations of Obligor owing to it hereunder, irrespective of whether or not
the Agent or any Participant shall have made any demand hereunder and although
said obligations, liabilities or claims, or any of them, shall be contingent or
unmatured, and Obligor hereby grants to Agent and each Participant a continuing
security interest in any and all balances, credits, deposits, accounts or
moneys of Obligor then or thereafter maintained with such Person.
SECTION 7.8. Severability. Any provision of this Guarantee
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
SECTION 7.9. Counterparts; Telecopy Signatures. This
Guarantee may be executed by the parties hereto in several counterparts, each
of which shall be deemed to be an original and all of which shall constitute
but one and the same Guarantee. Delivery of executed signature pages hereof by
telecopy transmission from Obligor to Agent shall constitute effective and
binding execution and delivery hereof by Obligor.
SECTION 7.10. Integration. This Guarantee represents the
agreement of the Obligor with respect to the subject matter hereof and there
are no promises or representations by the Agent relative to the subject matter
hereof not reflected herein.
SECTION 7.11. Section Headings. The section headings used
in this Guarantee are for convenience of reference only and are not to affect
the construction hereof or be taken into consideration in the interpretation
hereof.
SECTION 7.12. Indemnity. The Obligor agrees to indemnify
the Agent and the Participants and their respective officers, directors,
employees, representatives and agents from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses incurred
by any of them as a result of, or arising out of, or in any way related to, or
by reason of, any investigation, litigation or other proceeding (whether or not
the Agent is a party thereto) related to the entering into and/or performance
of any Operative Document, the use by the Lessee of the proceeds of the
Participation Interests or the Advances or the consummation of any other
transactions contemplated in any Operative Document, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses to the
extent incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified). The agreements in this Section 7.12 shall survive
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<PAGE> 14
payment and performance of the Obligations and all other amounts payable
hereunder or under the other Operative Documents.
SECTION 7.13. GOVERNING LAW. THIS GUARANTY SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF
ILLINOIS. FOR PURPOSES OF ANY ACTION OR PROCEEDING INVOLVING THIS GUARANTEE,
OBLIGOR HEREBY EXPRESSLY SUBMITS TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF
THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS AND OF
ANY ILLINOIS STATE COURT SITTING IN COOK COUNTY AND EXPRESSLY CONSENTS THAT IT
MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS.
SECTION 7.14. WAIVER OF JURY TRIAL. OBLIGOR HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS GUARANTEE. OBLIGOR ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND EACH PARTICIPANT
ENTERING INTO THE PARTICIPATION AGREEMENT.
ARTICLE VIII
NATURE OF TRANSACTION
SECTION 8.1.1. The Obligor acknowledges that it is the
intent of the parties to the Participation Agreement and the Lease that: (i)
the Lease constitutes an "operating lease" pursuant to Statement of Financial
Accounting Standards No. 13, as amended, for purposes of the Lessee's financial
reporting, and (ii) for purposes of federal, state, and local income or
franchise taxes and for any other tax imposed on or measured by income, the
transaction contemplated by the Lease is a financing arrangement and preserves
ownership in the Property in the Lessee. Nevertheless, the Obligor
acknowledges and agrees that neither the Agent, the Lessor nor any Participant
has made any representations or warranties to the Obligor concerning the tax,
accounting or legal characteristics of the Operative Documents and that the
Obligor has obtained and relied upon such tax, accounting and legal advice
concerning the Operative Documents as it deems appropriate.
SECTION 8.1.2. Anything to the contrary in the Operative
Documents notwithstanding, the Obligor further acknowledges that the Agent and
the Lessee intend and have agreed that with respect to the nature of the
transactions evidenced by the Lease, the Lease grants a security interest and
mortgage or deed of trust or lien, as the case may be, in the Property to the
Lessor and the Participants to secure the Lessee's performance under and
payment of all amounts under the Lease and the other Operative Documents.
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<PAGE> 15
SECTION 8.1.3. Obligor hereby agrees not to take any action
or to assert any position in any insolvency, receivership, bankruptcy or
similar proceedings which is contrary to the intentions and agreements with
respect to the nature of the Lease set forth in Section 8.1.1 and Section 8.1.2
and Section 8.1.3 hereof and waives any and all of such rights.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 16
IN WITNESS WHEREOF, Obligor has caused this Guarantee to be
duly executed and delivered, by its officer thereunto duly authorized, as of
the date first above written.
Obligor:
CHASE INDUSTRIES INC.,
a Delaware corporation
By: /s/ M.T. SEGRAVES [SEAL]
-----------------------
Name: M.T. Segraves
-------------------
Title: CFO
------------------
Telecopier No.: ( ) 419-485-8150
--------------
S-1
<PAGE> 1
EXHIBIT 13
This Exhibit 13 contains pages 14 through 37 of the Chase Industries Inc. 1997
Annual Report to Stockholders, which pages are incorporated by reference in
answer to certain items of the Annual Report on Form 10K to which this Exhibit
13 is filed.
<PAGE> 2
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ....................................... $ 487,783 $ 366,991 $ 313,097 $ 260,096 $ 212,341
Cost of goods sold (exclusive of depreciation
and amortization shown separately below) ..... 419,412 311,345 270,022 224,532 189,144
--------- --------- --------- --------- ---------
Gross profit ................................. 68,371 55,646 43,075 35,564 23,197
Selling, general and administrative expenses .... 15,418 12,121 8,264 6,193 5,863
Depreciation and amortization ................... 9,875 6,710 5,537 5,795 5,555
--------- --------- --------- --------- ---------
Operating income ............................. 43,078 36,815 29,274 23,576 11,779
Interest expense ................................ 4,653 2,612 1,530 3,911 5,412
--------- --------- --------- --------- ---------
Income before income taxes
and extraordinary item .................... 38,425 34,203 27,744 19,665 6,367
Provision for income taxes ...................... 14,603 13,564 11,043 7,111 1,131
--------- --------- --------- --------- ---------
Income before extraordinary item ............. 23,822 20,639 16,701 12,554 5,236
Extraordinary item .............................. -- -- -- -- 814
--------- --------- --------- --------- ---------
Net income ................................... 23,822 20,639 16,701 12,554 6,050
Preferred stock dividends and accretion ......... -- -- -- 2,244 1,293
--------- --------- --------- --------- ---------
Net income available for common stock ........ $ 23,822 $ 20,639 $ 16,701 $ 10,310 $ 4,757
========= ========= ========= ========= =========
BASIC PER SHARE INFORMATION:*
Average shares outstanding ...................... 10,094 10,063 10,061 7,369 6,778
Income before extraordinary item ................ $ 2.36 $ 2.05 $ 1.66 $ 1.40 $ .58
Extraordinary item .............................. -- -- -- -- .12
--------- --------- --------- --------- ---------
Net income available for common stock ........... $ 2.36 $ 2.05 $ 1.66 $ 1.40 $ .70
========= ========= ========= ========= =========
DILUTED PER SHARE INFORMATION:*
Average shares outstanding ...................... 10,314 10,192 10,099 7,369 6,778
Income before extraordinary item ................ $ 2.31 $ 2.02 $ 1.65 $ 1.40 $ .58
Extraordinary item .............................. -- -- -- -- .12
--------- --------- --------- --------- ---------
Net income available for common stock ........... $ 2.31 $ 2.02 $ 1.65 $ 1.40 $ .70
========= ========= ========= ========= =========
BALANCE SHEET DATA (AT YEAR END):
Working capital ................................. $ 59,950 $ 48,649 $ 36,798 $ 16,786 $ 7,858
Total assets .................................... 209,501 204,751 103,003 81,542 78,845
Total debt ...................................... 48,209 70,762 18,784 17,018 53,402
Redeemable preferred stock ...................... -- -- -- -- 7,111
Stockholder's equity (deficit) .................. 98,713 74,333 53,645 36,944 (2,179)
OTHER DATA:
Operating cash flow ............................. $ 18,930 $ 39,531 $ 21,265 $ 21,171 $ 15,226
Capital expenditures ............................ 15,774 4,092 4,465 3,391 2,172
</TABLE>
* Computed in accordance with Statement of Financial Accounting Standards No.
128, "Earnings Per Share."
14 CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
<PAGE> 3
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
CORPORATE NAME CHANGE
Effective May 15, 1997, the Company changed its name from Chase Brass
Industries, Inc. to Chase Industries Inc. Management's decision to change the
name was to eliminate any possible confusion between the parent corporation and
its brass rod subsidiary, Chase Brass & Copper Company, Inc. ("CBCC"), as well
as to better describe the diversity of the business following the acquisition of
Leavitt Tube Company, Inc.
LEAVITT ACQUISITION
On August 30, 1996, the Company acquired, through Leavitt, the assets and
operations of the steel tube division of UNR Industries, Inc. ("UNR"), (the
"Leavitt Acquisition"). Upon consummation of the Leavitt Acquisition, Leavitt
continued operations in the manufacture and sale of structural and mechanical
steel tubing and is a leading producer and supplier of steel tubing in the
United States. See Note 2 of Notes to Consolidated Financial Statements.
OPERATIONS
The Company, through its wholly owned subsidiaries CBCC and Leavitt, is a
leading manufacturer of free-machining and forging brass rod and structural and
mechanical steel tubing.
CBCC. CBCC's net sales represent gross sales of brass rod less sales discounts
and freight charges. The gross sales price of brass rod consists of a metal
price charged to customers and a fabrication price as separate components. Cost
of goods sold includes the cost of brass scrap, which is the principal raw
material used in the manufacturing process and the primary component of cost of
goods sold, as well as the costs of labor, energy and other materials and
supplies used in fabricating the brass scrap into finished rod. Therefore,
CBCC's profit levels depend primarily on the amount of finished rod shipped,
fabrication prices, and the difference between the metal price charged to
customers and CBCC's cost of brass scrap.
CBCC obtains approximately 80% of the brass scrap used in its operations from
its customers through purchase and tolling arrangements. The metal price charged
to customers (the "Metal Selling Price") had been four cents per pound higher
than the price at which brass scrap is purchased from customers (the "Metal
Buying Price") since December 1994, and in December 1997 was increased to five
cents per pound. CBCC also purchases approximately 20% of its brass scrap from
scrap dealers at prevailing free-market prices. Free-market prices of brass
scrap fluctuate based on the supply of and demand for brass scrap and the prices
for copper and zinc (the major components of brass), and generally are less than
the Metal Buying Price. Since 1990, free-market prices, as compared to Metal
Buying Prices, have been favorable to CBCC by historical standards and the
supply of brass scrap in the United States has increased in excess of demand as
a result of increased imports of brass rod. Although the increased supply of
brass scrap has resulted in continued favorable free-market scrap prices through
December 1997, there can be no assurance that such discounts will continue.
Decreasing imports of brass rod and increasing demand for brass scrap could
cause free-market brass scrap prices to increase, and increased pressure from
customers to purchase brass scrap directly from them at the Metal Buying Price
could reduce CBCC's ability to take advantage of free-market discounts.
As noted above, CBCC's pricing structure consists of the Metal Selling Price and
the fabrication price as separate components. The Metal Selling Price is
determined at the time of shipment based on the then-current Metal Buying Price
and is not directly affected by fluctuations in free-market brass scrap prices.
As a result of this pricing structure, increases and decreases in the Metal
Selling Price will affect net sales levels and gross profit as a percentage of
sales, even in the absence of an increase or decrease in shipments or the
fabrication prices charged to customers, but will have little impact on gross
profit levels. However, the quantity of free-market brass scrap purchased by
CBCC and changes in the difference between the free-market prices paid for brass
scrap and the Metal Buying Price will affect gross profit, even in the absence
of an increase or a decrease in shipments or net sales levels.
In addition to sales made under the pricing structure described above, some
sales are made on a tolling basis, where the customer consigns brass scrap to
CBCC and is charged a fabrication price for processing the brass scrap into
finished rod. Tolling transactions affect net sales by the Metal Selling Price
that otherwise would be charged to the customer in a sale of finished brass rod.
To a lesser extent, tolling transactions also affect gross profit to the extent
CBCC is unable to take advantage of the pricing differential on brass scrap
purchased and sold. To partially offset the effect of tolling transactions on
gross profit, CBCC requires tolling customers to deliver 1.04 pounds of brass
scrap in exchange for each pound of finished rod shipped.
Leavitt. Leavitt's financial performance may be impacted by changes in the price
it pays for flat-rolled steel, the primary cost component of Leavitt's finished
product, based on the market conditions in the domestic and international
flat-rolled steel industry. Based on the then-current market
1997 ANNUAL REPORT 15
- --------------------------------------------------------------------------------
<PAGE> 4
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
conditions in the steel tubing industry and the level of capacity utilization,
Leavitt may or may not be able to pass the economic impact of steel price
changes on to its customers through changes in the selling price. The steel
tubing industry is highly fragmented and suppliers may reduce prices or fail to
increase prices as a result of steel coil price increases, depending on their
individual financial and operational motivation.
GENERAL ECONOMIC AND INDUSTRY CONDITIONS
The demand for the Company's products in the United States and Canada generally
is dependent upon business conditions in the industries which use products made
from copper alloy rod and structural and mechanical steel tubing. Manufacturers
of products used in building and construction and manufacturers of industrial
machinery and equipment are the primary users of copper alloy rod. Primary users
of steel tubing are non-residential construction, farm equipment and steel tube
commercial products manufacturers.
Therefore, the Company's operating results during any given period depend
significantly on business conditions in its industries. These activities, in
turn, are sensitive to fluctuations in overall economic activity, movement in
interest rates and availability of short-and long-term financing. The Company's
operating results also depend on its manufacturing capacity, as well as industry
production levels and other market factors.
CBCC. During 1997, United States and Canadian apparent consumption of copper
alloy rod was approximately 1.1 billion pounds, which included industry
shipments of approximately 963 million pounds plus net imports of approximately
130 million pounds. Industry shipments increased nearly 8% over 1996 and net
imports increased approximately 35%. CBCC's record 1997 shipments were supported
by record industry shipments. Since 1990, apparent consumption has fluctuated
based on demand, while over the same period CBCC's shipments have continually
increased. Following a decline in 1996, the 1997 increase in net imports
reflects foreign suppliers continuing to aggressively attack the domestic copper
alloy rod industry by offering lower prices than the domestic mills, resulting
in net import levels exceeding historical levels.
The strong 1997 industry demand was predominantly in the industry's largest end
use market, building and construction. CBCC targeted specific plumbing customers
for growth in this market, which now represents over 50% of CBCC's shipments and
is expected to remain strong through 2000. The building and construction market
continues to be impacted by the high level of new homes built, a higher use of
brass plumbing fixtures per home and a high level of home remodeling, which has
increased plumbing fixture demand.
Leavitt. The structural steel tubing industry has substantially more capacity
than demand in a highly competitive environment. Leavitt believes its share of
this industry is approximately 9%. Use of structural steel tubing in
construction is increasing, and Leavitt is working to increase its share of
industry shipments. Leavitt has taken a leading role in the North American Steel
Tube Institute's hollow-structural sections committee, whose objective is to
grow the usage of structural steel tubing in the United States. The goal of the
Institute is to educate construction companies, architects and industry
executives on the benefits of the use of structural steel in lieu of other
products.
1998 Outlook. As a result of the above factors, the Company believes that CBCC
and Leavitt shipments will increase in 1998. Management believes that its
ability to increase shipments despite fluctuations in demand results from our
quality products and emphasis on customer service. However, forecasts of future
industry consumption, future levels of imports and future shipments by the
Company are forward-looking and are subject to risks and uncertainties,
including without limitation those identified below, which could cause actual
results to differ materially from historical results or those anticipated. There
can be no assurance that 1998 industry consumption will be similar to 1997
levels or the Company's 1998 shipments will increase as anticipated. Actual
results and developments in these areas will be affected by the general economic
and industry conditions discussed above. Foreign economic activity and the
relationship of the U.S. dollar to other currencies also affects import levels
and exports of U.S. manufactured products containing parts made from brass rod
and steel tube. The Company's 1998 shipments also will be affected by its
ability to maintain manufacturing operations at its current levels without
significant interruption.
INVENTORIES
At the time of the CBCC and Leavitt Acquisitions, assets purchased, including
inventory, were valued at net realizable value in accordance with purchase
accounting rules and the Company elected the last-in, first-out ("LIFO") method
of inventory accounting for financial reporting purposes. If the first-in,
first-out ("FIFO") method for determining cost had been used, at December 31,
1997, inventories would have been approximately $3.0 million higher. Inventories
have been written down to lower of cost-or-market and such reduced amounts are
considered cost for subsequent periods.
16 CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
<PAGE> 5
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following table is derived from the Company's Consolidated Statement of
Income for the periods indicated and presents the results of operations as a
percentage of net sales:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales .................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ........... 86.0 84.8 86.2 86.3 89.1
----- ----- ----- ----- -----
Gross profit ............... 14.0 15.2 13.8 13.7 10.9
Selling, general and
administrative
expenses .................. 3.2 3.3 2.6 2.4 2.7
Depreciation and
amortization .............. 2.0 1.8 1.8 2.2 2.6
----- ----- ----- ----- -----
Operating income ........... 8.8 10.1 9.4 9.1 5.6
Interest expense ............. .9 .7 .5 1.5 2.6
----- ----- ----- ----- -----
Income before
income taxes and
extraordinary item ........ 7.9 9.4 8.9 7.6 3.0
Provision for
income taxes .............. 3.0 3.7 3.6 2.7 .5
----- ----- ----- ----- -----
Income before
extraordinary item ........ 4.9% 5.7% 5.3% 4.9% 2.5%
===== ===== ===== ===== =====
</TABLE>
The following graphs illustrate trends in profitability since 1993 (dollars in
millions for years ended December 31):
<TABLE>
<CAPTION>
[NET INCOME AVAILABLE FOR
[OPERATING INCOME CHART] COMMON STOCK CHART]
<S> <C> <C> <C> <C> <C>
FYE 12/31/93 11.8 FYE 12/31/93 4.8
FYE 12/31/94 23.6 FYE 12/31/94 10.3
FYE 12/31/95 29.3 FYE 12/31/95 16.7
FYE 12/31/96 36.8 FYE 12/31/96 20.6
FYE 12/31/97 43.1 FYE 12/31/97 23.8
</TABLE>
Operating income increased 38% per annum to $43.1 million in 1997.
Net income available for common stock increased 50% per annum to $23.8 million
in 1997.
1997 COMPARED WITH 1996
Net sales increased $120.8 million, or 33%, to $487.8 million in 1997. Gross
profit increased $12.7 million, or 23%, to $68.4 million, principally due to
record brass rod shipments and the impact of a full year of Leavitt results.
Record brass rod shipments were fueled by continued strong demand in the
industry's largest end use market, construction and remodeling, as discussed
above under "General Economic and Industry Conditions."
Selling, general and administrative ("SG&A") expenses increased $3.3 million, or
27%, to $15.4 million, due primarily to a full year of Leavitt operations.
Depreciation and amortization increased $3.2 million, or 47%, due to a full year
of Leavitt results and increased depreciation on CBCC capital additions.
As a result of the above factors, operating income increased $6.3 million, or
17%, to $43.1 million in 1997.
Net interest expense increased $2.0 million, or 78%, to $4.7 million due to
interest expense incurred on the Leavitt Acquisition debt as well as reduced
interest income of $108,000 compared with $720,000 in 1996.
The provision for income taxes increased $1.0 million, or 8%, to $14.6 million
in 1997 as a result of a $4.2 million, or 12%, increase in pretax income.
As a result of the above factors, net income increased $3.2 million, or 15%, to
$23.8 million in 1997. Basic earnings per share increased to $2.36 from $2.05 in
1996. Diluted earnings per share increased to $2.31 from $2.02 in 1996.
1996 COMPARED WITH 1995
Net sales increased $53.9 million, or 17%, to $367 million in 1996. Gross profit
increased $12.6 million, or 29%, to $55.6 million, principally due to record
brass rod shipments and the impact of the Leavitt Acquisition. Record brass rod
shipments to date were attained despite a flat copper alloy rod industry, which,
excluding CBCC, increased only 1% in 1996 compared with 1995.
SG&A expenses increased $3.9 million, or 47%, to $12.1 million, due primarily to
$2.6 million of SG&A expenses at Leavitt. Depreciation and amortization
increased $1.2 million, or 21%, due to the Leavitt Acquisition and increased
depreciation on CBCC capital additions, partially offset by elimination of CBCC
amortization as intangibles became fully amortized in 1995.
As a result of the above factors, operating income increased $7.5 million, or
26%, to $36.8 million in 1996.
1997 ANNUAL REPORT 17
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<PAGE> 6
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net interest expense increased $1.1 million, or 71%, to $2.6 million due to
interest expense incurred on the Leavitt Acquisition debt, partially offset by
lower average levels of bank debt in 1996 prior to the Leavitt Acquisition
compared with 1995. Additionally, the Company earned interest income in 1996
totaling $720,000 compared with $390,000 in 1995.
The provision for income taxes increased $2.5 million, or 23%, to $13.6 million
in 1996 as a result of a $6.5 million, or 23%, increase in pretax income.
As a result of the above factors, net income increased $3.9 million, or 24%, to
$20.6 million in 1996. Basic earnings per share increased to $2.05 from $1.66 in
1995. Diluted earnings per share increased to $2.02 from $1.65 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
At December 31, 1997, long-term debt totaled $48.2 million, a $22.6 million, or
32%, decrease from year end 1996. The decline represents prepayments on the
Leavitt Acquisition debt totaling $30 million in 1997, partially offset by
borrowings under the Revolving Credit Facility (as hereinafter defined) of $7.6
million. All Leavitt Acquisition debt payments originally due through July 2000
have been prepaid as of December 31, 1997. Cash and cash equivalents of $924,000
at year end 1997 declined from $9.8 million as of year end 1996 as a result of
funding a portion of the Leavitt Acquisition debt prepayments.
The Company currently is meeting its operational and liquidity needs with cash
on hand, internally generated funds and amounts available under the Revolving
Credit Facility.
WORKING CAPITAL
At December 31, 1997, working capital was $60.0 million, an $11.3 million, or
23%, increase over 1996. The decrease in cash and cash equivalents of $8.8
million, or 91%, was primarily the result of funding a portion of the Leavitt
Acquisition debt prepayments. Other changes which increased working capital
included an increase in accounts receivable of $7.9 million, or 23%, an increase
in inventories of $11.6 million, or 22%, and a decrease in accrued income taxes
of $3.7 million. The increase in receivables was due principally to a 30%
increase in net sales in December 1997 over December 1996. The increase in
inventories principally resulted from an effort to increase product availability
in anticipation of 1998 demand.
The Company's current ratio follows:
<TABLE>
<CAPTION>
December 31,
---------------
1997 1996
---------------
<S> <C> <C>
Current ratio.......................................... 2.19 1.94
Current ratio excluding cash........................... 2.17 1.75
</TABLE>
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
For the years ended December 31, 1993 through 1997, the following graph
illustrates trends in net cash provided by operating activities (dollars in
millions):
<TABLE>
<CAPTION>
[NET CASH PROVIDED BY OPERATING ACTIVITIES CHART]
<S> <C> <C>
FYE 12/31/93 15.2
FYE 12/31/94 21.2
FYE 12/31/95 21.3
FYE 12/31/96 39.5
FYE 12/31/97 18.9
</TABLE>
In 1997, net cash provided by operating activities decreased $20.6 million to
$18.9 million compared with 1996. The primary sources of cash from operating
activities in 1997 were net income of $23.8 million, depreciation and
amortization of $9.9 million, and deferred tax expense of $4.6 million,
partially offset by an increase in working capital, excluding cash and debt, of
$20.2 million.
In 1996, net cash provided by operating activities increased $18.2 million to
$39.5 million compared with 1995. The primary sources of cash from operating
activities in 1996 were net income of $20.6 million, depreciation and
amortization of $6.7 million, accretion of discount on the BP Note (as
hereinafter defined) of $1.2 million, and a decrease in working capital,
excluding cash, of $10.6 million.
In 1995, net cash provided by operating activities was $21.3 million. The
primary sources of cash from operating activities in 1995 were net income of
$16.7 million, depreciation and amortization of $5.5 million and accretion of
discount on the BP Note of $1.8 million, partially offset by an increase in
working capital, excluding cash, of $3.2 million.
CASH FLOW USED IN INVESTING ACTIVITIES
Capital expenditures were $15.8 million, $4.1 million and $4.5 million in 1997,
1996 and 1995, respectively. Capital expenditures included the installation of
three new billet heaters in 1997, improvements to the extrusion press system and
finishing lines in 1996 and the $2.7 million foundry expansion in 1995. Cash
used in investing activities in 1996 includes $91.7 million for the acquisition
of Leavitt.
18 CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
<PAGE> 7
- --------------------------------------------------------------------------------
CASH FLOW (USED IN) PROVIDED BY FINANCING ACTIVITIES
During 1997, the Company prepaid $30 million on the Term Loan (as hereinafter
defined) used to fund the Leavitt Acquisition. Net borrowings under the
Revolving Credit Facility totaled $7.6 million during 1997. The Company also
received proceeds of $10 million in conjunction with a lease of new billet
heating equipment in 1997. See Notes 6 and 11 of Notes to Consolidated Financial
Statements.
The Company received proceeds from issuance of the Term Loan totaling $60
million during 1996 to fund the Leavitt Acquisition, of which $10 million was
prepaid prior to year end 1996.
Other than revolving credit borrowings under the bank credit facility in first
quarter 1995, the Company had no financing activities in 1995.
CAPITAL RESOURCES
In 1996, the Company launched a capital project referred to as "Project 400."
The project includes potential expansion of CBCC's foundry, extrusion system and
finishing capability with an ultimate goal of increasing finished brass rod
production capability by one-third to about 400 million pounds annually. The
first phase of the project included the installation of three new billet heaters
in fourth quarter 1997 which are expected to be operational by the end of first
quarter 1998. During 1998, the focus of the second phase of the project will
involve planning and establishing specifications for and ordering long-lead-time
equipment. It is anticipated that capital projects will be paid for with cash
flow provided by operating activities.
BANK CREDIT FACILITY
In connection with the Leavitt Acquisition, the Company entered into a new
credit facility (the "Bank Credit Facility") of $100 million agented by PNC
Bank, National Association. The Bank Credit Facility replaced the Company's
existing $33 million bank credit facility, which was terminated August 30, 1996.
The Bank Credit Facility includes a $60 million term loan ("Term Loan") and a
$40 million revolving credit facility ("Revolving Credit Facility"). The Company
prepaid $30 million on the Term Loan in 1997 and $10 million in 1996, including
all amounts originally due through July 2000. The remaining balance on the Term
Loan is payable in quarterly installments in amounts ranging from $475,000 in
October 2000 to $1,525,000 due October 2002. The total borrowing capacity under
the Revolving Credit Facility is determined monthly by a formula based on levels
of inventory and accounts receivable, up to a maximum of $40 million. The
Revolving Credit Facility commitment expires August 30, 2001, and the Company
can request a one-year extension of the expiration date at any time after
December 31, 1997.
Effective June 16, 1997, the Company and PNC Bank agreed to an amendment to the
Bank Credit Facility which reduced the Company's LIBOR spread and provided a
Federal funds interest rate option for the Revolving Credit Facility. Advances
under the Bank Credit Facility will bear interest at alternative variable rates
based on certain percentages, as provided in the agreement, in excess of the
lending bank's prime rate, the Federal funds rate or LIBOR, with interest
payable quarterly or as of the end of each LIBOR borrowing period, whichever is
shorter. The weighted average interest rate on the Bank Credit Facility was 6.5%
and 6.3% at December 31, 1997 and 1996, respectively.
The Bank Credit Facility contains certain covenants that, among other things,
limit the Company's ability to incur additional debt, make capital expenditures
or pay dividends. The covenants also require the Company to maintain a minimum
interest coverage ratio and level of net worth and restrict the Company from
exceeding a maximum ratio of debt to cash flow from operations. The Bank Credit
Facility also requires the Company to maintain CBCC and Leavitt as wholly-owned
subsidiaries.
As of December 31, 1997, $20 million was outstanding under the Term Loan and
$7.6 million was outstanding under the Revolving Credit Facility. Total
availability under the Revolving Credit Facility was $32.4 million.
AVERAGE REVOLVING CREDIT FACILITY BORROWINGS
The average outstanding balance under the Revolving Credit Facility in 1997 was
$9.4 million. The average outstanding balance under the Revolving Credit
Facility in 1996 was $684,000. However, the only 1996 borrowings under the
Revolving Credit Facility were during the three-month period immediately
following the Leavitt Acquisition, during which time the average outstanding
balance was $2.7 million. As of February 20, 1998, the Company had available $29
million under the Revolving Credit Facility. For a discussion of long-term
borrowings under the Bank Credit Facility, see Note 6 of Notes to Consolidated
Financial Statements.
1997 ANNUAL REPORT 19
- --------------------------------------------------------------------------------
<PAGE> 8
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
IMPACT OF THE YEAR 2000
- --------------------------------------------------------------------------------
Year 2000 issues are due to computer software being written using two digits
rather than four to define a specific fiscal or calendar year. As a result,
date-sensing software may recognize "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations or inability to engage in normal business activities.
Based on the Company's assessment of its Year 2000 risks and for other business
purposes as well, CBCC has implemented modifications to its business systems
during the last three years and has converted all of its management information
processing software to new software. The new programs are not subject to Year
2000 programming issues, utilizing a minimum of four digit fields, and therefore
are Year 2000 compliant. The reprogramming costs have been expensed during the
1995-1997 periods.
Leavitt's business and management information systems are not currently Year
2000 compliant. For this and other business reasons, Leavitt is in the process
of converting to new software, which is Year 2000 compliant and also will assist
in improved management of the business. Substantial conversion tasks have been
completed. The expenditures for the system implementation are projected to be
approximately $2 million, and it is expected that the upgrade to the new
software will be completed by the end of 1998.
The Company is in the process of assessing its vulnerability to Year 2000
failures on the part of its vendors and customers and will be surveying major
vendors and customers to determine their vulnerability to Year 2000 failures,
including assessing the potential impact of vendor and customer failures on the
Company.
COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
BP Note. In connection with the CBCC Acquisition, the Company issued a
promissory note to Old Chase in the original principal amount of $20.0 million
(the "BP Note"). The BP Note was recorded at the CBCC Acquisition date at a
discount using a 10.4% effective interest rate. The BP Note initially matured in
August 1996, and the Company, at its option, extended the maturity date for
three additional years to August 1999 with interest payable annually at 9.28%.
The BP Note contained a contingent interest payment based upon average Company
earnings (as defined in the BP Note) for the years ended December 31, 1990
through 1995. The contingent interest, totaling $254,000 and due August 1996,
and the annual interest of $1,856,000 due August 1997, were offset against the
receivable from BP. See Notes 5, 6, 12 and 13 of Notes to Consolidated Financial
Statements.
Environmental Matters. As discussed in Note 12 of Notes to Consolidated
Financial Statements, each of CBCC and Leavitt are subject to certain contingent
liabilities relating to environmental conditions at their respective facilities.
Because investigatory activities with respect to such environmental conditions
have not been completed, the Company currently is unable to estimate with any
degree of certainty the extent of contamination or the amount of cleanup costs
associated therewith. However, the cleanup costs associated with these
environmental conditions may be material and, in the event CBCC or Leavitt, as
applicable, were determined to be solely responsible or liable for site cleanup
activities (due to the inability or unwillingness of other responsible parties
to perform or pay for such activities), such expenditures could have a material
adverse effect on the Company's earnings and financial condition.
Notwithstanding this potential (although uncertain) material liability, because
of the contractual obligations of third parties with respect to such
environmental conditions, the Company does not believe that it will be required
to make material expenditures with respect to these environmental conditions or
that the cleanup costs or other liabilities associated with such conditions will
have a material adverse effect on the Company's financial position, results of
operations or liquidity. On the bases stated above, the Company has not made any
related accrual of all or any part of such costs.
20 CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
<PAGE> 9
- --------------------------------------------------------------------------------
INFLATION
- --------------------------------------------------------------------------------
The Company does not believe that its operations have been significantly
affected by inflation.
SUBSEQUENT EVENT
- --------------------------------------------------------------------------------
Contingencies--Legal Action. As discussed in Note 13 of Notes to Consolidated
Financial Statements, the Company and CBCC are subject to a legal action
instituted by BP regarding interest payments under the BP Note. The Company
believes that BP's allegations regarding the interest payments are without merit
and has not established any accrual for such amounts alleged by BP to be owed.
Furthermore, in the event BP were to prevail in its position, management does
not believe that the costs that would be incurred by the Company would have a
material adverse effect on the Company's financial position, results of
operations or liquidity. In the event BP were to prevail in its position, the
Company believes that it would be able to pay amounts due BP, including the
principal amount of the BP Note, utilizing cash on hand, offsets of amounts
owing from Old Chase and BP, and, if necessary, borrowings obtained under its
existing Bank Credit Facility. Therefore, the Company continues to classify the
BP Note as long term.
1997 ANNUAL REPORT 21
- --------------------------------------------------------------------------------
<PAGE> 10
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
QUARTERLY INFORMATION
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
1997
----------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Net sales ..................... $126,074 $129,080 $116,215 $116,414 $487,783
Gross profit .................. 18,152 17,955 16,042 16,222 68,371
Operating income .............. 11,853 11,498 9,835 9,892 43,078
Net income .................... 6,554 6,366 5,354 5,548 23,822
Average shares outstanding:
Basic ...................... 10,077 10,098 10,099 10,101 10,094
Diluted .................... 10,273 10,289 10,341 10,351 10,314
Earnings per share:
Basic ...................... $ .65 $ .63 $ .53 $ .55 $ 2.36
Diluted* ................... .64 .62 .52 .54 2.31
Cash and cash equivalents ..... $ 3,552 $ 3,206 $ 1,607 $ 924
Accounts receivable ........... 47,960 49,934 47,042 42,368
Inventories ................... 51,937 45,738 53,047 63,688
Working capital ............... 52,895 52,317 57,759 59,950
Total assets .................. 211,984 207,884 213,631 209,501
Stockholders' equity .......... 81,230 87,744 93,152 98,713
OTHER DATA:
Operating cash flow ........... $ 984 $ 9,714 $ 1,453 $ 6,779 $ 18,930
Capital expenditures .......... 1,310 3,558 6,021 4,885 15,774
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter** Quarter Total
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Net sales ..................... $ 89,917 $ 82,095 $ 88,253 $106,726 $366,991
Gross profit .................. 12,634 11,797 14,349 16,866 55,646
Operating income .............. 9,012 8,588 8,952 10,263 36,815
Net income .................... 5,240 5,040 5,034 5,325 20,639
Average shares outstanding:
Basic ...................... 10,061 10,063 10,064 10,065 10,063
Diluted .................... 10,132 10,207 10,207 10,224 10,192
Earnings per share:
Basic ...................... $ .52 $ .50 $ .50 $ .53 $ 2.05
Diluted .................... .52 .49 .49 .52 2.02
Cash and cash equivalents ..... $ 21,461 $ 27,243 $ 1,516 $ 9,763
Accounts receivable ........... 40,177 31,760 44,571 34,514
Inventories ................... 11,493 13,683 44,119 52,050
Working capital ............... 43,237 49,341 52,212 48,649
Total assets .................. 114,366 113,185 201,672 204,751
Stockholders' equity .......... 58,894 63,949 68,995 74,333
OTHER DATA:
Operating cash flow ........... $ 4,965 $ 6,412 $ 3,261 $ 24,893 $ 39,531
Capital expenditures .......... 486 645 635 2,326 4,092
</TABLE>
* Individual quarters do not total to yearly amounts due to quarterly changes
in average shares outstanding.
** Amounts include acquisition of Leavitt Tube Company in August 1996.
22 CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
<PAGE> 11
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share information)
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ....................................... $487,783 $366,991 $313,097
Cost of goods sold (exclusive of depreciation
and amortization shown separately below) ..... 419,412 311,345 270,022
-------- -------- --------
Gross profit .............................. 68,371 55,646 43,075
Selling, general and administrative expenses .... 15,418 12,121 8,264
Depreciation and amortization ................... 9,875 6,710 5,537
-------- -------- --------
Operating income .......................... 43,078 36,815 29,274
Interest expense, net ........................... 4,653 2,612 1,530
-------- -------- --------
Income before income taxes ................ 38,425 34,203 27,744
Provision for income taxes ...................... 14,603 13,564 11,043
-------- -------- --------
Net income ................................ $ 23,822 $ 20,639 $ 16,701
======== ======== ========
Earnings per share:
Basic ........................................ $ 2.36 $ 2.05 $ 1.66
======== ======== ========
Diluted ...................................... $ 2.31 $ 2.02 $ 1.65
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1997 ANNUAL REPORT 23
- --------------------------------------------------------------------------------
<PAGE> 12
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
(In thousands, except share information)
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 924 $ 9,763
Receivables, net of allowance for doubtful accounts and
claims of $1,286 and $1,236 in 1997 and 1996, respectively ... 42,368 34,514
Inventories ..................................................... 63,688 52,050
Prepaid expenses ................................................ 922 1,131
Deferred income taxes ........................................... 2,509 2,897
-------- --------
Total current assets ...................................... 110,411 100,355
Property, plant and equipment, net ................................. 94,162 97,628
Other assets ....................................................... 4,928 6,768
-------- --------
Total assets .............................................. $209,501 $204,751
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 37,244 $ 36,134
Accrued compensation and benefits ............................... 6,651 5,598
Accrued income taxes ............................................ -- 3,685
Other accrued liabilities ....................................... 6,425 6,158
Current portion of long-term debt ............................... 141 131
-------- --------
Total current liabilities ................................. 50,461 51,706
Long-term debt ..................................................... 48,068 70,631
Deferred income taxes .............................................. 12,259 8,081
-------- --------
Total liabilities ......................................... 110,788 130,418
-------- --------
Commitments and contingencies ...................................... -- --
Stockholders' equity:
Common stock, $.01 par value, 25,000,000 shares
authorized; 6,002,046 and 5,965,621 shares issued and
outstanding in 1997 and 1996, respectively ................... 60 60
Nonvoting common stock, $.01 par value, 5,000,000
shares authorized; 4,100,079 shares issued and
outstanding in 1997 and 1996 ................................. 41 41
Additional paid-in capital ...................................... 30,597 30,039
Retained earnings ............................................... 68,015 44,193
-------- --------
Total stockholders' equity ...................................... 98,713 74,333
-------- --------
Total liabilities and stockholders' equity ................ $209,501 $204,751
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24 CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
<PAGE> 13
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
-------------------------------------------------
<S> <C> <C> <C> <C>
Balances, January 1, 1995 ......... $ 101 $ 29,990 $ 6,853 $ 36,944
Net income ........................ 16,701 16,701
---------- ---------- ---------- ----------
Balances, December 31, 1995 ....... 101 29,990 23,554 53,645
Net income ........................ 20,639 20,639
Exercised stock options ........... 49 49
---------- ---------- ---------- ----------
Balances, December 31, 1996 ....... 101 30,039 44,193 74,333
Net income ........................ 23,822 23,822
Exercised stock options ........... 558 558
---------- ---------- ---------- ----------
BALANCES, DECEMBER 31, 1997 ....... $ 101 $ 30,597 $ 68,015 $ 98,713
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1997 ANNUAL REPORT 25
- --------------------------------------------------------------------------------
<PAGE> 14
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Operating activities:
Net income ................................................................ $ 23,822 $ 20,639 $ 16,701
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ....................................... 9,875 6,710 5,537
Accretion of discount on BP Note .................................... -- 1,216 1,766
Deferred income tax expense (benefit) ............................... 4,566 (142) 131
Changes in assets and liabilities:
(Increase) decrease in receivables ............................... (7,854) 7,034 (4,723)
(Increase) in inventories ........................................ (11,638) (6,874) (1,919)
Decrease (increase) in prepaid expenses .......................... 209 (325) (570)
Decrease in other assets ......................................... 1,205 362 168
Increase (decrease) in accounts payable .......................... 1,110 7,692 (407)
(Decrease) increase in accrued liabilities ....................... (2,365) 3,219 3,096
Decrease in deferred income taxes, net ........................... -- -- 1,485
-------- -------- --------
Net cash provided by operating activities ..................... 18,930 39,531 21,265
-------- -------- --------
Investing activities:
Purchase of Leavitt ....................................................... -- (91,665) --
Expenditures for property, plant and equipment ............................ (15,774) (4,092) (4,465)
(Increase) in intangibles ................................................. -- (1,005) --
-------- -------- --------
Net cash (used in) investing activities ....................... (15,774) (96,762) (4,465)
-------- -------- --------
Financing activities:
Revolving credit loan borrowings, net ..................................... 7,578 -- --
Principal payments on bank term loan ...................................... (30,000) (10,000) --
Proceeds from issuance of a bank term loan ................................ -- 60,000 --
Equipment financing .......................................................... 10,000 -- --
Other, net ................................................................ 427 21 --
-------- -------- --------
Net cash (used in) provided by financing activities ........... (11,995) 50,021 --
-------- -------- --------
Net (decrease) increase in cash and cash equivalents ......................... (8,839) (7,210) 16,800
Cash and cash equivalents, beginning of period ............................... 9,763 16,973 173
-------- -------- --------
Cash and cash equivalents, end of period ..................................... $ 924 $ 9,763 $ 16,973
======== ======== ========
Supplemental cash flow information:
Cash flow data:
Interest paid ....................................................... $ 4,779 $ 2,291 $ 157
Income taxes paid ................................................... $ 13,558 $ 13,008 $ 7,037
Non-cash investing activity:
Liabilities assumed in connection with the acquisition of Leavitt ... -- $ 20,190 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26 CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
<PAGE> 15
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE
- -----------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
The consolidated balance sheet as of December 31, 1997 and 1996, and the
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years ended December 31, 1997, 1996 and 1995, include the accounts
of Chase Industries Inc. (the "Company"), a Delaware corporation, and its
wholly-owned subsidiaries, Chase Brass & Copper Company, Inc. ("CBCC"), a
Delaware corporation, Leavitt Tube Company, Inc. ("Leavitt"), a Delaware
corporation, and Holco Corporation ("Holco"), an Illinois corporation and
wholly-owned subsidiary of Leavitt. See Note 2 for a discussion of the Leavitt
Acquisition.
On August 24, 1990, the Company acquired, through CBCC, the assets and income of
a Delaware corporation formerly named Chase Brass & Copper Company, Incorporated
("Old Chase"), pursuant to the Asset Purchase Agreement ("CBCC Purchase
Agreement") dated May 10, 1990, by and between the Company, CBCC, Old Chase, BP
Exploration (Alaska) Inc. ("BPE") and The Standard Oil Company (the "CBCC
Acquisition"). BPE and The Standard Oil Company (collectively referred to as
"BP") own all of the stock of Old Chase. The CBCC Acquisition was accounted for
as a purchase.
NATURE OF OPERATIONS
The Company, through its wholly-owned subsidiaries CBCC and Leavitt, is a
leading manufacturer of free-machining and forging brass rod and structural and
mechanical steel tubing.
CBCC, employing more than 300 people at its Montpelier, OH, plant, is an ISO
9002 certified manufacturer and supplier of free-machining and forging brass rod
in the United States and Canada. Its diverse customer base of more than 250
companies uses CBCC's "Blue Dot" trademark rod to produce a variety of products,
such as plumbing fixtures, heating and air conditioning components, industrial
valves, automotive parts, and numerous hardware components.
Leavitt is a leading producer of structural and mechanical steel tubing with
plants in Chicago, IL, and Jackson, MS, employing more than 400 people.
Leavitt's structural steel tubing is used in farm equipment, non-residential
construction and other commercial applications. The mechanical steel tubing is
used in a broad range of consumer and commercial products, including furniture
and fixtures, lawn-care products, storage racks, exercise equipment, bicycles
and machine tools.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost-or-market, with cost determined on
the last-in, first-out (LIFO) basis. Inventories have been written down to lower
of cost-or-market and such reduced amounts are considered cost for subsequent
periods.
If the first-in, first-out (FIFO) method for determining cost had been used,
inventories would have been approximately $3.0 million and $2.0 million higher
at December 31, 1997 and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed by the
straight-line method based on estimated useful lives of the assets. Upon
retirement or disposal, the cost and accumulated depreciation are removed from
the accounts, and any gain or loss is included in income. Maintenance and repair
costs are charged to expense as incurred.
INTANGIBLES
Intangible assets are amortized on a straight-line basis over their estimated
economic lives.
CASH FLOWS
For purposes of the consolidated statement of cash flows, the Company considers
all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents. The carrying value of all financial
instruments approximates market value.
RISK CONCENTRATION
Accounts receivable is the principal financial instrument which subjects the
Company to concentration of credit risk. As of December 31, 1997 and 1996,
receivables from customers represent substantially all of the Company's net
trade receivables. Credit is extended based upon an evaluation of the customer's
financial condition and, generally, collateral is not required. Concentrations
of credit risk with respect to receivables are somewhat limited due to the
Company's large number of customers, the diversity of
1997 ANNUAL REPORT 27
- --------------------------------------------------------------------------------
<PAGE> 16
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
these customers' businesses and the dispersion of such
customers throughout the continental United States and parts of Canada. The
Company maintains an allowance for doubtful accounts and claims based upon the
expected collectibility of all trade receivables.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information,"which is effective for years beginning after
December 15, 1997. The Company is assessing the impact on its financial
statement disclosures.
NOTE TWO
- -----------------------------------------------------------
LEAVITT ACQUISITION:
On August 30, 1996, the Company acquired, through Leavitt, the assets and
operations of the steel tube division of UNR Industries, Inc., including all the
outstanding stock of Holco (the "Leavitt Acquisition"). Upon consummation of the
Leavitt Acquisition, Leavitt continued operations in the manufacture and sale of
structural and mechanical steel tubing. The net purchase price was approximately
$91.7 million after post-closing adjustments, of which $62 million was financed
with the Bank Credit Facility (as hereinafter defined) and the remainder with
cash. Leavitt's results of operations for the period since the Leavitt
Acquisition date are included in the Company's results of operations. The
Leavitt Acquisition was accounted for as a purchase.
As of the Leavitt Acquisition date, the value of Leavitt's property, plant and
equipment was increased $31.3 million over its then-current book value to
reflect the estimated fair value of the assets purchased. Assets totaling $4.4
million were recorded as of the Leavitt Acquisition date to reflect a
non-compete agreement, a supply agreement with an affiliate of UNR Industries,
Inc. and to reflect the actual purchase price in excess of the fair value of the
assets acquired. The Company also incurred certain closing and financing costs
in connection with the Leavitt Acquisition approximating $1 million.
The pro forma data outlined below reflects pro forma adjustments to the
statement of income for the years ended December 31, 1996 and 1995, as if the
Leavitt Acquisition occurred as of the beginning of each period presented. The
pro forma adjustments reflect the impact of additional depreciation and
amortization expenses. The pro forma adjustments also reflect the impact of
additional interest expense resulting from the Leavitt Acquisition debt and the
elimination of the Company's interest income partially offset by the elimination
of interest expense on the portion of Leavitt debt not assumed by the Company.
The income tax effect of the pro forma adjustments is based on an effective
income tax rate of 40%. Pro forma results for the years ended December 31 follow
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
Net sales .................................. $468,881 $469,430
Net income ................................. 23,020 22,025
Basic earnings per share ................... 2.29 2.19
</TABLE>
NOTE THREE
- -----------------------------------------------------------
INVENTORIES:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
Raw materials .............................. $ 22,891 $ 14,547
Work in progress ........................... 12,631 21,124
Finished goods ............................. 29,369 18,613
-------- --------
64,891 54,284
Tolling metal due customers ................ (1,203) (2,234)
-------- --------
$ 63,688 $ 52,050
======== ========
</TABLE>
NOTE FOUR
- -----------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment and the related depreciable lives consisted of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
----------------------------
<S> <C> <C>
Land and land improvements
(15-20 years) .......................... $ 3,331 $ 3,331
Buildings and improvements
(10-39 years) .......................... 22,445 21,834
Machinery and equipment
(2-15 years) ........................... 92,631 92,530
Construction in progress ................. 5,957 1,925
--------- ---------
124,364 119,620
Accumulated depreciation ................. (30,202) (21,992)
--------- ---------
$ 94,162 $ 97,628
========= =========
</TABLE>
28 CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
<PAGE> 17
NOTE FIVE
- -----------------------------------------------------------
OTHER ASSETS:
Intangibles. Intangible assets recorded in conjunction with the Leavitt
Acquisition and the related period of amortization consisted of the following
(in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
-----------------------
<S> <C> <C> <C>
Covenant not-to-compete (5 years) .............. $ 500 $ 500
Supply agreement (5 years) ..................... 560 560
Deferred financing costs (5 years) ............. 450 450
Acquisition costs (5 years) .................... 555 555
Excess of cost over net assets
acquired (15 years) .......................... 3,321 3,321
------- -------
5,386 5,386
Accumulated amortization ....................... (846) (211)
------- -------
$ 4,540 $ 5,175
======= =======
</TABLE>
Receivable from BP. At December 31, 1997, the receivable from BP totaled
$388,000. The receivable from BP originally included $1.3 million resulting from
certain post-closing adjustments under the CBCC Purchase Agreement and $1.4
million in environmental-related capital expenditures and $.5 million in
environmental remediation costs for which the Company expects reimbursement
under the terms of the CBCC Purchase Agreement and a Remediation Agreement (as
hereinafter defined) dated August 24, 1990, entered into by and among BPE, The
Standard Oil Company, the Company and CBCC concerning the performance of
remedial and certain other environmental matters by the parties thereto. Were
the Company not to receive payment on the receivable balance due from BP, the
Company intends to offset any such amounts against amounts payable under the $20
million Subordinated Promissory Note issued to Old Chase as partial
consideration for the CBCC Acquisition (the "BP Note").
At December 31, 1997, the receivable from BP reflected a reduction of $2.8
million, which reduction resulted from the Company offsetting interest payable
under the BP Note. The Company offset $1,856,000 payable August 24, 1997,
against amounts owed by BP under the CBCC Purchase Agreement and the Remediation
Agreement. It is the Company's intent to offset additional interest payable
under the BP Note of approximately $660,000 accrued as of December 31, 1997, and
which becomes due August 24, 1998, against amounts owed by BP to the extent it
is legally entitled to do so. The receivable from BP also reflects a reduction
of $254,000 of contingent interest which was payable August 1996 under the BP
Note and which the Company offset against amounts owed by BP.
See Note 6, Financing Arrangements, Note 12, Commitments and Contingencies, and
Note 13, Subsequent Event, for further discussion of the BP Note.
NOTE SIX
- -----------------------------------------------------------
FINANCING ARRANGEMENTS:
Debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
-----------------------
<S> <C> <C>
BP Note ........................................ $20,000 $20,000
Term loan ...................................... 20,000 50,000
Revolver ....................................... 7,578 --
Other .......................................... 631 762
------- -------
48,209 70,762
Current portion of long-term debt .............. 141 131
------- -------
Long-term debt ................................. $48,068 $70,631
======= =======
</TABLE>
In connection with the CBCC Acquisition, the Company issued the BP Note in the
original principal amount of $20.0 million. The BP Note was recorded at the CBCC
Acquisition date at a discount using a 10.4% effective interest rate. The BP
Note initially matured in August 1996, and the Company, at its option, extended
the maturity date for three additional years to August 1999 with interest
payable annually at 9.28%. The BP Note contained a contingent interest payment
based upon average Company earnings (defined in the BP Note) for the years ended
December 31, 1990 through 1995. The contingent interest, totaling $254,000 and
due August 1996, and the annual interest of $1,856,000 due August 1997, were
offset against the receivable from BP. See Note 5, Other Assets, Note 12,
Commitments and Contingencies, and Note 13, Subsequent Event, for further
discussion of the BP Note.
In connection with the Leavitt Acquisition, the Company entered into a new
credit facility (the "Bank Credit Facility") of $100 million. The Bank Credit
Facility replaced the Company's existing $33 million bank credit facility which
was terminated August 30, 1996. The Bank Credit Facility includes a $60 million
term loan ("Term Loan") and a $40 million revolving credit facility ("Revolving
Credit Facility"). Total borrowing capacity under the Revolving Credit Facility
is determined monthly by a formula based on levels of inventory and accounts
receivable up to a maximum of $40 million. The Revolving Credit Facility
commitment expires August 30, 2001, and the Company can request a one-year
extension of the expiration date any time after December 31, 1997. The Term Loan
is payable quarterly and matures July 2002. The Company prepaid $30 million on
the Term Loan in 1997 and $10 million in 1996, including all amounts originally
due through July 2000.
1997 ANNUAL REPORT 29
- --------------------------------------------------------------------------------
<PAGE> 18
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effective June 16, 1997, the Company and PNC Bank agreed to an amendment to the
Bank Credit Facility which reduced the Company's LIBOR spread and provided a
Federal funds interest rate option for the Revolving Credit Facility. Advances
under the Bank Credit Facility will bear interest at alternative variable rates
based on certain percentages, as provided in the agreement, in excess of the
lending bank's prime rate, the Federal funds rate or LIBOR, with interest
payable quarterly or as of the end of each LIBOR borrowing period, whichever is
shorter. The weighted average interest rate on the Bank Credit Facility was 6.5%
and 6.3% at December 31, 1997 and 1996, respectively.
The Bank Credit Facility contains certain covenants that, among other things,
limit the Company's ability to incur additional debt, make capital expenditures
or pay dividends. The covenants also require the Company to maintain a minimum
interest coverage ratio and level of net worth and restrict the Company from
exceeding a maximum ratio of debt to cash flow from operations. The Bank Credit
Facility also requires the Company to maintain CBCC and Leavitt as wholly-owned
subsidiaries.
Aggregate maturities of long-term debt are as follows: $141,000 in 1998, $20.2
million in 1999, $638,000 in 2000, $19.8 million in 2001, and $7.5 million in
2002.
NOTE SEVEN
- -----------------------------------------------------------
RETIREMENT PLANS:
The Company provides various contributory and noncontributory benefit plans
covering substantially all of its employees, including profit sharing plans,
employee savings plans under Section 401(k) of the Internal Revenue Code, and
defined benefit pension plans.
For plans to which the Company contributes, the contributions become fully
vested after five years of service. The amount of Company contributions to the
employee savings plans are based on formulas outlined in the plans. Company
contributions under the noncontributory qualified profit sharing plans are based
on a percentage of eligible employees' compensation. Contributions to the trust
fund of the profit sharing plans are discretionary, and the Company has the
right to amend, modify or terminate the plans, but in no event will any portion
of vested contributions revert to the Company. Charges to expense under the
defined contribution plans, for the years ended December 31, 1997, 1996 and
1995, were $832,000, $588,000 and $353,000, respectively.
The defined benefit retirement plans provide benefits based on a participant's
years of service and stated monthly benefit amounts based on the date of
retirement. The Company's policy is to make periodic contributions as required
by contract or applicable regulations.
The defined benefit retirement plans' funded status was as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
----------------------
<S> <C> <C>
Vested benefits ................................. $ 8,501 $ 8,374
Nonvested benefits .............................. 439 219
------- -------
Projected benefit obligation (which
equals the accumulated
benefit obligation) ........................... 8,940 8,593
Plan assets at fair value ....................... 9,042 8,244
------- -------
Assets greater than (less than)
benefit obligation ............................ 102 (349)
Unrecognized prior service cost ................. 229 251
Unrecognized net loss ........................... 54 269
------- -------
Prepaid pension expense ......................... $ 385 $ 171
======= =======
</TABLE>
For the year ended December 31, 1997, the discount rate used in determining the
projected benefit obligation was 7.5% and the expected long-term rate of return
on assets ranged from 8.0% to 8.5%. For the year ended December 31, 1996,
discount rates used in determining the projected benefit obligation ranged from
7.25% to 7.5% and the expected long-term rate of return on assets ranged from
7.5% to 8.5%.
The defined benefit retirement plans' net periodic pension expense was as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1997 1996 1995
-------------------------------
<S> <C> <C> <C>
Service cost ............................ $ 291 $ 156 $ 87
Interest cost ........................... 617 308 131
Return on plan assets ................... (786) (340) (88)
Net amortization and deferral ........... 130 55 (26)
----- ----- -----
Net periodic pension expense ............ $ 252 $ 179 $ 104
===== ===== =====
</TABLE>
30 CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
<PAGE> 19
- --------------------------------------------------------------------------------
NOTE EIGHT
- -----------------------------------------------------------
INCOME TAXES:
The consolidated provision for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Current taxes:
Federal ........................... $ 8,598 $ 11,327 $ 8,885
State ............................. 1,439 2,379 2,027
-------- -------- --------
Total current taxes .............. 10,037 13,706 10,912
Deferred taxes
(benefit) ......................... 4,566 (142) 131
-------- -------- --------
Provision for
income taxes ...................... $ 14,603 $ 13,564 $ 11,043
======== ======== ========
</TABLE>
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the financial statement and tax bases of assets and
liabilities and were composed of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
---------------------
<S> <C> <C>
Net current deferred tax asset:
Allowance for doubtful accounts
and claims ...................................... $ 675 $ 519
Inventory reserves ............................... 656 525
Accrued employee benefits ........................ 1,014 1,254
Other, net ....................................... 164 599
------- -------
$ 2,509 $ 2,897
======= =======
Net long-term deferred tax liability:
Depreciation and basis differences ............... $11,910 $ 7,893
Other, net ....................................... 349 188
------- -------
$12,259 $ 8,081
======= =======
</TABLE>
A reconciliation of the provision for income taxes compared with the amounts at
the federal statutory tax rate follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Tax provision at
statutory rate of 35% .......... $ 13,449 $ 11,971 $ 9,711
State taxes ...................... 1,185 1,547 1,318
Other, net ....................... (31) 46 14
-------- -------- --------
Provision for
income taxes ................... $ 14,603 $ 13,564 $ 11,043
======== ======== ========
Effective tax rate ............... 38.0% 39.7% 39.8%
</TABLE>
NOTE NINE
- -----------------------------------------------------------
STOCK OPTIONS:
In November 1994, the Company implemented its 1994 Long-Term Incentive Plan (the
"1994 Plan") for key employees. Under the 1994 Plan, as amended, 1,500,000
shares of Common Stock are reserved for option grants. Stock options granted on
or before December 31, 1997, become exercisable over five years from the grant
date (subject to acceleration under certain circumstances), expire after 10
years and have an exercise price approximating the Common Stock fair market
value on the grant date.
In May 1997, the Company implemented its 1997 Non-Employee Director Stock Option
Plan (the "Director Plan") which provides for the granting of stock options to
non-employee directors upon their election to the Board of Directors and, at the
election of each non-employee director, in lieu of all or a portion of their
annual cash retainer. Under the Director Plan, 100,000 shares of Common Stock
are reserved for option grants. Stock options granted in lieu of the annual
retainer become exercisable immediately upon grant and expire after ten years.
The exercise price is based on the average closing market price for the five
days immediately preceding the grant date.
In May 1997, the Company implemented its 1997 Executive Deferred Compensation
Stock Option Plan (the "Executive Plan") which provides for the granting of
stock options to eligible executives of the Company and its subsidiaries who
elect to participate in the Executive Plan and receive stock options in lieu of
all or a portion of their annual cash bonus. Under the Executive Plan, 300,000
shares of Common Stock are reserved for option grants. Stock options become
exercisable immediately upon grant and expire after ten years. The exercise
price is based on the average closing market price for the five days immediately
preceding the quarter to which the grant relates.
1997 ANNUAL REPORT 31
- --------------------------------------------------------------------------------
<PAGE> 20
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following summary includes stock options granted under the Plans:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at beginning of year............................. 795,100 544,000 490,000
Options granted...................................................... 86,661 318,300 60,000
Exercise price per share............................................. $21.75 TO $23.75 $16.75 to $18.88 $11.25 to $11.73
Weighted average exercise price...................................... $22.47 $17.32 $11.33
Options exercised.................................................... 36,425 4,900 --
Exercise price per share............................................. $10.00 TO $17.00 $10.00 --
Weighted average exercise price...................................... $10.89 $10.00 --
Options canceled/forfeited........................................... 52,400 62,300 6,000
Exercise price per share............................................. $10.00 TO $23.75 $10.00 to $17.00 $10.00
Weighted average exercise price...................................... $21.11 $11.03 $10.00
Options outstanding at end of year................................... 792,936 795,100 544,000
Exercise price per share............................................. $10.00 TO $23.75 $10.00 to $18.88 $10.00 to $11.73
Weighted average exercise price...................................... $13.51 $12.95 $10.15
Weighted average remaining life (years).............................. 7.66 8.60 8.89
Options exercisable at end of year................................... 329,275 196,300 96,800
Exercise price per share............................................. $10.00 TO $17.88 $10.00 to $11.23 $10.00
Weighted average exercise price...................................... $11.35 $10.08 $10.00
</TABLE>
Stock options outstanding at December 31, 1997, totaling 792,936 shares include
443,875 shares and 349,061 shares with weighted average exercise prices of
$10.04 and $17.92 per share, respectively, and remaining weighted average
contractual lives of 6.9 years and 8.8 years, respectively.
Stock options outstanding at December 31, 1996, totaling 795,100 shares include
478,800 shares and 316,300 shares with weighted average exercise prices of
$10.06 and $17.32 per share, respectively, and remaining weighted average
contractual lives of 7.9 years and 9.7 years, respectively.
Effective January 1, 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). However, as permitted under SFAS 123, the Company
has elected to continue accounting for the Plan in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), which is an intrinsic value based method of accounting. Accordingly,
no stock option compensation cost is included in the results of operations. Had
stock option compensation for the Plan been determined based on the fair value
of the stock options on the respective grant dates consistent with the
methodology of SFAS 123, the pro forma reduction to the Company's net income and
basic earnings per share would have been $494,000, $148,000, and $36,000 and
$.05, $.01, and zero in 1997, 1996 and 1995, respectively.
The fair value of each stock option grant was estimated as of the grant date
using the Black-Scholes option-pricing model with the following assumptions used
for stock options granted in:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996 1995
------------------------------
<S> <C> <C> <C>
Estimated fair value per
share of options granted
during the year .......................... $10.42 $ 8.43 $ 5.74
Assumptions:
Annualized dividend
yield ................................... -- -- --
Common stock price
volatility (peer index) ................. 35.7% 37.6% 39.6%
Risk-free rate of return ................. 6.4% 6.7% 7.1%
Expected option term
(in years) .............................. 6 6 6
</TABLE>
32 CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
<PAGE> 21
- --------------------------------------------------------------------------------
NOTE TEN
- -----------------------------------------------------------
COMMON STOCK AND EARNINGS PER SHARE:
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). This
Statement establishes standards for computing and presenting earnings per share
and amends the standards for computing earnings per share previously found in
Accounting Principles Board Opinion No. 15, "Earnings per Share." SFAS 128 was
required to be adopted by the Company for the year ended December 31, 1997, and
accordingly, earnings per share as of December 31, 1997, 1996 and 1995,
presented on the face of the Consolidated Statement of Income included herein,
are computed in accordance with SFAS 128.
The following is a reconciliation of the denominator used in the computation of
basic and diluted earnings per share. Average shares are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Basic .................... 10,093,787 10,063,252 10,060,800
Stock options ............ 220,194 129,201 38,477
----------- ----------- -----------
Diluted .................. 10,313,981 10,192,453 10,099,277
=========== =========== ===========
</TABLE>
All shares of Common Stock and Nonvoting Common Stock are identical, except that
holders of Nonvoting Common Stock have no voting rights. Shares of Nonvoting
Common Stock may be converted, at the option of the holder, into Common Stock on
a share-for-share basis, except to the extent that the holder of Nonvoting
Common Stock is restricted from obtaining certain ownership levels in the
Company pursuant to the Small Business Investment Act of 1958 and the Bank
Holding Company Act of 1956.
At December 31, 1997 and 1996, the Company had no preferred stock issued or
outstanding. In conjunction with the initial public offering in November 1994,
the Company authorized 1,000,000 shares of preferred stock, none of which has
been issued. The preferences and rights of such preferred stock may be
determined by the Board of Directors at any time prior to issuance.
NOTE ELEVEN
- -----------------------------------------------------------
OPERATING LEASE OBLIGATIONS:
Rental expense under operating leases was $541,000, $648,000 and $658,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. As of December
31, 1997, the minimum rental commitments under long-term operating leases were
as follows: $1,180,000 in 1998, $1,073,000 in 1999, $1,036,000 in 2000, $836,000
in 2001, and $732,000 in 2002.
In December 1997, CBCC entered into a six-year operating lease agreement for
certain manufacturing equipment. There are several options available to the
Company at the end of the lease term, which include renewal of the lease,
purchase of the equipment by CBCC, or sale of the equipment.
NOTE TWELVE
- -----------------------------------------------------------
COMMITMENTS AND CONTINGENCIES:
CBCC. In connection with the CBCC Acquisition, the Company and BP entered into a
remediation agreement (the "Remediation Agreement"). Under the terms of the
Remediation Agreement, BP is responsible for certain remediation activities
attributable to environmental releases which occurred prior to the CBCC
Acquisition at CBCC's manufacturing facility and the construction of a waste
water treatment plant to enable CBCC to comply with its waste water discharge
permit (the "Permit"). BP also is obligated under the CBCC Purchase Agreement to
indemnify the Company for liabilities arising out of certain environmental
conditions that existed as of the CBCC Acquisition date. BP has performed
certain activities in this regard and has acknowledged liability for certain
releases of regulated substances into the environment which occurred prior to
the CBCC Acquisition.
While CBCC's waste water treatment plant has been in operation since May 1993,
CBCC is still experiencing occasional exceedances to certain limitations
contained in the Permit, resulting in violations of the Clean Water Act. The
Ohio Environmental Protection Agency ("Ohio EPA") is kept apprised as to the
status of activities concerning the elimination of exceedances and has not
initiated any enforcement action against CBCC for prior exceedances, but has
indicated that it may do so if violations of the Permit limits continue. In
early 1997 CBCC identified certain conditions it believed to be contributing to
the Permit limit exceedances and undertook corrective measures that have reduced
significantly the Permit exceedances. Although
1997 ANNUAL REPORT 33
- --------------------------------------------------------------------------------
<PAGE> 22
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
certain Permit exceedances are still being experienced on occasion, precluding
CBCC's routine compliance with the Permit, CBCC has identified certain
additional conditions that may be contributing to the exceedances and is
actively working to correct these conditions.
CBCC and/or other entities named "Chase Brass & Copper Co." (which may include
Old Chase or divisions of Old Chase) have been named by governmental agencies
and/or private parties as a potentially responsible party ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") and/or state laws with respect to two sites, and may have been
identified as a PRP at one additional site, as described in the following
paragraphs.
CBCC has been named one of over 130 defendants in a CERCLA Section 107 action
styled Ashland Oil, Inc. v. Acme Scrap Iron & Metal Corp., et. al. (Case No.
I:94 CV 1592), which seeks recovery of response costs previously spent and
proposed to be spent by the plaintiff Ashland Oil at the Huth Oil Services
Company site located in Cleveland, OH. A waste oil reclamation facility was
operated at the site from 1938 until 1990. Beginning in 1983, and at various
other times until 1990, both the U.S. EPA and the Ohio EPA conducted inspections
and sampling at this site. In October 1990, the U.S. EPA ordered the plaintiffs,
Ashland Chemical Company (a division of Ashland Oil, Inc.), The Cleveland
Electric Illuminating Company and Huth Oil Services Company, to remediate the
site. As a result thereof, the plaintiff has alleged that between 1990 and 1993
it and the other ordered parties have incurred response costs in excess of $10
million. The complaint alleges that the defendants are each strictly, as well as
jointly and severally, liable. The Company believes, however, that CBCC has had
no contact with the site and has no knowledge as to what, if any, share of
response costs has been allocated to CBCC. BP has been notified of the
institution of this suit and has assumed the defense thereof because alleged
events giving rise to CERCLA liability occurred prior to the CBCC Acquisition.
CBCC has been notified by a group of private parties of its potential
identification as a PRP at a site in Tifton, Georgia, commonly known as the
"SoGreen" site. According to the notice, a flue dust and flyash recycling
facility was operated at the site from approximately 1976 until 1993. Pursuant
to a consent order entered into between Atlantic Steel Industries, Inc., Florida
Steel Corporation, Georgetown Steel Corporation, Owen Electric Steel Company of
South Carolina and U.S. Foundry & Manufacturing Corporation (collectively, the
"Steel Companies") and the Georgia Department of Natural Resources--
Environmental Protection Division, the Steel Companies have been engaged in
removing a flue dust pile, and also have undertaken an assessment of
groundwater, at this site. In addition, pursuant to a U.S. EPA unilateral order,
the Steel Companies apparently are engaged in a removal action to remediate
contaminated soils, and are undertaking the cleanup of non-metal contaminants,
at the site. The notice also indicates that the Steel Companies settled, for
approximately $3 million, a class action brought by residents of the area near
the site alleging property damage due to the proximity of the residents'
neighborhood to the site. The notice alleges that CBCC may be liable for
contribution with respect to prior cleanup costs incurred by the Steel Companies
and may be required to participate in funding future cleanup costs at the site.
According to the notice, the Steel Companies currently have expended or are
committed to expend approximately $17 million (including settlement of the class
action) on matters related to the site. The Company believes that CBCC has had
no contact with this site and that this site received waste materials from an
entity named "Chase Brass & Copper Co.," which may have been a division of Old
Chase (not related to the brass rod division acquired by the Company), located
in North Carolina. BP has been notified and has assumed defense of this matter.
The Jack's Creek, or Sitkin Smelting & Refining, site located in Mifflin County,
PA, was placed on the U.S. EPA's National Priorities List in 1989. While CBCC
has not received any formal notification from the U.S. EPA or any third party,
the Company believes that Old Chase has been identified by the U.S. EPA as a
PRP. To the Company's knowledge, however, neither CBCC nor the brass rod
division of Old Chase directly disposed of hazardous wastes at this site.
Nevertheless, BP has been notified by the Company of CBCC's (or Old Chase's)
apparent identification as a PRP and BP's responsibility for any liability
associated with this site as it relates to periods prior to the date of the CBCC
Acquisition. Based on information available to the Company, it appears that if
CBCC or Old Chase were determined to be liable, liability would be allocated on
the basis of 0.5828% of cleanup costs (or approximately $376,000).
The Company believes that CBCC has no liability for the cleanup costs related to
these sites because (a) such liability is attributable to an entity that had the
same or similar name to that of CBCC, such as a division or subsidiary of BP
(other than the brass rod division of Old Chase), or (b) such liability arose
from acts that occurred prior to the CBCC Acquisition and, therefore, BP
retained such liability under
34 CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
<PAGE> 23
- --------------------------------------------------------------------------------
the CBCC Purchase Agreement and is contractually obligated to indemnify the
Company for such liabilities. To the extent CBCC incurs any cleanup costs with
respect to these sites, it intends to enforce its rights under the CBCC Purchase
Agreement to recover such amounts from BP.
Preliminary studies conducted immediately prior to the CBCC Acquisition
indicated that the site upon which CBCC's manufacturing facility is located has
been contaminated with certain volatile organic compounds, including
trichlorethylene, as well as total petroleum hydrocarbons and certain metals
from historical operating practices. BP conducted initial site investigation
activities in an effort to determine the extent of contamination and appropriate
cleanup methods. After reviewing the results of that investigation, CBCC
determined that additional sampling was necessary to more fully delineate the
extent and magnitude of contamination and to identify appropriate cleanup
standards. In October 1997, CBCC initiated additional sampling that it believes
is necessary to establish appropriate cleanup standards and to identify
available remedial methods and potential regulatory constraints related to
specific remedial methodologies. The results of the initial sampling conducted
by BP, the additional sampling conducted by CBCC, and input from the Ohio EPA
will be used to develop a comprehensive remediation plan for the site. The
investigation is being conducted on a voluntary basis with the concurrence of
the Ohio EPA.
Because the site investigatory activities related to CBCC's facility are not yet
complete, the Company presently is unable to estimate with any degree of
certainty the extent of contamination or the amount of site cleanup costs
associated therewith, although such costs may be material. Therefore, to the
extent CBCC is required to fund cleanup costs related to the remediation of
contamination at its manufacturing facility as a result of BP's refusal to
implement remediation activities acceptable to CBCC, such costs could have a
material adverse effect on the Company's financial condition and results of
operations pending the recovery of such amounts from BP. However, because BP has
acknowledged its contractual obligation to fund certain investigatory and
cleanup activities related to site contamination attributable to Old Chase's
operations, the probability that CBCC would be required to make material
expenditures related to site cleanup appears to be remote. Accordingly, no
reserves have been established regarding the aforementioned matters.
Additionally, the Company expects no material impact on its financial position,
results of operations or liquidity as a result of the existence of any other
environmental conditions related to CBCC.
To the extent CBCC incurs cleanup costs with respect to CBCC's site, it intends
to enforce its rights under the CBCC Purchase Agreement and/or Remediation
Agreement to recover such amounts from BP. In the event the Company is entitled
to recovery from BP pursuant to the Remediation Agreement, the CBCC Purchase
Agreement, or otherwise, but is unable to collect such amounts from BP, the
Company may elect to offset the amounts of such recoveries against amounts
payable under the $20 million BP Note to the extent it legally is entitled to do
so. See Note 5, Other Assets, and Note 6, Financing Arrangements, for a
discussion of the receivable from BP and prior offsets against amounts owing
under the BP Note.
Leavitt. Prior to the closing of the Leavitt Acquisition, five underground
storage tanks ("USTs") were removed from Leavitt's facility in Hammond, IN.
Prior to removal, one or more of the USTs released petroleum and other chemical
constituents into the environment. Some contamination of groundwater and soil at
the Hammond facility remains in place. Prior to the Leavitt Acquisition, Old
Leavitt had conducted sampling and had requested the Indiana Department of
Environmental Management ("IDEM") to "close" the UST removal project. The IDEM
has not yet issued a "closed" letter, and in February 1997, notified Leavitt
that additional groundwater sampling will be required prior to the IDEM
considering closure. Additional groundwater sampling was conducted in fourth
quarter 1997, and the final test results have been submitted to the IDEM for
review. The Hammond operations were relocated to Chicago in September 1997, and
no manufacturing activities currently are conducted at the Hammond location.
Pending further direction from the IDEM, the Company currently is unable to
determine the extent of contamination or what, if any, remedial activities may
be required at the Hammond facility. Because, as noted above, there exists
evidence of contamination at the Hammond facility, the cleanup costs associated
with the environmental conditions at the Hammond facility could be material.
However, based on test results currently available, the probability that Leavitt
would be required to make material expenditures relating to site cleanup at the
Hammond facility appears to be remote. Therefore, the Company has not made any
specific accrual for costs related to investigation or cleanup at the Hammond
facility. To the extent the Company or Leavitt incurs a liability with respect
to site cleanup at the Hammond facility, UNR Industries, Inc., is obligated
under the Leavitt Acquisition Agreement to indemnify Leavitt for 90% of losses
related to certain environmental conditions, including costs incurred with
respect to contaminants released at
1997 ANNUAL REPORT 35
- --------------------------------------------------------------------------------
<PAGE> 24
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Leavitt's properties (including the Hammond facility) prior to the Leavitt
Acquisition, to the extent such losses exceed $400,000 in the aggregate. In
addition, to the extent the contamination at the Hammond facility is attributed
to actions of prior owners, the Company may be entitled to recover from prior
owners costs incurred by the Company at the Hammond site.
NOTE THIRTEEN
- -----------------------------------------------------------
SUBSEQUENT EVENT:
On January 7, 1998, a lawsuit entitled Ken-Chas Reserve Company and BP
Exploration (Alaska) Inc. and The Standard Oil Company v. Chase Industries Inc.
was filed in the Court of Common Pleas in Cuyahoga County, OH (the "Petition").
In the Petition, Plaintiffs seek declaratory judgement regarding the calculation
of interest payable under the BP Note. Under the BP Note, a contingent interest
payment was payable August 24, 1996, calculated pursuant to a formula based on
the Company's "EBDIT" (defined in the BP Note as earnings before depreciation,
interest and taxes, as determined in accordance with GAAP) for years 1990
through 1995. In calculating the interest payable August 24, 1996, the Company
followed the express terms of the BP Note and, accordingly, deducted
amortization from earnings for the purposes of the interest calculation. In
calculating the interest payable on August 24, 1996, in accordance with the
express terms of the BP Note, the interest payable was $254,748, which the
Company offset against the receivable from BP. See Note 5, Other Assets.
Plaintiffs allege that, notwithstanding the express terms of the BP Note, the
"EBDIT" should be interpreted to refer to earnings before depreciation,
interest, taxes and amortization and, based on such interpretation, allege that
the contingent interest payable under the BP Note in August 1996 should have
been $5,833,811.
In addition, under the BP Note, interest is payable August 24 of each year from
and after August 24, 1996, until the BP Note matures on August 24, 1999. The
interest due and payable August 24, 1997, was $1,856,000, which amount the
Company also offset against the receivable from BP. Plaintiffs also seek money
judgement against the Company for payment of the $1,856,000 in interest that was
payable as of August 24, 1997. See Note 6, Financing Arrangements.
Under a separate letter dated January 22, 1998, Old Chase has asserted that, as
a result of failing to pay the interest as described in the Petition, the
Company is in default under the BP Note and, unless such amounts are paid within
thirty days, Old Chase intends to accelerate the BP Note.
The Company disputes the allegations made by the Plaintiffs regarding the
interpretation of EBDIT, believes that the Company properly offset the interest
amounts payable in August 1996 and 1997 against the receivable from BP, and
believes this lawsuit is without merit. On the same basis, the Company disputes
that a default exists under the BP Note. In the event BP were to prevail in its
position, the Company believes that it would be able to pay amounts due BP,
including the principal amount of the BP Note, utilizing cash on hand, offsets
of amounts owing from Old Chase and BP, and, if necessary, borrowings obtained
under its existing Bank Credit Facility. Therefore, the Company continues to
classify the BP Note as long term.
36 CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
<PAGE> 25
CHASE INDUSTRIES INC.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Chase Industries Inc.:
We have audited the accompanying consolidated balance sheet of Chase Industries
Inc. as of December 31, 1997 and 1996, and the related consolidated statements
of income, changes in stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Chase Industries
Inc. as of December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Detroit, Michigan
February 4, 1998
1997 ANNUAL REPORT 37
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Chase Industries Inc. on Form S-8 (File Nos. 33-87278, 333-28443, 333-28445
and 333-28447) of our reports dated February 4, 1998, on our audits of the
consolidated financial statements and financial statement schedule of Chase
Industries Inc. as of December 31, 1997 and 1996, and for the years ended
December 31, 1997, 1996, and 1995, which reports are included or incorporated
by reference in this Annual Report on Form 10-k.
/s/ Coopers & Lybrand L.L.P.
Detroit, Michigan
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 924
<SECURITIES> 0
<RECEIVABLES> 42,368
<ALLOWANCES> 1,286
<INVENTORY> 63,688
<CURRENT-ASSETS> 110,411
<PP&E> 94,162
<DEPRECIATION> 0
<TOTAL-ASSETS> 209,501
<CURRENT-LIABILITIES> 50,461
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 98,612
<TOTAL-LIABILITY-AND-EQUITY> 209,501
<SALES> 487,783
<TOTAL-REVENUES> 487,783
<CGS> 419,412
<TOTAL-COSTS> 419,412
<OTHER-EXPENSES> 25,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,653
<INCOME-PRETAX> 38,425
<INCOME-TAX> 14,603
<INCOME-CONTINUING> 23,822
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,822
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.31
</TABLE>
