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______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file Number: 33-93302
AM General Corporation
(Exact name of registrant as specified in its charter)
______________________
Delaware 35-1852615
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
105 North Niles Avenue
South Bend, Indiana 46617
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (219) 284-2907
Securities registered pursuant to Section 12(b) of the Act: None
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 Part III of this Form 10-K or any amendment to this
Form 10-K. X
-
The aggregate market value of the voting and non-voting common equity stock
held by non-affiliates of the registrant is $0. Nine hundred shares of the
registrant's common stock, par value $.01 per share, are outstanding as of
January 31, 2000.
Documents Incorporated by reference: None.
________________________________________________________________________________
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TABLE OF CONTENTS
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<S> <C>
PART I 3
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II 13
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. 13
Item 6. Selected Financial Data. 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 15
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 25
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 53
PART III 54
Item 10. Directors and Executive Officers of the Registrant. 54
Item 11. Executive Compensation. 55
Item 12. Security Ownership of Certain Beneficial Owners and Management. 59
Item 13. Certain Relationships and Related Transactions. 59
PART IV 61
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 61
SIGNATURES 65
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PART I
Item 1. Business
AM General Corporation, with its wholly owned subsidiaries, AM General Sales
Corporation, Chippewa Corporation, and General Engine Products, Inc.
(collectively, the "Company" or "AM General"), is the largest supplier of light
Tactical Wheeled Vehicles ("TWVs") for the Department of Defense ("DoD"). AM
General (including predecessors) has a history of over 50 years of successfully
competing for government procurement contracts. AM General is the designer and
sole manufacturer of the High Mobility Multipurpose Wheeled Vehicle ("HMMWV"
or"HUMVEE "(R)), which it sells to the US and foreign military services. The
Company is the designer and sole manufacturer of a commercial version of the
HUMVEE which it sells to industrial and retail users through its commercial
dealer network under the registered trademark HUMMER (R) ("HUMMER" or "Current
Vehicle"). From the introduction of the HUMMER/HUMVEE in 1984 and through
October 31, 1999, the Company has delivered 128,480 HUMVEEs in a variety of
configurations to the DoD for use by the US Armed Forces, 22,387 HUMVEEs to the
military services of 40 foreign countries, and 7,466 HUMMERs. In fiscal 1999,
the Company sold 3,827 HUMMER/HUMVEEs. From 1994 through April 1999, the
Company also sold remanufactured 2 1/2-ton medium tactical vehicles under the
Army's Extended Service Program ("ESP"). In addition to HUMMER/HUMVEEs, the
Company also markets both technical support services and spare parts.
The Company classifies its operations into five business segments: (i)
HUMMER/HUMVEEs, (ii) Medium Trucks, (iii) Spare Parts Logistics Operations
("SPLO"), (iv) Systems Technical Support ("STS")/Other, and (v) Engines.
Reference is hereby made to Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") contained elsewhere herein, in
which the Company's net sales and gross profit are summarized by business lines.
The Company closed its Extended Service Program ("ESP") facility in May 1999
upon completion of the ESP program.
The 6.5 liter diesel engine produced by General Motors Corporation ("GM") is the
only engine currently available for production of both the HUMMER and HUMVEE
vehicles. In late 1998, GM Powertrain, a division of GM, announced its
intention to discontinue all production of this engine in the year 2000. The
Company was unsuccessful in acquiring an alternative engine supply, due
primarily to the booming light truck market. On June 11, 1999 the Company
acquired from GM Powertrain its 6.5 liter diesel engine business (the "Engine
Agreement"). Under terms of the Engine Agreement, the Company will begin
production of the 6.5 liter diesel engine as GM Powertrain's plant in Moraine,
Ohio phases out production of that engine in fiscal year 2000 and GM Powertrain
will provide assistance to AM General in launching the plant and validating the
assembly process. The Engine Agreement provides a license to produce and sell
the 6.5 liter engine for a period of ten (10) years. The Company anticipates
beginning low-rate production in July 2000 and full production by the first
quarter of 2001 at a new, leased facility in Franklin, Ohio (See "Engine
Segment").
GM currently uses this engine in some vans, pickup and medium duty trucks. The
Engine Agreement provides that GM's internal parts distributor, Service Parts
Operation ("SPO"), will purchase all service requirements for this engine from
AM General, for a period of ten years. The Company plans to continue using the
6.5 liter engine in production of both its HUMMER and HUMVEE vehicles for many
years. In addition, orders are expected from producers of specialty and delivery
van companies. The Company anticipates that it will be profitable and will
generate annual revenue of approximately $49.0 million, excluding inter-company
sales of $26.0 million, when full production levels are achieved in fiscal 2001.
On December 21, 1999, the Company concluded a series of agreements ("the GM
Transaction") with GM through which the Company intends to more fully utilize
the widespread recognition of the HUMMER name to generate incremental revenues
and cash flow. Pursuant to the terms of the Transaction, GM will design,
engineer, certify and release a new generation vehicle (the "New Vehicle")
bearing the HUMMER trademark (the "Trademark") and retain the Company to
assemble New Vehicles over a seven and one half year period. As part of the GM
Transaction, the Company assigned the Trademark to GM. See "The GM Transaction"
hereafter in this Item 1 for more information as to the Transaction.
All of the Company's issued and outstanding capital stock is owned by The Renco
Group, Inc. ("Renco"). Renco is owned by trusts established by Mr. Ira Leon
Rennert, the Chairman and sole director of the Company and Renco,
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for himself and members of his family. As a result of such ownership, Mr.
Rennert indirectly controls the Company. See "The AM General and General Motors
Agreements" for the option of GM, on certain conditions, to acquire up to 40.0%
of the stock of the Company for an amount determined at the time of exercise of
options pursuant to previously established procedures. Should the Company and GM
fail to agree on a value, the GM Transaction agreements contain a provision in
which an independent third party will assist in the valuation.
The Company was incorporated in Delaware in 1991, and its executive offices are
located at 105 North Niles Avenue, South Bend, Indiana 46617, telephone number:
(219) 284-2907.
Business Lines
HUMMER/HUMVEE Segment
HUMVEE
Since its introduction in 1984, the HUMVEE has been sold to US and foreign
militaries pursuant to contracts having firm fixed prices. The Company
therefore assumes full risk of producing and delivering the specified number of
vehicles for a fixed price.
The HUMVEE has been upgraded since its introduction with improved components and
added features. In 1995, the Company began production of an A2 Series HUMVEE
under the X001 contract with the DoD. The X001 contract expires on October 31,
2001 and therefore the Company will begin negotiating a follow on contract in
early 2000. See MD&A.
Domestic Sales; Government Contracts.
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In 1997, the US Army formed an Integrated Process Team ("IPT") to determine a
cost effective plan that a) manages the current Light Tactical Vehicle ("LTV")
fleet and defines annual procurement requirements, b) explores recapitalization
opportunities as the fleet ages, c) provides for technology insertion on future
production vehicles, and d) establishes the performance requirements (i.e.
mission profile) for future LTVs.
As a result of the IPT, the US Army published its approved, long-term
acquisition plan for the LTV fleet in January 1999, which includes the
following: 1) the performance capability of future LTVs must be equal to or
better than the current mission profile of the HUMVEE, 2) the US Armed Forces
will continue to procure HUMVEEs beyond the year 2020, 3) the US Army will
continue to explore the feasibility of remanufacturing older HUMVEEs for certain
missions as a cost effective alternative to new vehicles - these vehicles, if
approved, would be designated as A3 Series HUMVEEs, 4) the US Army will develop
an upgraded version of the HUMVEE with selected technology insertions which will
be known as A4 Series HUMVEEs, 5) there will be no new starts in production, 6)
the current production contract with AM General will be extended to provide
sufficient time to develop the A4 Series and award a production contract, and 7)
there will not be a break in fielding (i.e. deliveries to users) resulting from
the transition from A2 to A4 production.
The solicitation for the Phase I Prototype and Test (PAT) contract for the A3
Series HUMVEE has not been released as yet. The US Army expects to release it
within the next three to six months. The company is prepared to aggressively
compete for this business.
The Company and the US Army are currently negotiating an Independent Research &
Development ("IR&D") contract for the development of the upgraded A4 Series
HUMVEE. Negotiations are expected to be completed within the second quarter.
The US Marine Corp. decided to replace its entire fleet of approximately 17,000
HUMVEEs with new vehicles as part of the LTV Acquisition Strategy. The US
Marines received permission and the necessary funding to accelerate its
acquisition plan from completion by 2007 to be finished by 2005. This
accelerated plan went into effect last year.
Based upon currently available information from the US Army, management expects
that the US Armed Forces will procure in fiscal 2000 at least the same number of
HUMVEEs that were produced and delivered in fiscal 1999 (approximately 2,500
units).
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As of October 31, 1999, the Company had a total US military backlog of 252
HUMVEEs valued at $14.0 million compared to 247 HUMVEEs valued at $12.0 million
at October 31, 1998. The Company is currently delivering vehicles ahead of
schedule.
International Sales.
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Since November 1986, the Company has sold military HUMVEEs to foreign nations,
either directly to the foreign nation or through the US Government's Foreign
Military Sales ("FMS") program. The Company will continue to capitalize on the
HUMVEE's proven combat performance with the US Armed Forces, the extensive
offering of HUMVEE configurations and the Company's technical and logistical
support services to increase sales to foreign military markets. To date, Taiwan,
Saudi Arabia, Mexico, the United Arab Emirates and Thailand have been the five
largest of the Company's 40 international military customers.
The Company sells HUMVEEs in various configurations to the military services of
foreign nations through the FMS program and its direct sales force and local
representatives. The FMS program is part of the US Government's security
assistance program, which provides equipment and services to more than 100
nations and international organizations. Funding is provided either directly by
the purchaser or with US-granted foreign aid credits or loans. As of October 31,
1999 and October 31, 1998, there were no significant FMS and direct sales
backlogs. In fiscal 1999, international HUMVEE sales accounted for
approximately 8.2% of total HUMMER/HUMVEE unit sales and 9.0% of HUMMER/HUMVEE
net sales revenue. Management believes that foreign military services will
continue to purchase HUMVEEs because they are competitive in the market as
evidenced by the fact that it is the only light TWV being purchased in quantity
by the US military.
In the 2/nd/ quarter of fiscal year 2000, the Company expects to finalize
negotiations with an international customer who is seeking to acquire 964
vehicles to be produced and delivered in fiscal 2000. In anticipation of this
order, along with heightened demand for HUMMERs, the Company is increasing the
production rate of HUMMER/HUMVEEs from the current rate of 18 units per day to
24 in late February, 2000.
In fiscal 1997, the Company manufactured 231 HUMVEEs for a foreign customer
seeking to acquire HUMVEEs under the FMS program (the "FMS Customer"). Due to
negotiation related difficulties in obtaining the order, these units remained in
finished goods inventory at October 31, 1999 and 1998. As a result, the
Company's finished goods inventory was increased beyond normal operating levels.
Moreover, such delay resulted in a higher than expected level of borrowing by
the Company under its revolving credit facility. The Company continues to pursue
an order with the FMS Customer for whom the units were built. The FMS Customer
has indicated its intention to purchase the units by formally requesting from
the US Government an offer to begin negotiations. The order received US
Congressional approval and the contract has been forwarded to the FMS Customer
for execution. Management now believes these units will be sold before the end
of the current fiscal year. See MD&A- Liquidity and Capital Resources.
HUMMER
In October 1992, the Company broadened the market for the HUMVEE by developing
and introducing a commercial version, the HUMMER. The Company's engineering
staff has improved and adapted the HUMVEE for industrial and commercial use by
adding an array of options and additional comfort, convenience and sport utility
features. Management believes the HUMMER's off-highway performance and
specifications exceed those of all other commercially available four-wheel drive
trucks and sport utility vehicles. Since 1992, the Company has sold 7,466
HUMMERs through its network of approximately 89 domestic and international
dealerships and distributors. As of October 31, 1999, AM General had a total
backlog of 250 HUMMERs valued at $16.3 million compared to 54 valued at $3.5
million on October 31, 1998. In fiscal 1999, HUMMER sales accounted for
approximately 27.8% of total HUMMER/HUMVEE unit sales and 32.3% of
HUMMER/HUMVEE net sales revenue.
Off road, HUMMERs are functionally equivalent to the A2 Series military HUMVEE
with modifications to comply with Federal Motor Vehicle Safety Standards
("FMVSS") for Class III (gross vehicle weight ("GVW") of 10,000 to 14,000
pounds) trucks and to satisfy commercial customer requirements relating to
safety, comfort and convenience. In addition to the standard HUMMER models,
HUMMERs have been configured as fire fighting and rescue vehicles, ambulances,
snowplowing vehicles and to carry a variety of equipment and tools such as man-
lifts and backhoes.
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The Company currently manufactures five HUMMER models, which include two-
passenger and four-passenger hard-tops, a four-door wagon, an open-top sport
model and a newly designed slant back with suggested base retail prices ranging
from $69,000 to $92,000. The Company provides customer service, spare parts and
warranties to its commercial customers through its dealer network.
The commercial market consists of individuals, government agencies and
industrial users located in the US and overseas which require or desire the
HUMMER's enhanced off-highway mobility, durability and payload capacity.
Targeted customers include businesses engaged in the mining, electric utility,
fire and rescue, oil and gas exploration, and heavy construction industries.
Additionally other customers include non-DoD government agencies such as
Federal Emergency Management, in addition to state and local fire, police and
park service departments.
Since February 1995, the Company has issued eight recalls regarding design
problems with certain mechanical features of the HUMMER. The total cost to the
Company of the eight recalls is estimated to be approximately $351,063 of which
$329,047 has been incurred as of October 31, 1999. The Company reported all
recalls to the National Institute of Highway Traffic Safety. Management does
not expect that the recalls will have a material adverse effect on future HUMMER
sales.
In fiscal 1999, the HUMMER/HUMVEE segment accounted for approximately 67.9% of
net sales.
The GM Transaction
On December 21, 1999, the Company executed a series of agreements with GM
through which the Company intends to more fully utilize the widespread
recognition of the HUMMER name to generate incremental revenues and cash flow.
Pursuant to the terms of the GM Transaction, GM will design, engineer, certify
and release the New Vehicle bearing the Trademark and retain the Company to
assemble New Vehicles over a seven and one half year period effective with the
release of the New Vehicle. As part of the Transaction, the Company assigned
the Trademark to GM. GM will be responsible for providing all component parts,
materials and vendor tooling for the New Vehicle. The Company will assemble, at
GM's request, New Vehicles, according to agreed-upon specifications, for a
specified fixed fee (the "Assembly Fee") which varies with sales volumes. The
Company will have the right to assemble GM's requirements, up to the first
40,000 units annually. GM expects to release the New Vehicle in fiscal year
2002. GM has not committed to any specific minimum annual number of New
Vehicles. Reference is hereby made to the GM Agreements filed as exhibits to
this report.
The Company launched the HUMMER in 1992 and believes that the business
prospects for the HUMMER are limited with respect to demand, price and
profitability. The Company believes that annual sales levels of the HUMMER are
not likely to grow substantially beyond levels reached in 1999 given the
Company's limited resources. The Transaction presented the Company with an
opportunity to generate greater revenues and cash flow from the commercial use
of the Trademark by assigning the Trademark to GM and in return being contracted
by GM to be the primary assembler of the New Vehicle.
The Company believes that GM's resources and expertise in the design,
marketing and distribution of automobiles and trucks should result in the sale
of a significantly greater number of New Vehicles with the opportunity for
substantially greater manufacturing revenues and cash flow than have been
achieved by the Company in manufacturing and selling the HUMMER. The Company
further believes that the Transaction presents the Company with an opportunity
to improve the Company's financial results.
The Company's existing manufacture and design rights with respect to the
HUMMER and the HUMVEE will remain unchanged, except that the Company's use of
the Trademark on the HUMMER will be through license ending at the conclusion of
the assembly arrangement hereinafter discussed instead of ownership. GM became
the exclusive provider of global marketing and distribution support services for
the HUMMER effective January 3, 2000.
The GM Transaction includes the Company's execution of an exclusive and
irrevocable assignment of the Trademark in favor of GM. GM, in turn, has
granted the Company a limited license that allows the Company to use the
Trademark in connection with the HUMMER for the duration of the New Vehicle
Assembly Agreement but not thereafter. Except for the Assembly Fee on the New
Vehicle and its derivatives, the Company will not receive any other payments
from GM in connection with GM's use of the Trademark.
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With respect to the assembly facility for the New Vehicle, GM will
lend the Company an amount currently anticipated to exceed $200 million through
a non-interest bearing loan (the "GM Loan"). The proceeds of the GM Loan will be
used to finance (i) the engineering and construction of a new structure, (ii)
the purchase of certain machinery and equipment, and (iii) all other costs
(except for the cost of the time dedicated to the project by the Company's
management and employees) required for the Company to become prepared to
assemble the New Vehicle (collectively, the "New Facility").
To repay the GM Loan, the Company will repay to GM a pre-agreed
portion of the Assembly Fee received for assembling each New Vehicle. If New
Vehicles are ordered and assembled at the forecasted rate, the GM Loan would be
repaid within seven and one half years after the release of the New Vehicle.
Except as provided above, the Company is not required to repay the outstanding
balance of the GM Loan but it may elect to do so at any time. GM will have a
lien on the building and machinery and equipment purchased with the proceeds of
the GM Loan to secure its repayment. In accordance with the terms of the GM
Transaction, the Company is prohibited from using the New Facility for any
purpose other than assembly of the New Vehicle until the GM Loan is fully repaid
and the lien is satisfied.
On an annual basis, GM will have the option to convert all or any part
of the unpaid balances, if any, on the GM Loan into an equity interest in the
Company of not more than 40% of the voting stock of the Company for an amount
determined at the time of exercise of options pursuant to previously established
procedures. Should the Company and GM fail to agree on a value, the GM
Transaction agreements contain a provision in which an independent third party
will assist in the valuation.
Medium Truck Segment
The Company entered the remanufacture and modernization market in September
1993, upon being awarded the contract for the DoD's ESP. That contract called
for the Company to rebuild and deliver remanufactured and modernized 2-1/2-ton
trucks by disassembling trucks provided by the DoD (the "ESP Contract"). The
Company entered into this business in response to the US Government's declining
defense budget and, as a result thereof, the US Government's desire to
remanufacture and modernize existing vehicle fleets in lieu of procuring new
vehicles. In the US Army's tests, the Company's ESP trucks met or exceeded all
requirements and performed comparably to new US Army 2-1/2-ton trucks at a unit
price of approximately 50% less than that of a new vehicle.
Despite the economic advantage offered by the Company's re-manufactured 2-1/2
ton trucks, the US Army decided not to purchase any additional units beyond
those included in the base contract plus exercised options. Accordingly, on
April 19, 1999 the Company ceased production under the ESP contract. As of that
date, the Company had remanufactured and delivered 5,483 units to the US Army
and other customers.
On October 30, 1998, the Company was awarded a $2.4 million Phase I contract by
the U.S. Army to build three pre-production vehicles for the Family of Military
Tactical Vehicles ("FMTV") second source program. A competitor was awarded a
similar contract. On July 13, 1999 the Company delivered two new 5.0-ton
vehicles and one new 2.5-ton vehicle for Government testing purposes. All three
vehicles successfully completed the government required testing twenty three
days ahead of schedule. However, due to Congressional direction, the FMTV Second
Source Program was canceled. The Army/DOD is now developing (at Congressional
direction) a new acquisition strategy/program to facilitate full and open
competition for the next FMTV multi-year production contract that will be
awarded to a single contractor. Phase I (Prototype & test) contract award (for
up to three contractors) is projected for November 2000 with a subsequent Phase
II (Production) award to a single contractor in 2002. The Company has and will
continue to actively and aggressively participate in all phases of the FMTV
program.
SPLO Segment
Since the 1940s, the Company and its predecessor companies have sold more than 1
million vehicles. Management estimates that over 250,000 of these vehicles are
still in service, providing a large after-market base for potential SPLO sales.
In fiscal 1999, SPLO accounted for approximately 14.8% of net sales.
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SPLO provides comprehensive after-market service, training and technical
publications for Company products on a worldwide basis. The services include
supplying spare parts for vehicles manufactured by the Company and for non-AM
General manufactured vehicles, including HUMMER/HUMVEEs, 2-1/2- and 5-ton trucks
and others. In addition, the Company provides expert training programs for off-
road driving, as well as training for vehicle maintenance and repairs.
STS/Other Segment
STS is a full service engineering organization providing comprehensive technical
support and engineers to TACOM, with contracts on both wheeled and tracked
vehicles, including medium and heavy trucks and the HUMVEE. Services include
engineering, design and drafting, configuration and data management,
translation, and integrated logistics support. In fiscal 1999, the STS/Other
segment accounted for 4.3% of net sales.
On September 15, 1999 the Company was awarded a multi-year contract covering
systems technical support for the HMMWV Family of Vehicles. The contract
consists of a base year level of effort with four follow-on option years. The
total potential value of this contract if all options are exercised is
approximately $26.8 million.
Engine Segment
The 6.5 liter diesel engine produced by GM is the only engine currently
available for production of both the HUMMER and HUMVEE vehicles. In late 1998,
GM Powertrain, a division of GM, announced its intention to discontinue all
production of this engine in the year 2000. The Company was unsuccessful in
acquiring an alternative engine supply, due primarily to the booming light truck
market. On June 11, 1999 the Company acquired from GM Powertrain its 6.5 liter
diesel engine business. Under terms of the Engine Agreement, the Company will
begin production of the 6.5 liter diesel engine as GM Powertrain's plant in
Moraine, Ohio phases out production of that engine in fiscal year 2000 and GM
Powertrain will provide assistance to AM General in launching the plant and
validating the assembly process. The Engine Agreement provides a license to
produce and sell the 6.5 liter engine for a period of ten (10) years. The
Company anticipates beginning low-rate production in July 2000 and full
production by the first quarter of 2001 at a new, leased facility in Franklin,
Ohio.
GM currently uses this engine in some vans, pickup and medium duty trucks. The
Engine Agreement provides that GM's internal parts distributor, SPO, will
purchase all service requirements for this engine from AM General, for a period
of ten years. The Company plans to continue using the 6.5 liter engine in
production of both its HUMMER and HUMVEE vehicles for many years. In addition,
orders are expected from producers of specialty and delivery van companies. The
Company anticipates that it will be profitable and will generate annual revenue
of approximately $49.0 million, excluding inter-company sales of $26.0 million,
when full production levels are achieved in fiscal 2001.
Industry
Since World War I, the US and foreign military forces have used TWVs for
transporting personnel, supplies and equipment in battlefield conditions. The
TWV fleet has evolved from numerous body styles and payloads to three basic
classifications - light (less than 2-1/2 tons), medium (2-1/2 ton and 5-ton) and
heavy (greater than 5 tons). Each of the three classifications serves basic
utility functions on the battlefield. Generally, commercial trucks are not
suited to military use or military procurement standards.
In the early 1980s, the US Army began its largest peacetime TWV fleet
modernization program in history. The escalation in US Army truck requirements
can be directly attributed to (i) a transition in the US Armed Forces' basic
fighting strategy and (ii) newly established roles for trucks as weapon system
platforms and as the transport component of medical, electronics and
intelligence systems. The US Armed Forces fighting doctrine has shifted from
"forward deployment" (i.e., maintaining large bases worldwide) in the Cold War
Era to "force projection" (e.g., the Gulf War) which calls for rapid deployment
and forced entry with fast moving main attacks on enemy fronts. As a result of
this fighting doctrine, the US Army established two major hardware initiatives
for ground
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attacks emphasizing speed and high mobility - the Bradley fighting vehicle and
the M1 Abrams main battle tank. At the time, no military trucks (light, medium
or heavy) existed that could match the expected speed and mobility of the
Bradley and Abrams vehicles. This led to the development of the design
specification for the HUMVEE. The HUMVEE is the only light TWV being acquired in
quantity by the US Armed Forces.
At the present time, the medium tactical wheeled fleet is in poor condition
measured by age and economic performance. As a result, the US Army commenced
modernizing its medium TWV fleet by procuring new 2-1/2-ton and 5-ton trucks. In
an effort to accelerate the procurement of these vehicles, TACOM announced its
intention to stage a full and open competition for the next FMTV multi-year
production contract scheduled to be awarded in 2002. As discussed above, the
Company intends to compete vigorously for the FMTV award.
Research and Development
The Company believes that its technical expertise and engineering resources are
a competitive advantage, which has enabled the Company to successfully procure
business contracts with the US government. In addition to its STS operations,
which are dedicated to TACOM, the Company also maintains an independent research
and development ("IR&D") department at its Livonia, Michigan facility to conduct
IR&D activities.
Manufacturing Process and Raw Materials
At the Company's Mishawaka, Indiana facility, HUMMER/HUMVEE vehicles are
manufactured on an automated truck-assembly production line. Major vehicle
components and parts are procured from outside vendors and delivered to the
Mishawaka facility. Stamped body parts are bonded, painted and treated for
corrosion protection either at a body shop located within the Mishawaka facility
or at outside vendors. HUMMER/HUMVEE chassis frames are assembled and joined
with engine components on a chassis assembly line. The addition of all other
body parts or trim (steering wheel, seats, windshields, grill, etc.) to the
chassis and engine platform, as well as painting operations, are conducted on
separate assembly lines within the facility. All HUMMER/HUMVEE vehicles undergo
testing before delivery to the customer.
Approximately 68.8% of the Company's cost of manufacturing HUMMER/HUMVEE
vehicles consists of components purchased from over 550 suppliers. Component
prices are generally negotiated annually based on, among other things, the
Company's expected manufacturing volume. The Company places orders periodically
for certain component requirements throughout the year and is only obligated to
purchase components for which it has placed orders. Approximately 20% of the
Company's total purchased materials are currently supplied by various divisions
of GM. These materials include engines, transmissions and steering components.
The Company believes that it has strong relationships with its suppliers and
will continue to have a stable supply of its purchased materials and components
to meet future production needs.
Competition
As the sole manufacturer of the HUMVEE for the US Armed Forces for more than
fourteen years, the Company believes that it is the dominant US manufacturer in
supplying light TWVs to the DoD and is one of only a few manufacturers on a
worldwide basis. Management believes that the HUMVEE offers enhanced mobility
and dependability at a lower cost than any of its international competitors.
The Company's HUMMER competes as a highly specialized vehicle within an
established, competitive four-wheel drive vehicle marketplace. There are a
number of domestic and foreign manufacturers of four-wheel drive vehicles, which
have recognized models and established distribution, sales, service and warranty
administration systems in place. By virtue of its design, the HUMMER offers off-
highway mobility and durability far beyond the capabilities of competing trucks,
which are designed primarily for on-highway use. As noted above, GM expects to
release a New Vehicle under the HUMMER trademark in fiscal 2002.
As previously mentioned, the Company is in competition for the next FMTV multi-
year production contract to be awarded in mid 2002. The Company anticipates a
very high level of competition for this award. The Company's competitors are
experienced manufacturers of tactical wheeled vehicles and contractors with
TACOM.
Competition in SPLO is highly fragmented among a large number of small
independent suppliers and selected original equipment manufacturers.
9
<PAGE>
The market in which the Company competes for STS contracts consists of six major
competitors and a growing number of smaller specialty engineering firms. The
Company believes its engineering expertise, full service design and testing
services, and close proximity to its primary customer (TACOM) have enabled it to
remain very competitive with other engineering organizations.
Seasonality and Payment
The Company's business is generally not seasonal. The Company builds military
vehicles subject to fixed- price medium and long term contracts. Therefore, the
Company assumes full risk of producing and delivering the specified number of
vehicles for a fixed price, normally with a specific delivery schedule. Payments
are usually due thirty days after delivery, except in the case of direct
international sales, for which payment is received shortly after shipment
pursuant to letters of credit opened by the customer in favor of the Company at
the time of the placement of the order.
Export sales to unaffiliated customers represent a significant portion of the
Company's total net sales. See notes 1(a) and 16 of the notes to Consolidated
Financial Statements contained herein. Currency and economic problems in certain
parts of the world may adversely impact future export volume.
Payment for sales to HUMMER dealers are generally obtained within five days of
delivery. Units wholesaled to dealers are subject to either voluntary or
mandatory repurchase agreements. Such agreements either permit or require the
Company to repurchase, at not more than dealer cost, new, unsold units in the
dealers' inventories in the event of repossession by the dealers' floorplan
lenders. At October 31, 1999, the mandatory repurchase agreements covered 83
HUMMERs with a total value at dealer cost of $6.8 million.
Since export sales are priced in US dollars, the Company does not expect any
material adverse impact in connection with the introduction of the Euro
currency.
Employees
As of October 31, 1999, the Company had 419 salaried employees and 655 hourly
employees. Of the 1,074 employees, 262 provide general administrative services
including legal, finance, human resources, and other corporate functions. The
Company's current labor contract for the Mishawaka HUMMER/HUMVEE and SPLO
operations expires in September of 2001. All of the Company's hourly employees
at these operations are represented by the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America ("UAW"). The
Company believes that its relations with employees are satisfactory.
A new labor agreement has been negotiated for the 6.5 liter diesel engine plant
in anticipation that hourly employees will be represented by the International
Union of Electrical Workers ("IUE"). The Company expects employment levels will
reach 85 hourly employees and 20 salaried employees by fiscal year 2002.
A new labor agreement has been negotiated in connection with the GM Transaction.
The new agreement was ratified in August 1999 and will expire in September 2009.
All of the hourly employees will be represented by the UAW.
10
<PAGE>
Item 2. Properties
The Company operates one manufacturing facility and five support locations which
include its headquarters in South Bend, Indiana, as well as sales, warehouse,
training, engineering, and other non-manufacturing operations.
The Company's principal manufacturing facility is the HUMMER/HUMVEE plant,
situated on approximately 96 acres in Mishawaka, Indiana. The Company presently
owns approximately 40 acres and occupies the remaining 56 acres through a lease
agreement. In June 1999 the Company negotiated a new lease agreement which
includes an option for the Company to purchase the property at a pre-negotiated
price. In connection with the GM Transaction, the Company intends to purchase
the property in fiscal 2000 on which it intends to locate the New Facility. The
major tooling and materials handling equipment, assembly lines, robotics and
computer controls involved in the manufacture of HUMMER/HUMVEE vehicles are
located at the Mishawaka facility. The HUMMER/HUMVEE facility has a single shift
capacity of between 50 and 70 units per day depending on the model configuration
of orders currently being received by the Company. In response to higher demand
for new model HUMMERs from its dealer network, the Company increased the
production of HUMMERs in February 1999 from 4 to 5.5 vehicles per day resulting
in a new production rate of 18 HUMMER/HUMVEE vehicles per day. The Company plans
to further increase the line rate to 24 units per day in February 2000 to meet
growing demand in the international HUMVEE market. See MD&A
The HUMMER finishing facility is also located in Mishawaka, adjacent to the
HUMMER/HUMVEE plant. Mishawaka is also the site of a one-mile, asphalt-paved
test track. Additionally, the Company's SPLO operations are located in Mishawaka
at a separate facility.
The Company leases a facility in South Bend that was utilized for the ESP
operations from 1994 through April, 1999. The current leasing arrangement allows
the Company to lease the facility on a month to month basis. The Company
continues to lease the facility in anticipation of being awarded future
remanufacturing projects.
The Company operates a test track in South Bend located near the ESP facility.
The property is owned by the Chippewa Corporation ("Chippewa"), a wholly owned
subsidiary of the Company, and leased by Chippewa to the Company. Environmental
testing performed on the site indicates sources of contamination which occurred
prior to the Company's ownership of the property. The Company is currently
providing assistance to environmental agencies in the remediation of
contamination found on adjacent properties. The remediation effort is not
anticipated to have a material adverse impact on the Company's financial
condition. Chippewa is participating in the state of Indiana's Voluntary
Remediation Program for the pre-RECRA lagoons located on Chippewa's property.
The Company leases its STS and IR&D facilities located in Livonia, Michigan,
which is approximately 28 miles from TACOM's facility. In addition to providing
convenience to its primary customer, TACOM, the personnel at the Livonia
facility act as a liaison between the Company's management in South Bend and
TACOM.
The Company announced in August that it selected Franklin, Ohio as the site for
the new engine business. A developer commenced construction of the new facility
which was approximately 85% complete at January 29, 2000. The Company
anticipates that it will negotiate a multiyear operating lease with respect to
this facility and take possession in late February.
The Company considers its facilities and equipment generally to be in good
operating condition. All of the Company's facilities are leased from unrelated
third parties except for the Mishawaka HUMMER finishing facility and the test
track in Mishawaka which the Company owns and the South Bend test track which is
leased by the Company from Chippewa.
11
<PAGE>
Item 3. Legal Proceedings
US Army Pricing Claim
The previously reported pricing claim by the US Army relating to the Company for
approximately $8.0 million plus interest from January 27, 1995 was settled in
October 1999 for $125,000.
Breach of Contract
On December 30, 1991, Dial Machine & Tool, Inc. filed a complaint in the Starke
County, Indiana Circuit Court alleging breach of Purchase Order Agreements by
the Company's predecessor. The plaintiff asserts that it was forced into
bankruptcy as the result of the alleged breach. The plaintiff seeks compensatory
damages of $744,103 and punitive damages of $10,000,000. The judge suggested the
parties mediate this dispute. The parties are engaged in settlement
negotiations.
Nevada Product Liability Case
The Company is also defending a product liability case based on an accident
involving an M35 Truck (a two-and-a-half ton military truck). The Complaint was
filed in October 1995 in Clark County, Nevada. It alleges that the truck's
brakes were defective, failed, and caused an accident resulting in severe
injuries to an Air Force Sergeant. The Company filed a motion for summary
judgment based on the Government Contractor's defense. The trial judge denied
the motion. The case is currently scheduled for trial in February 2000. The
Company expects to prevail in this case; however, the outcome of any jury trial
is uncertain and an adverse decision could have a material adverse effect on the
Company.
Age Discrimination Claim
The previously reported age discrimination claim asserted by William Wilson
against the Company on February 21, 1995 in the United States District Court for
the Northern District of Indiana asserting that his termination in March 1994
was the result of age discrimination has been fully resolved by the payment by
the Company of $494,839. The judgment has been satisfied and the case is now
closed.
Defense Contract Audit Agency Claim
See Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations for information as to a $25.3 million overcharge claim
made by the Defense Contract Audit Agency in July 1996.
Item 4. Submission of Matters to a Vote of Security Holders
On December 17, 1999, the Company successfully concluded a solicitation for the
consents of holders of the Company's 12 7/8 Senior Notes, Due 2002, (the
"Notes") to an amendment to the Indenture governing such Notes. Such amendment
amended, solely for purposes of consummating the GM Transaction, provisions
concerning (i) limitations on indebtedness; (ii) limitations on liens; (iii)
limitations on asset sales and (iv) calculation of the fixed charge coverage
rate. The Company received consent with respect to $63,548 million aggregate
principal amount of Notes out of the total $67,987 aggregate principal amount of
Notes outstanding. The Company required the consent of 75% in aggregate
principal amount of Notes outstanding in order to approve such amendment.
On December 21, 1999, Renco, as sole stockholder of the Company, executed a
written consent, in lieu of meeting of stockholders, to the entry by the Company
into the Transaction with GM.
On January 5, 2000, Renco, as sole stockholder of the Company, executed a
written consent, in lieu of meeting of stockholders, to the re-election of Mr.
Rennert as Chairman of the Board and sole director of the Corporation.
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market for the Company's common stock. As
of January 31, 2000, the Company had one stockholder. The Company paid no
dividends on its common stock in fiscal 1999 and 1998. The payment of and
amounts of dividends are restricted by the Company's long-term debt agreements.
See note 8 of the Consolidated Financial Statements contained herein.
13
<PAGE>
Item 6. Selected Financial Data.
The following table sets forth certain summary financial and other data of the
Company for each of the years in the five-year period ended October 31, 1999.
The financial data set forth below should be read in conjunction with the
Company's financial statements and the related notes thereto appearing elsewhere
herein and MD&A.
<TABLE>
<CAPTION>
Fiscal Year Ended
October 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(dollars in millions)
Statement of Operations Data
- ----------------------------
Net Sales $348.2 $392.8 468.2 462.4 411.7
Gross Profit (a) 37.4 48.5 43.2 42.9 56.0
Depreciation and Amortization 10.9 13.2 12.7 16.8 15.8
Selling, General and Administrative Expenses 31.2 27.7 26.2 37.3 36.3
Special termination benefits - - 0.1 3.2 -
Plant Closing/Restructuring (2.7) 5.2 3.5 - -
Operating Income (Loss) (b) (2.0) 2.4 0.7 (14.4) 3.8
Interest Expense, Net 11.1 12.8 13.2 13.9 10.7
Income Tax Benefit (2.9) (2.1) (3.0) (8.7) (0.4)
Income (Loss) before Extraordinary Item (10.2) (8.3) (9.5) (19.6) (6.5)
Extraordinary Item, net of Income Taxes of $1.75 - - - - 3.0
-------------------------------------------------------------------------
Net Loss $(10.2) $ (8.3) (9.5) (19.6) (3.5)
Balance Sheet Data
- ------------------
Working Capital $ 61.4 $ 56.1 55.9 87.9 98.1
Property Plant and Equipment, net 43.9 41.7 44.9 56.5 62.8
Total Assets 325.8 314.8 316.3 373.2 372.7
Total Debt (c) 92.8 82.2 83.2 126.9 126.9
Stockholder's Equity (Deficit) (44.1) (34.1) (25.5) (16.0) 3.6
</TABLE>
(a) Gross Profit represents net sales less cost of sales (excluding depreciation
and amortization).
(b) Operating Income represents earnings before interest and provision (benefit)
for income taxes.
(c) Total Debt includes the revolving credit facility and the 12 7/8% Senior
Notes due 2002 issued in 1995 (the "Refinancing").
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
AM General is the largest supplier of light TWV's for the DoD. The Company is
the original designer and sole manufacturer of the HUMMER/HUMVEE. The Company
also sells HUMVEEs to foreign military services through the DoD's FMS program
and on a direct sale basis. In 1993, the Company began selling to industrial and
retail users through its commercial dealer network. From 1994 through April 19,
1999 the Company sold remanufactured 2 1/2 ton medium tactical vehicles under
the Army's ESP program.
In June, 1999 the Company acquired from GM Powertrain, a division of GM, GM
Powertrain's 6.5 liter diesel engine business. Under terms of the agreement, the
Company will begin production of the 6.5 liter diesel engine as GM Powertrain's
plant in Moraine, Ohio phases out production of that engine in fiscal year 2000.
GM Powertrain will provide assistance to AM General in getting this project
started and the assembly process validated. The Company anticipates beginning
low-rate production in July 2000 and full production by the first quarter of
2001.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosures about Segments of an Enterprise and Related Information," in
the fourth quarter of fiscal 1999. In accordance with this standard, the Company
is providing management discussion on net sales, unit sales and gross margin for
the business segments identified below. Prior year financial information has
been restated to provide discussion on comparative data. Management discussion
relevant to other financial data will be presented on a consolidated basis only.
HUMMER/HUMVEE Segment
The Company began producing the latest generation of HUMVEEs, the A2 Series,
under a letter contract in August 1995. On December 23, 1995, the Company
entered into a new multi-year annual requirements contract for A2 Series HUMVEEs
known as the X001 Contract which provides a mechanism for the US Army to procure
at least 2,350 HUMVEEs annually for the following five years. Through December
1999, a total of 14,382 vehicles have been ordered on the X001 Contract. The F/Y
2000 Defense Bill currently contains the necessary funding for the expected 2000
production. In response to the F/Y 2000 Budget and higher international military
demand, the Company is increasing vehicle production of military vehicles from
the current rate of 12.5 vehicles per day to 18 in February 2000. Beginning at
the same time the Commercial vehicle line rate will be increased to 6 vehicles
per day (from the 5.5 rate established in February 1999) resulting in a new
total production rate of 24 HUMMER/HUMVEE vehicles per day.
In May, 1999 the Company and General Motors Acceptance Corporation (GMAC)
concluded negotiations under which GMAC will offer to existing HUMMER dealers
its Smartlease program for new 1999 and 2000 model year HUMMERs. Under this
agreement, GMAC will accept lease contracts for HUMMERs through its local GMAC
offices. The Company will have no financial obligations with respect to residual
risk in connection with this program.
See Item 1. Business - The GM Transaction for information as to agreements
concluded in December 1999 pursuant to which the Company has transferred the
Trademark to GM which will design and market a new generation of HUMMER vehicle
which, for a seven and one half year period effective with the release of the
New Vehicle anticipated to be in early to mid 2002, will be assembled for GM by
the Company.
Medium Truck Segment
In September 1993, the Company was awarded the ESP Contract, the first multi-
year contract to teardown and remanufacture aging 2-1/2-ton military trucks
under the ESP program. Despite the economic advantages offered by this program,
the US Army decided not to purchase any additional units beyond those included
in the original contract. On April 19, 1999 the Company ceased production under
the ESP contract. As of that date, the Company had remanufactured and delivered
5,483 units to the DoD.
15
<PAGE>
In an effort to accelerate the procurement of new 2-1/2 and 5-ton vehicles,
TACOM announced that it is developing a new acquisition program to facilitate
full and open competition for the next FMTV multi-year production contract. The
Company intends to compete vigorously for the new FMTV contract.
SPLO Segment
The Company's SPLO operation sells after-market parts and support services for
vehicles manufactured by the Company and for non-AM General manufactured
vehicles. In addition, the Company provides expert training programs for off-
road driving, as well as training for vehicle maintenance and repairs.
STS/Other Segment
The Company's STS operation performs engineering services related to the
Company's military trucks and certain other military vehicles. Services include
engineering, design and drafting, configuration and data management,
translation, and integrated logistics support.
Engine Segment
On June 11, 1999 the Company acquired from GM Powertrain, a division of General
Motors Corporation, GM Powertrain's 6.5 liter diesel engine business. Under
terms of the agreement, the Company will begin production of the 6.5 liter
diesel engine as GM Powertrain's plant in Moraine, Ohio phases out production of
that engine in fiscal year 2000. GM Powertrain will provide assistance to AM
General in getting this project started and the assembly process validated. The
Company anticipates beginning low-rate production in July 2000 and full
production by the first quarter of 2001.
Results of Operations
Twelve Months Ended October 31, 1999 ("fiscal 1999") Compared with Twelve Months
Ended October 31, 1998 ("fiscal 1998")
Analysis of Net Revenues and Unit Sales Information
- ---------------------------------------------------
(in millions, except unit information)
<TABLE>
<CAPTION>
Fiscal Year Ended
October 31, %
-------------------
1999 1998 Change Change
------------------- -------- ---------
<S> <C> <C> <C> <C>
Net Sales
- ---------
HUMMER/HUMVEEs $ 236.3 $ 244.7 $ (8.4) (3.4)%
Medium Trucks 45.6 85.0 (39.4) (46.4)%
SPLO 51.4 50.7 0.7 1.4 %
STS/Other 14.9 12.4 2.5 20.2 %
------- -------- -------- ------
Total Net Sales $ 348.2 $ 392.8 $ (44.6) (11.4)%
HUMMER/HUMVEE Unit Sales 3,827 4,145 (318) (7.7)%
- ------------------------
HUMMER/HUMVEE Average Unit Selling Prices $ 61,745 $ 59,036 $ 2,709 4.6 %
- -----------------------------------------
</TABLE>
16
<PAGE>
Consolidated net sales decreased $44.6 million, or 11.4% to $348.2 million in
fiscal 1999 compared to fiscal 1998. The decrease in net sales was due primarily
to lower HUMMER/HUMVEE and ESP sales partially offset by higher SPLO and
STS/Other sales. Further, the Company remained unable to obtain a firm order for
231 units manufactured in fiscal 1997 and included in its finished goods
inventory. Had this inventory been sold in fiscal 1999, the shortfall in sales
would not have been as significant. The Company continues to pursue an order
with the FMS Customer for whom the units were built. The FMS Customer has
indicated its intention to purchase the units by formally requesting from the US
Government an offer to begin negotiations. The order received US Congressional
approval and the contract has been forwarded to the FMS Customer for execution.
Management now believes these units will be sold before the end of the current
fiscal year.
HUMMER/HUMVEE segment net sales decreased $8.4 million, or 3.4% to $236.3
million in fiscal 1999 compared to fiscal 1998. The decrease in net sales is
primarily due to lower HUMVEE requirements by the US Armed Forces and continued
softness in the international markets, partially offset by increased demand for
HUMMERs. Higher selling prices on all HUMMER/HUMVEE models further reduced the
unfavorable impact caused by fewer unit sales. Additionally, 1998 unit sales
exceeded 1999 levels primarily due to sales of vehicles produced in fiscal 1997
and sold in fiscal 1998. The 1999 average unit selling prices for HUMMER/HUMVEE
vehicles increased 4.6% over fiscal 1998 levels. This increase is attributable
to a negotiated price escalation on US Military HUMVEEs, the installation of
ambulance equipment on International HUMVEEs previously sold, and selling a
higher concentration of more expensive HUMMER models.
Medium Truck segment net sales decreased $39.4 million, or 46.4% to $45.6
million in fiscal 1999 compared to fiscal 1998. The decrease in sales is the
result of the completion of the ESP program.
SPLO segment net sales increased $0.7, or 1.4% to $51.4 million in fiscal 1999
compared to fiscal 1998. The increase in net sales is primarily attributable to
the corresponding increase in the number of HUMMER/HUMVEEs in service. The
Company believes that increasing demand for HUMMER/HUMVEE vehicles will create
strong growth in SPLO spare parts sales and training programs.
STS/Other segment net sales increased $2.5 million, or 20.2% to $14.9 million in
fiscal 1999 compared to fiscal 1998. The increase in net sales is primarily
attributable to Phase I contract revenues received in connection with the FMTV
Second Source Program. As previously mentioned, this program was cancelled in
fiscal year 1999.
Analysis of Consolidated Gross Profit
- -------------------------------------
(in millions, except unit information)
<TABLE>
<CAPTION>
%
1999 % 1998 % Change Change
------------------- -------------------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Gross Profit
- ------------
HUMMER/HUMVEEs $22.7 9.6% $28.4 11.6 % $ (5.7) (20.0)%
Medium Truck 7.8 17.1 19.5 23.0 (11.7) (60.0)
SPLO 6.0 11.6 6.5 12.8 (0.5) (7.7)
STS/Other 1.6 10.7 (5.9) (47.6) 7.5 127.1
Engines (.7) - - - (.7) -
------------------ ------------------- ------- -----
Total Gross Profit $37.4 10.7 $48.5 12.3 $(11.1) (22.9)
</TABLE>
Consolidated gross profit decreased $11.1 million, or 22.9% to $37.4 million in
fiscal 1999 compared to fiscal 1998. The Company's consolidated gross profit
margin for fiscal year 1999 was 10.7% compared to 12.3% in fiscal year 1998.
Fiscal 1999 results include six months of the Medium Truck segment due to the
completion of the ESP contract with the US Army, while fiscal 1998 results
include twelve months.
17
<PAGE>
HUMMER/HUMVEE segment gross profit decreased $5.7 million, or 20.0% to $22.7
million in fiscal 1999 compared to fiscal 1998. The segment's gross profit
margin was 9.6% in fiscal 1999 compared to 11.6% in fiscal 1998. The reduction
in gross margin was primarily attributed to selling fewer HUMVEEs, higher
manufacturing costs in connection with parts shortages resulting from a major
supplier, and higher warranty costs.
Medium Truck segment gross profit decreased $11.7 million, or 60.0% to $7.8
million in fiscal 1999 compared to fiscal 1998. The segment's gross profit
margin was 17.8% in fiscal 1999 compared to 23.0% in fiscal 1998. The reduction
in gross profit is due to the completion of the ESP contract with the US Army.
SPLO segment gross profit decreased $.5 million, or 7.7% to $6.0 million in
fiscal 1999 compared to fiscal 1998. The segment's gross profit margin was
11.6% in fiscal 1999 compared to 12.8% in fiscal 1998. The reduction in profit
margin is directly related to an increase in the volume of less profitable
HUMVEE spare parts delivered during fiscal 1999. An increase in overhead
expense in fiscal year 1999 compared to fiscal year 1998 also resulted in lower
gross profit for fiscal year 1999.
STS/Other segment gross profit increased $7.5 million, or 127.1% to $1.6 million
in fiscal 1999 compared to fiscal 1998. The segment's gross profit margins for
fiscal year 1999 and 1998 were 10.7% and (47.6)%, respectively. Fiscal year
1998 gross margin was negatively impacted by increased long-term disability
costs and losses associated with the Company's decision to close the
Indianapolis stamping facility.
Engine segment gross profit was $(.7) million in fiscal year 1999 primarily due
to start-up costs in connection with the new Franklin Ohio manufacturing
facility.
Analysis and Management Discussion on non-segment information
- -------------------------------------------------------------
Depreciation and Amortization
Depreciation and amortization expense was $10.9 million for fiscal 1999, a
decrease of $2.3 million or 17.4% over depreciation and amortization expense of
$13.2 million for fiscal 1998. The decrease is primarily attributable to the
ESP plant closing. In fiscal 1998, the Company incurred a depreciation charge
to write down the valuation of plant assets in connection with the ESP plant
closing. Fiscal 1999 includes depreciation and tooling amortization through
April 1999, the date on which operations ceased.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expense was $31.2 million for
fiscal 1999, an increase of $3.5 million or 12.6% from SG&A expense of $27.7
million for fiscal 1998. The Company incurred extensive professional fees in
connection with the GM Transaction and higher HUMMER marketing costs.
Plant Closing/Restructuring Gain
The Company recorded a $5.2 million charge in fiscal 1998 in connection with
plant closing costs anticipated for the ESP facility. Upon completion of the
plant closing in fiscal 1999, the Company recognized a gain of approximately
$2.7 million to reverse accrued severance benefits and other plant closing costs
due to lower than anticipated layoffs and other savings.
Income (Loss) before Interest and Income Taxes
The Company recorded a loss before interest and income taxes for fiscal year
1999 of $2.0 million, a decrease of $4.4 million from income before interest and
income taxes of $2.4 million in fiscal year 1998. The decrease in earnings
before interest and income taxes is primarily attributable to lower gross
profit, and higher SG&A expenses partially offset by lower depreciation expense.
Interest Income and Expense
Interest expense for fiscal 1999 was $11.5 million, a decrease of $1.7 million
or 12.9% from interest expense of $13.2 million for fiscal 1998. Average debt
outstanding for fiscal 1999 was $82.0 million at a weighted average interest
rate of 12.2%. Average debt outstanding for fiscal 1998 was $99.3 million at a
weighted average interest rate of 12.2%. The decrease in average debt
outstanding is primarily due to lower borrowings under the Company's
18
<PAGE>
revolving credit facility reflecting an overall reduction in finished goods
inventory levels. See "Liquidity and Capital Resources." Interest income
remained essentially the same between the two years.
Income Tax Benefit
Income tax benefit was recorded at the statutory rate adjusted for permanent
differences primarily resulting from the amortization of goodwill. Income tax
benefit was $2.9 million for fiscal 1999, an increase of $.7 million from an
income tax benefit of $2.2 million for fiscal 1998. The increase in income tax
benefit was due to the decrease of taxable income primarily attributable to
increased loss before income taxes as discussed above.
Net Loss
The net loss for fiscal 1999 was $10.2 million, an increase of $1.9 million from
a net loss of $8.3 million in fiscal 1998. As discussed above, the increase in
net loss is primarily due to a larger loss before interest and income taxes in
fiscal 1999 compared to fiscal 1998. This increase is partially offset by a
lower fiscal year 1999 interest expense and a larger income tax benefit.
19
<PAGE>
Twelve Months Ended October 31, 1998 ("fiscal 1998") Compared with Twelve Months
Ended October 31, 1997 ("fiscal 1997")
Analysis of Net Revenues and Unit Sales Information
- ---------------------------------------------------
(in millions, except unit information)
<TABLE>
<CAPTION>
Fiscal Year Ended
October 31, %
-------------------------------
1998 1997 Change Change
----------- ------------
<S> <C> <C> <C> <C>
Net Sales
HUMMER/HUMVEEs $ 244.7 $ 303.8 $ (59.1) (19.5)%
Medium Truck 85.0 77.3 7.7 10.0
SPLO 50.7 51.0 (0.3) (0.6)
STS/Other 12.4 36.1 (23.7) (65.7)
------------ ------------ --------------
Total Net Sales $ 392.8 $ 468.2 $ (75.4) (16.1)%
HUMMER/HUMVEE Unit Sales 4,145 5,136 (991) (19.3)%
HUMMER/HUMVEE Average Unit Selling Prices $ 59,036 $ 59,151 $ (115) (0.2)%
</TABLE>
Consolidated net sales decreased $75.4 million, or 16.1% to $392.8 million in
fiscal 1999 compared to fiscal 1998. The decrease in net sales is primarily due
to lower HUMMER/HUMVEE and STS/OTHER sales partially offset by higher Medium
Truck sales.
HUMMER/HUMVEE segment net sales decreased $59.1 million, or 19.5% to $244.7
million in fiscal 1999 compared to fiscal 1998. Lower demand in the
international and HUMMER markets contributed to the significant reduction in
unit sales volumes. US Military demand remained strong, however the model mix
shifted to a higher concentration of less expensive units resulting in lower
overall revenues. Partially offsetting the reduction in international and
commercial demand was a higher concentration of more expensive units delivered
to international customers and a general price increase imposed on HUMMERs.
Medium Truck segment net sales increased $7.7 million, or 10.0% to $85.0 million
in fiscal 1998 compared to fiscal 1997. This increase in primarily attributed
to higher negotiated selling prices in connection with option units added and
delivered at the completion of the ESP contract.
SPLO segment net sales decreased $.3 million, or 0.6% to $50.7 million in fiscal
1998 compared to fiscal 1997. The slight downturn in sales is due to lower US
Government orders in fiscal year 1998.
STS/Other segment sales decreased $23.7 million, or 65.7% to $12.4 million in
fiscal 1998 compared to fiscal 1997. During fiscal year 1997, the Company was
aggressively competing for the Medium Tactical Vehicle Replacement ("MTVR")
contract with the US Army and recorded significant Phase I contract revenues in
connection with this program.
20
<PAGE>
Analysis of Consolidated Gross Profit
- -------------------------------------
(in millions, except unit information)
<TABLE>
<CAPTION>
%
1998 % 1997 % Change Change
--------------------- ------------------- -------- --------
<S> <C> <C> <C> <C> <C>
Gross Profit
- ------------
HUMMER/HUMVEEs $28.4 11.6% $40.3 13.3% $(11.9) (29.5)%
Medium Truck 19.5 23.0 .2 .3 19.3 9650.0
SPLO 6.5 12.8 6.0 11.8 .5 8.3
STS/Other (5.9) (47.6) (3.3) (9.1) (2.6) (78.8)
--------------------- ------------------- -------- --------
Total Gross Profit $48.5 12.3 $43.2 9.2 $ 5.3 12.3%
</TABLE>
Consolidated gross profit increased $5.3 million, or 12.3% to $48.5 million in
fiscal 1998 compared to fiscal 1997. The Company's consolidated gross profit
margin was 12.3% in fiscal 1998 compared to 9.2% in fiscal 1997. The increase
in gross profit is primarily attributable to better performance in the Medium
Truck segment partially offset by lower gross margins in HUMMER/HUMVEE and
STS/Other segments which was due to lower sales as discussed above.
HUMMER/HUMVEE segment gross profit decreased $11.9 million, or 29.5% to $28.4
million in fiscal 1998 compared to fiscal 1997. The segment's gross profit
margin was 11.6% in fiscal 1998 compared to 13.3% in fiscal 1997. In response
to lower demand for US Military HUMVEEs, the Company reduced the production line
rate from 25 vehicles per day to 16.5 per day in fiscal year 1998. The
reduction in volume resulted in unabsorbed overhead and lower gross margins.
Additionally, gross margin on HUMMERs was lower due to increased sales
incentives, lower volume and higher warranty costs.
Medium Truck segment gross profit increased $19.3 million, or 9,650.0% to $19.5
million in fiscal 1998 compared to fiscal 1997. The segment's gross profit was
23.0% in fiscal year 1998 compared to 0.3% in fiscal year 1997. The increase in
gross profit is primarily attributable to a cumulative effect accounting
adjustment to the ESP contract which the Company accounts for on the Estimate at
Completion method of accounting. Under this method, the Company periodically
estimates the gross profit at completion. The adjustment was the result of
management efforts to control manufacturing costs.
SPLO segment gross profit increased $.5 million, or 8.3% to $6.5 million in
fiscal 1998 compared to fiscal 1997. The segment's gross profit margin was
12.8% in fiscal 1998 compared to 8.3% in fiscal 1997. The increase in gross
profit is attributable to selling more profitable HUMVEE parts to international
military customers in 1998.
STS/Other segment gross profit decreased $2.6 million, or 78.8% to ($5.9)
million in fiscal 1998 compared to fiscal 1997. The segment's gross profit
margins for fiscal year 1998 and 1997 were (47.4)% and (9.1)%, respectively.
Fiscal year 1998 gross margin was negatively impacted by increased long-term
disability costs and losses in connection with the closing of the Indianapolis
stamping facility.
Analysis and Management Discussion on non-segment information
- -------------------------------------------------------------
Depreciation and Amortization
Depreciation and amortization expense was $13.2 million for fiscal 1998, an
increase of $.5 million or 3.9% over depreciation and amortization expense of
$12.7 million for fiscal 1997. The increase was primarily due to higher
depreciation expense in connection with the write down of ESP assets in
anticipation of the plant closing in April of 1999. The increase was partially
offset by lower tooling amortization expense in connection with the Expanded
Capacity Vehicle HUMVEE that was fully amortized in fiscal 1997 and lower
depreciation expense in connection with reduced capital spending.
21
<PAGE>
Selling, General and Administrative
Selling, general and administrative ("SG&A") expense was $27.7 million for
fiscal 1998, an increase of $1.5 million or 5.7% from SG&A expense of $26.2
million for fiscal 1997. The increase was primarily due to higher engineering
expense in connection with the MTVR bid.
Plant Closing/Restructuring Charges
During fiscal 1998, the Company recorded $5.2 million of charges in connection
with plant closing costs anticipated for the ESP facility. Due to lack of orders
for the remanufactured 2 1/2 ton, the Company ceased production at the ESP
facility on April 19, 1999. The $5.2 million charge includes all known costs
related to closing the facility but does not include a provision for any gain on
curtailment of Other Post Employment Benefit expense in connection with the
plant closure.
During fiscal 1997, the Company recorded $3.5 million of restructuring charges
in connection with the reduction in the HUMMER/HUMVEE production rate, a
reduction in the Company's salaried workforce and outsourcing of the component
parts manufactured at the Company's Indianapolis Stamping Facility.
Operating Income
The Company had operating income of $2.4 million in fiscal 1998, an increase of
$1.7 million from an operating income of $.7 million in fiscal 1997. The
improvement in operating income was primarily due to higher gross margin
partially offset by higher depreciation and amortization expense, restructuring
charges and SG&A expense.
Interest Income and Expense
Interest expense for fiscal 1998 was $13.2 million, a decrease of $.3 million or
2.2% from interest expense of $13.5 million for fiscal 1997. Average debt
outstanding for fiscal 1998 was $99.3 million at a weighted average interest
rate of 12.2%. Average debt outstanding for fiscal 1997 was $102.3 million at a
weighted average interest rate of 12.1%. The decrease in average debt
outstanding was primarily due to lower borrowing under the Company's revolving
credit facility reflecting the overall reduction in inventory levels primarily
due to the reduction in finished goods inventory. See "Liquidity and Capital
Resources". Interest income remained essentially the same between the two
years.
Income Tax Benefit
Income tax benefit was recorded at the statutory rate adjusted for permanent
differences primarily resulting from the amortization of goodwill. Income tax
benefit was $2.1 million for fiscal 1998, a decrease of $.9 million from an
income tax benefit of $3.0 million for fiscal 1997. The decrease in income tax
benefit was due to the decrease in taxable loss primarily attributed to higher
operating income as discussed above.
Net Loss
The net loss for fiscal 1998 was $8.3 million, a reduction of $1.2 million from
a net loss of $9.5 million in fiscal 1997. As discussed above, the reduction in
net loss is primarily due to the improvement in operating income and lower net
interest expense partially offset by a lower income tax benefit.
22
<PAGE>
Liquidity and Capital Resources
The Company's liquidity requirements result from capital investments, working
capital requirements, postretirement health care and pension funding, interest
expense, and, to a lesser extent, principal payments on its indebtedness. The
Company has met these requirements in each fiscal year since 1992 from cash
provided by operating activities and borrowings under its revolving credit
facility.
Cash used in operating activities was $4.4 million for fiscal 1999 compared to
cash provided by operating activities of $7.1 million in fiscal 1998. The
primary uses of cash flow in fiscal 1999 resulted from increases in accounts
receivable and inventory, reductions in income taxes payable and pension
obligations, and funding the Company's net loss. Cash flow used in operations
was partially offset by increases in accounts payable and accrued expenses,
reductions in other assets, and non-cash charges to operating income including
depreciation, amortization and non-cash postretirement expenses.
Accounts receivable levels at the end of fiscal 1999 were $2.9 million higher
than levels at the end of fiscal 1998 primarily due to the timing of sales at
the end of the fiscal year and an increase of $1.6 million in connection with
unbilled receivables for the A2 HUMVEE. These unbilled receivables represent
work performed by the Company for which a contract modification with the DoD has
not yet been finalized. The Company expects the contract modifications to be
completed during fiscal 2000.
Accounts payable levels at the end of fiscal 1999 were $4.9 million higher than
levels at the end of fiscal 1998. The increase in accounts payable is primarily
attributed to higher working capital requirements at year end.
Net inventory levels at the end of fiscal 1999 were $84.6 million or $13.0
million higher than net inventory levels of $71.6 million at end of fiscal 1998.
The increase in inventory is primarily attributed to management's desire to
assure uninterrupted production during the conversion to the new Enterprise
Resource Planning ("ERP") system. Raw material inventory levels were
intentionally increased beyond normal levels to ensure availability of parts.
The parts will be consumed by February 2000 and raw material will return to
normal operating levels.
For fiscal 1999, the Company spent $7.8 million on capital expenditures
primarily on the implementation of a new ERP system, tooling costs in connection
with vehicle production, and machinery and equipment, as compared to $4.5
million for fiscal 1998. The Company anticipates incurring capital expenditures
for fiscal 2000 of approximately $107.3 million; $90.0 million of which is in
connection with the construction of the New Facility. These capital expenditures
will be funded from the proceeds of the GM Loan. In addition, the Company
anticipates it will spend approximately $5.1 million on the acquisition of the
HUMMER/HUMVEE manufacturing facility. The Company has secured a financing source
for the acquisition of this property. To ensure compliance with capital
expenditure covenants contained in the revolving credit facility, the Company
received an exemption for the construction of the New Facility and the purchase
of the existing HUMMER/HUMVEE facility. Additionally, the Company anticipates it
will spend approximately $12.2 million on vendor tooling, machinery and
equipment, and other capital requirements. The Company anticipates that these
capital requirements will be funded from operating cash flow, availability under
the revolving credit facility, and other permitted financing sources.
The Company anticipates capital expenditures in connection with the 6.5 liter
diesel engine project will approximate $.4 million in fiscal 2000. These
expenditures are primarily for non-production machinery and equipment and
leasehold improvements. The major tooling, conveyor systems, material handling
and testing equipment, and computer controls involved in the manufacture of
engines will be leased under an operating lease agreement from a third party.
The Company anticipates that additional capital requirements will be funded from
operating cash flow or availability under its current revolving credit facility.
With respect to the assembly facility for the New Vehicle, GM will lend the
Company an amount currently anticipated to exceed $200 million through a non-
interest bearing loan. The proceeds of the GM Loan will be used to finance the
New Facility.
To repay the GM Loan, the Company will repay to GM a pre-agreed portion of the
Assembly Fee received for assembling each New Vehicle. If New Vehicles are
ordered and assembled at the forecasted rate, the GM Loan would be repaid within
seven and one half years after the release of the New Vehicle. Except as
provided above,
23
<PAGE>
the Company is not required to repay the outstanding balance of
the GM Loan but it may elect to do so at any time. GM will have a lien on the
building and machinery and equipment purchased with the proceeds of the GM Loan
to secure its repayment.
On an annual basis, GM will have the option to convert all or any part of the
unpaid balances, if any, on the GM Loan into an equity interest in the Company
of not more than 40% of the voting stock of the Company for an amount
determined at the time of exercise of options purusant to previously established
procedures. Should the Company and GM fail to agree on a value, the GM
Transaction agreements contain a provision in which an independent third party
will assist in the valuation.
Under the Mandatory Purchase Offer provision of the Indenture for the 12.875%
Senior Notes dated as of April 27, 1995 (the "Indenture") the Company is
required to calculate Excess Cash Flow for each twelve month period beginning
May 1 and ending April 30. The Company made its calculation of Excess Cash
Flow, which indicated there was $6.5 million of Excess Cash Flow for the twelve-
month period ending April 30, 1999. In compliance with the provision of the
Indenture, in August 1999 the Company repurchased $6.5 million of the 12.875%
Senior Notes at a price equal to 101% of the principal amount plus any accrued
and unpaid interest. The Company funded the purchases with a combination of
cash flow from operating activities and the revolving credit facility.
Management anticipates that cash flow from operations as well as availability
under its revolving credit facility will be sufficient to finance the Company's
liquidity needs for the foreseeable future. The unused availability under the
revolving credit facility as of October 31, 1999 was $12.2 million.
Management continues to search for new business opportunities to improve
operating performance and liquidity. The Company has been actively engaged in
expanding its existing commercial product lines, developing military prototype
vehicles and competing for new military contracts, seeking international co-
production opportunities and acquiring other businesses.
The Company's revolving credit facility has a maximum borrowing limit of $60
million, is secured by a first lien on all of the Company's accounts receivable,
inventories and certain other assets, as defined in the applicable loan and
security agreement, and expires on October 30, 2001. As of October 31, 1999,
the Company had borrowings of $24.9 million outstanding under the revolving
credit facility. As of January 27, 2000, the Company's loan balance under the
revolving credit facility was $26.1 million.
The Revolving Credit Agreement contains numerous covenants and prohibitions that
will impose limitations on the liquidity of the Company, including requirements
that the Company satisfy certain financial ratios and limitations on the
incurrence of additional indebtedness. The indenture governing the outstanding
12-7/8% Senior Notes also imposes limitations on the incurrence of additional
indebtedness. The Revolving Credit Agreement and Indenture were amended in
December to permit the GM Transaction. The ability of the Company to meet its
debt service requirements and to comply with such covenants will be dependent
upon future operating performance and financial results of the Company, which
will be subject to financial, economic, political, competitive and other factors
affecting the Company, many of which are beyond its control.
On July 16, 1996, the Company was cited by the Defense Contract Audit Agency
("DCAA") for noncompliance with Cost Accounting Standards as they relate to the
allocation of overhead expenses. DCAA issued a cost impact audit report dated
June 22, 1999 which asserted that the overhead allocation method used by the
Company resulted in a $25.3 million overcharge to the Government on vehicles
produced and delivered under the R021 and X001 contracts through March 31, 1999.
The Company maintains its position that its method of cost allocation is
consistent with cost accounting regulations. Further, the Company provided to
DCAA an analysis that indicates that the use of its overhead allocation method
allocates a lower portion of overhead costs to military vehicles than would be
allocated using other methods. The Company has entered into a teaming
arrangement with selected members of TACOM, DCAA and Defense Contract Management
Command ("DCMC") to arrive at a resolution. The Company has also submitted a
formal impact statement dated January 3, 2000 to the Government, which indicates
that the Government was not harmed by the Company's use of this overhead
allocation method. It further emphasizes that the overhead allocation method
used by the Company benefits the Government by reducing the price paid for
military vehicles. The Company plans to aggressively contest the Governments
position and believes it will prevail, however there can be no assurances as to
the final resolution. An adverse decision on this claim could have a material
adverse effect on the Company.
24
<PAGE>
Year 2000 Business Matters
The Company began addressing the Year 2000 issue in September 1997. As a result
of management's timely reaction to this issue, the Company successfully
completed the implementation of its new ERP system and solved its Year 2000
issues. By September 1999 the Company had completed implementation of all its
critical business systems. To date, the Company has not experienced any
significant Year 2000 related computer problems.
Inflation and Seasonality
In general, the Company's cost of sales and SG&A expenses are affected by
inflation and the effects of inflation may be experienced by the Company in
future periods. Management believes that since 1992, such effects have not been
material to the Company.
The Company's business generally is not seasonal except for a scheduled two-week
plant closure during July to accommodate annual maintenance requirements.
Impact of New Accounting Pronouncements
In April 1998, the AICPA Accounting Standards Executive committee issued
Statement of Position 98-5, Reporting on the Costs of Start-up Activities (SOP
98-5). SOP 98-5 is applicable to all non-governmental entities and requires
that costs of start-up activities, including organization costs, be expensed as
incurred. All start-up costs previously capitalized are required to be fully
amortized effective with adoption of SOP 98-5. Except for certain specified
investment companies, SOP 98-5 is effective for financial statements for fiscal
years beginning after December 15, 1998. Restatement of previously issued
financial statements is not permitted. Except for certain specified investment
companies, initial application of the SOP should be as of the beginning of the
fiscal year in which the SOP is first adopted and should be reported as the
cumulative effect of a change in accounting principle as described in APB
Opinion No. 20, Accounting Changes. The Company plans to adopt SOP 98-5 in its
fiscal year 2000 and has estimated that it will result in a cumulative effect
expense of $1.1 million.
Forward-Looking Statements
This report includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, which involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company to differ materially
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such risks, uncertainties and other important
factors include, among others: general economic and business conditions; funding
for US Military HUMVEE orders; volume of US Government, international and
commercial orders for HUMMER/HUMVEEs and other products; volume of orders for
6.5 liter diesel engines, the volume of orders for the New Vehicle in connection
with the GM Transaction, the ability to complete the New Facility within the
limits of the GM Loan, the outcome of the FMTV competition; the outcome of
pending litigation; the loss of any significant customers; the loss of any major
supplier; and the availability of qualified personnel. These forward-looking
statements speak only as of the date of this report. The Company expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstance on which any forward-looking statement is based.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact the financial position,
results of operations or cash flows of the Company due to adverse changes in
market prices and rates. The Company is exposed to market risk from interest
rate changes primarily due to its revolving credit facility used for maintaining
liquidity, funding capital expenditures and expanding operations. The Company's
revolving credit facility bears interest at prime plus a negotiated margin,
therefore any borrowings outstanding will approximate fair market value at all
times. The Company believes fluctuations in interest rates will not have a
material adverse impact on its results of operations over the next year.
25
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index To Financial Statements
- --------------------------------------------------------------------------------
Page
Independent Auditors' Report 27
Consolidated Balance Sheets as of October 31, 1998 and 1997 28
Consolidated Statements of Operations
For the years ended October 31, 1998, 1997, and 1996 29
Consolidated Statements of Stockholder's Deficit and
Comprehensive Income (Loss)
For the years ended October 31, 1998, 1997, and 1996 30
Consolidated Statements of Cash Flows
For the years ended October 31, 1998, 1997, and 1996 31
Notes to Consolidated Financial Statements 32
26
<PAGE>
Independent Auditors' Report
The Board of Directors
AM General Corporation:
We have audited the consolidated financial statements of AM General Corporation
and subsidiaries as listed in the accompanying index to financial statements.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AM General
Corporation and subsidiaries as of October 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended October 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Indianapolis, Indiana
January 7, 2000
27
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1999 and 1998
(Dollars amounts in thousands, except share information)
<TABLE>
<CAPTION>
Assets 1999 1998
------------- -------------
<S> <C> <C>
Current assets:
Cash $ 1,081 2,687
Accounts receivable, net 77,081 74,211
Inventories 84,589 71,613
Prepaid expenses and other assets 984 1,170
Deferred income taxes 6,210 6,746
------------- -------------
Total current assets 169,945 156,427
Income taxes receivable 4,752 1,585
Property, plant, and equipment, net 43,858 41,684
Deferred income taxes 26,388 26,113
Goodwill, net 75,012 79,298
Other assets 5,838 9,658
------------- -------------
$ 325,793 314,765
============= =============
Liabilities and Stockholder's Deficit
Current liabilities:
Accounts payable $ 37,425 32,494
Accrued expenses 71,163 67,869
------------- -------------
Total current liabilities 100,363
Long-term debt 92,805 82,156
Postretirement benefits other than pensions, noncurrent portion 160,403 154,362
Other liabilities, noncurrent portion 8,064 11,930
------------- -------------
Total liabilities 369,860 348,811
------------- -------------
Stockholder's deficit:
8% cumulative preferred stock, $1,000 par value. Authorized
10,000 shares; issued and outstanding 5,000 shares 5,000 5,000
Common stock, $.01 par value. Authorized 1,000 shares; issued
and outstanding 900 shares -- --
Paid-in capital 1,000 1,000
Accumulated deficit (50,067) (39,818)
Accumulated other comprehensive loss - minimum pension liability -- (228)
------------- -------------
Total stockholder's deficit (44,067) (34,046)
Commitments and contingencies (notes 6 and 14)
------------- -------------
$ 325,793 314,765
============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
(Continued)
28
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended October 31, 1999, 1998, and 1997
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 348,187 392,785 468,173
----------- ----------- -----------
Cost and expenses:
Cost of sales 310,774 344,327 424,967
Depreciation and amortization 10,881 13,166 12,713
Selling, general, and administrative expenses 31,203 27,701 26,172
Special termination benefits -- -- 152
Plant closing and restructuring (2,664) 5,231 3,495
----------- ----------- -----------
Income (loss) before interest and income taxes (2,007) 2,360 674
Interest income 389 327 280
Interest expense (11,508) (13,163) (13,508)
----------- ----------- -----------
Loss before income taxes (13,126) (10,476) (12,554)
Income tax benefit (2,877) (2,161) (3,013)
----------- ----------- -----------
Net loss $ (10,249) (8,315) (9,541)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
29 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholder's Deficit and Comprehensive Income (Loss)
For the years ended October 31, 1999, 1998, and 1997
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
8% Accumulated Total
cumulative other stock-
preferred Common Paid-in comprehensive Accumulated holder's
stock stock capital income (loss) deficit deficit
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1996 $ 5,000 -- 1,000 -- (21,962) (15,962)
Net loss -- -- -- -- (9,541) (9,541)
------------- ------------- ------------- ------------- ------------- -------------
Balance at October 31, 1997 5,000 -- 1,000 -- (31,503) (25,503)
Comprehensive loss:
Net loss -- -- -- -- (8,315) (8,315)
Minimum pension -- -- -- (228) -- (228)
-------------
Total comprehensive loss (8,543)
------------- ------------- ------------- ------------- ------------- -------------
Balance at October 31, 1998 5,000 -- 1,000 -- (39,818) (34,046)
Comprehensive loss:
Net loss -- -- -- -- (10,249) (10,249)
Minimum pension -- -- -- 228 -- 228
-------------
Total comprehensive loss (10,021)
------------- ------------- ------------- ------------- ------------- -------------
Balance at October 31, 1999 $ 5,000 -- 1,000 -- (50,067) (44,067)
============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
30 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended October 31, 1999,1998 and 1997
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities (note 20) $ (4,369) 7,113 38,663
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 8 15 2,818
Capital expenditures (7,760) (4,535) (2,431)
----------- ----------- -----------
Net cash provided by (used in) investing activities (7,752) (4,520) 387
Cash flows from financing activities:
Net borrowings (repayments) under line-of-credit agreement 17,093 (1,096) (43,727)
Principal payments on 12-7/8% senior notes (6,578) -- --
----------- ----------- -----------
Net cash provided by (used in) financing activities 10,515 (1,096) (43,727)
Net change in cash (1,606) 1,497 (4,677)
Cash and cash equivalents at beginning of year 2,687 1,190 5,867
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,081 2,687 1,190
=========== =========== ===========
Supplemental disclosure of cash items:
Interest paid $ 10,856 12,145 12,416
Taxes paid 97 495 453
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
31
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
The primary business of AM General Corporation (the Company) is to
manufacture Hummer(R)/Humvee(R) vehicles at its plant in Indiana.
Currently, the Company is manufacturing Humvee(R) vehicles for the
Department of Defense (DoD) under a multiple year requirements
contract extending through October 31, 2000 (with funds appropriated
through September 2000). The Company also sells Humvee(R) vehicles and
parts to friendly foreign nations through the DoD or on a direct
basis. AM General Sales Corporation, a wholly owned subsidiary of the
Company, sells Hummer(R) vehicles to the general public through its
network of forty-five domestic dealers and forty-two international
distributors at October 31, 1999. The Company also refurbished two and
one-half ton trucks, the Extended Service Program (ESP), for the DoD
through April, 1999 (See also note 16).
In June 1999, the Company acquired General Motors Corporation's (GM)
6.5 liter diesel engine business. Production of these engines will
begin in July 2000. The Company uses the GM 6.5 liter diesel in both
its Humvee(R) and Hummer(R) vehicles. GM's applications include some
vans, pickup and medium duty trucks. The agreement provides that the
Company will continue to supply service engines to GM's internal parts
distributor, Services Parts Operation, for a period of ten years. In
addition, the Company will build engines for its own requirements as
well as those of other customers that use the engine.
The mix of sales for each of the years in the three year period ended
October 31, 1999 is as indicated in the following analysis:
All of the Company's common and preferred stock is owned by The Renco
Group, Inc. (the Parent).
1999 1998 1997
-------- -------- --------
Hummer(R)/Humvee(R) vehicles 68 % 62 % 65 %
ESP 13 21 18
Service parts and other 19 17 17
(b) Principles of Consolidation
The consolidated financial statements include the financial statements
of AM General Corporation and its wholly owned subsidiaries, AM
General Sales Corporation, Chippewa Corporation and General Engine
Products, Inc. All significant intercompany balances and transactions
have been eliminated in consolidation.
(c) Cash Equivalents
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
32 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
(d) Inventories
Inventories are stated at the lower of standard cost or market.
Standard cost approximates first-in, first-out cost.
(e) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation on
plant and equipment is calculated on the straight-line method over the
estimated useful lives of the assets commencing in the year subsequent
to acquisition. Leasehold improvements are amortized over the shorter
of the lease terms or estimated useful lives of the assets using the
straight-line method.
Useful lives for property, plant, and equipment are as follows:
Buildings 40 years
Machinery, equipment,
and fixtures 10 to 12 years
Vehicles 5 years
Dealer signage 10 years
Tooling Units expected to be produced
(f) Goodwill
Goodwill, which represents the excess of purchase price over fair
value of net assets of the Hummer(R)/Humvee(R) and related businesses
acquired on April 30, 1992, is amortized on a straight-line basis over
25 years. Accumulated amortization was $32,148 and $27,862 at October
31, 1999 and 1998, respectively. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows. The amount
of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows. The assessments of the
recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved.
(g) Other Assets
The costs of the noncompete covenant and deferred loan costs (included
in other assets, see note 5) are amortized on a straight-line basis
over their estimated useful lives. The amortization of deferred loan
costs is included in interest expense.
(h) Accounts Payable
The Company utilizes a cash management system which incorporates a
zero balance disbursement account funded as checks are presented for
payment. Accounts payable includes checks issued in excess of book
balance of $3,969 and $5,246 at October 31, 1999 and 1998,
respectively.
33 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
(i) Revenue Recognition
Revenue under U.S. Government and foreign military fixed-price
production contracts relating to the sale of Humvee(R) vehicles is
recorded when specific contract terms are fulfilled and title passes
by either delivery or acceptance, with cost of sales recognized based
upon unit cost. Revenue under sales of commercial Hummer(R) vehicles
is recorded when vehicles are shipped and title passes to dealers.
Revenue under cost-reimbursement contracts is recorded as costs are
incurred and includes estimated earned fees in the proportion that
costs incurred to date bear to total estimated costs. The fees under
certain Government contracts may be increased or decreased in
accordance with cost or performance incentive provisions which measure
actual performance against established targets or other criteria. Such
incentive fee awards or penalties are included in revenue at the time
when realization is probable and the amounts can be reasonably
determined. Estimated losses on long-term contracts are recorded when
identified.
Sales and related cost of sales applicable to the fixed-price, initial
ESP contract were recognized as specific contract terms were fulfilled
under the percentage-of-completion method, measured on a units
produced basis. The initial ESP contract was completed in June 1998.
Revenue under the short-term, follow-on ESP contracts was recorded
when specific contract terms were fulfilled and title passed by either
delivery or acceptance, with cost of sales recognized based upon unit
cost.
(j) Research and Development
Research and development costs are expensed as incurred. Research and
development costs amounted to $4,129, $4,444 and $1,856 for the years
ended October 31, 1999, 1998 and 1997, respectively.
(k) Income Taxes
Through the fiscal year ended October 31, 1998, the Company and its
subsidiaries were included in the consolidated Federal income tax
return of the Parent. Federal income taxes are provided on a separate
company basis and remitted to the Parent in accordance with the tax
sharing agreement between the Company and its Parent. Under the tax
sharing agreement with the Parent, the Company will not benefit from
any net operating loss carryforwards unless the net operating loss
carryforward is generated by temporary differences for Federal income
tax purposes. For the fiscal year ended October 31, 1999 and
thereafter, the Company will file its own consolidated Federal and
state income tax returns.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted Federal and state tax rates expected to apply to taxable
income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
34 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
(l) Pension and Other Postretirement Plans
The Company has defined benefit pension plans covering substantially
all of its employees. Benefits for salaried employees are accumulated
each year at 1-1/2% of the participant's base salary for that year, up
to the social security integration base plus 2-1/4% of any base salary
in excess of the social security integration base for that same year.
Benefits for hourly employees are based on a negotiated rate per year
of service. The Company's policy is to fund the maximum amount
allowable under the U.S. Government cost accounting standards.
The Company has defined contribution 401(k) savings plans for all
nonunion salaried employees and substantially all hourly employees.
The Company has a welfare benefit plan which covers substantially all
hourly paid employees. The plan provides benefits to employees while
on layoff or when working less than 40 compensated or available hours
as defined by this plan. This plan provides for integration with state
unemployment compensation programs.
The Company sponsors defined benefit health care plans for
substantially all retirees and employees. The Company measures the
costs of its obligation based on its best estimate. The net periodic
costs are recognized as employees render the services necessary to
earn the postretirement benefits.
(m) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(n) Impairment of Long-lived Assets
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
35 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
(2) Accounts Receivable
Components of accounts receivable are as follows:
October 31,
-------------------
1999 1998
-------- --------
Receivables from the U.S. Government under
long-term contracts:
Amounts billed or billable $ 32,611 35,237
Recoverable costs accrued--not billed 1,939 1,806
Unrecovered costs subject to future negotiation 27,182 25,768
Commercial customers--amounts billed:
Foreign 5,297 4,552
Dealers 6,299 3,537
Service parts 303 32
Other receivables 3,800 3,629
-------- --------
77,431 74,561
Less allowance for doubtful accounts (350) (350)
-------- --------
$ 77,081 74,211
======== ========
Recoverable costs accrued--not billed--are comprised principally of revenue
amounts recognized on deliveries under contracts which were not billable at
the balance sheet date due to the timing provisions under the related
contracts.
Unrecovered costs subject to future negotiation primarily includes revenues
recognized on contracts under which changes were directed by customers.
Prices for these changes and for other related contract claims are
currently being negotiated with the customer.
Substantially all billed and unbilled receivables are expected to be
collected within the next 12 months.
36 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
(3) Inventories
Inventories consist of the following:
October 31
--------------------
1999 1998
-------- --------
Finished goods $ 30,010 $ 20,759
Service parts 20,850 16,946
Extended Service Program--Production costs
of goods currently in process -- 4,095
Raw materials, supplies, and work in progress 40,181 37,082
-------- --------
91,041 78,882
Less allowance for inventory obsolescence (6,452) (7,269)
-------- --------
$ 84,589 $ 71,613
======== ========
(4) Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
October 31
--------------------
1999 1998
-------- --------
Land $ 1,114 $ 1,115
Buildings 2,940 2,921
Machinery, equipment, and fixtures 30,572 22,840
Leasehold improvements 9,242 9,050
Vehicles 2,954 3,019
Construction in progress 859 2,590
Dealer signage 411 375
Tooling 56,169 58,292
-------- --------
107,261 100,202
Less accumulated depreciation and amortization (63,403) (58,518)
-------- --------
$ 43,858 $ 41,684
======== ========
Tooling, net of related amortization, of $9,868 and $10,098 at October 31,
1999 and 1998, respectively, was required for vehicles being sold to the
general public. This tooling is being amortized over 20,000 commercial
units expected to be sold which at the current rate of production will
extend for another 10 years.
37 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
(5) Other Assets
Other assets consist of the following:
October 31
--------------------
1999 1998
-------- --------
Noncompete covenant, net $ 2,573 $ 3,602
Deffered loan costs, net:
Senior notes due 2002 1,827 2,870
Revolving line-of-credit -- 67
Preproduction cost, net:
Commercial vehicles for the general public 1,070 1,129
Performance bonds -- 1,506
Other 368 484
-------- --------
$ 5,838 $ 9,658
======== ========
The noncompete covenant resulted from the acquisition of the
Hummer(R)/Humvee(R) business on April 30, 1992, and is being amortized over
ten years. Accumulated amortization was $7,719 and $6,690 at October 31,
1999 and 1998, respectively. Deferred loan costs were incurred in
connection with the revolving line-of-credit and the senior notes due 2002
and are being amortized over three and seven years, respectively.
Accumulated amortization was $4,014 and $3,636 at October 31, 1999 and
1998, respectively. Deferred loan costs include a $2,000 fee paid to the
Parent for services and assistance provided in connection with the
amendment of the revolving line-of-credit and the issuance of senior notes
due 2002.
Preproduction cost represents cost incurred prior to the production of the
related vehicle and includes labor and overhead relating to developing
production facilities. These costs are being amortized over the 20,000
estimated units to be sold to the general public. Accumulated amortization
was $1,539 and $1,480 at October 31, 1999 and 1998, respectively.
(6) Leases
The Company has several noncancelable operating leases for substantial
portions of the Company's plant and office facilities and machinery and
equipment. Leased plant and office facilities generally contain renewal
options. Rental expense for operating leases (except those with lease terms
of a month or less that were not renewed) for the years ended October 31,
1999, 1998 and 1997 aggregated approximately $5,365, $5,388, and $5,040,
respectively.
38 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of October 31,
1999 are:
Year ending October 31 Amount
---------------------- ----------
2000 $ 3,061
2001 2,770
2002 2,886
2003 2,946
2004 2,133
Thereafter 3,576
----------
Total minimum lease payments $ 17,372
==========
(7) Accrued Expenses
Components of accrued expenses are as follows:
<TABLE>
<CAPTION>
October 31
----------------------
1999 1998
-------- --------
<S> <C> <C>
Modifications payable $ 27,733 22,656
Current portion of other post employment benefits 6,700 6,000
Interest on senior notes 4,377 4,819
Warranty 4,918 4,373
Pension liability 5,706 4,293
Plant closing and restructuring reserve 699 4,058
Wages, bonuses, and payroll taxes 3,029 3,529
Taxes other than on income 3,608 3,045
Sales incentives 2,163 2,951
Vacation 2,614 2,945
Insurance 2,968 2,375
Purchase requirements 132 682
Management fee due to the Parent 100 100
Other 6,416 6,043
-------- --------
$ 71,163 67,869
======== ========
</TABLE>
39 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
(8) Long-term Debt
Long-term debt consists of:
<TABLE>
<CAPTION>
October 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Revolving line-of-credit, interest at prime plus 3/4% and 1-3/4%
respectively, 9.0% and 10.0% at October 31, 1999
and 1998, respectively, payable in full on OCtober 30, 2001 $ 24,947 $ 7,854
12-7/8% senior notes due 2002, originally discounted $402 to
yield 13% interest payable semi-annually on May 1 and
November 1 67,858 74,302
--------- ---------
92,805 82,156
Less current maturities of long-term debt - -
--------- ---------
$ 92,805 82,156
========= =========
</TABLE>
The revolving credit agreement (the Agreement) permits the Company to
borrow amounts based on percentages of qualifying accounts receivable and
inventories up to a maximum of $60,000. The amount that was available at
October 31, 1999 and 1998 was approximately $12,200 and $44,685,
respectively. The Agreement is secured by a first lien on all of the
Company's accounts receivable, inventories and certain other assets.
Interest is due monthly; there is a monthly commitment fee of one-half of
1% on the unused credit commitment and a prepayment penalty for early
termination.
The senior notes are unsecured and are redeemable at a premium at the
Company's option after May 1, 1999 and at the face amount after May 1,
2001. The Company will be obligated to offer to repurchase senior notes at
a price of 101% of the face amount if there is a change in control or if at
the end of each twelve month period ended April 30, the Company has excess
cash flow, as defined. During fiscal 1999, senior notes with a face amount
of $6,513 were repurchased as a result of an offer required because of
excess cash flow, as defined, for the twelve-month period ended April 30,
1999. In fiscal 1998 and 1997, the Company was not required to repurchase
any bonds.
The various debt agreements contain restrictions on mergers, incurring
additional debt or liens, making investments, selling assets or making
payments such as dividends, stock repurchases, or debt prepayments and
payments of any kind to affiliates. The revolving credit agreement also
contains various financial covenants such as working capital and net worth.
At October 31, 1999, the Company was in compliance with all the financial
covenants.
Under the most restrictive covenant in any agreement, no amount was
available for payment of dividends at October 31, 1999 and 1998.
40 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
The Company's outstanding letters of credit totaled $4,994 and $6,663 at
October 31, 1999 and 1998, respectively. Of this amount, $2,141 and $4,281
at October 31, 1999 and 1998, respectively, were securing advance deposits
received from customers for foreign sales and other cash collateralized
letters of credit. The cash received has been pledged as security for the
letters of credit.
(9) Other Liabilities
October 31
---------------------
1999 1998
-------- --------
Pension liability $ 2,253 $ 6,252
Other 5,811 5,678
-------- --------
$ 8,064 $ 11,930
-------- --------
(10) Preferred Stock
The preferred stock of the Company, all of which is held by the Parent, is
entitled to receive cumulative preferential cash dividends at an annual
rate of 8%. Undeclared preferred stock dividends in arrears at October 31,
1999 and 1998 were $1,800 and $1,400, respectively. The shares have no
voting rights on any matter, except as specifically required by law.
The preferred shares are redeemable by the Company at its option, subject
to compliance with long-term debt covenants, at the par value thereof plus
any accrued and unpaid dividends. Preferred shares have preference in
liquidation or dissolution of the Company over common shares to the extent
of the par value of the preferred shares plus any accrued and unpaid
dividends thereon.
(11) Income Tax
Total income taxes were allocated as follows:
October 31
--------------------------------
1999 1998 1997
-------- -------- --------
Income from continuing operations $ (2,877) (2,161) (3,013)
Stockholder's deficit, for minimum
pension liability 140 (140) --
-------- -------- --------
$ (2,737) (2,301) (3,013)
======== ======== ========
41 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollars amounts in thousands)
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
October 31
-------------------------------------------
1999 1998 1997
---------- ----------- ------------
<S> <C> <C> <C>
Current:
Federal $ (3,168) (206) 2,643
State 169 212 953
Deferred:
Federal 15 (1,904) (6,088)
State 107 (263) (521)
---------- ----------- ------------
$ (2,877) (2,161) (3,013)
========== =========== ============
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. Federal income tax rate of 35% to pretax income as a result of the
following:
<TABLE>
<CAPTION>
October 31
-------------------------------------------
1999 1998 1997
---------- ----------- ------------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $ (4,594) (3,666) (4,394)
Increase (reduction) in income taxes
resulting from:
Amortization of goodwill 1,500 1,500 1,500
State income taxes, net of Federal
income tax benefit 179 (34) 98
Foreign sales corporation effect -- -- (172)
Other, net 38 39 (45)
---------- ----------- ------------
$ (2,877) (2,161) (3,013)
========== =========== ============
</TABLE>
42 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollars amounts in thousands)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at October
31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
October 31
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets: $ 133 133
Allowance for doubtful accounts receivable 2,447 2,762
Inventory obsolescence reserve
Compensated absences, principally due to accrual for
financial reporting purposes 991 1,119
Accrued warranty 2,709 2,537
Pension liability 2,435 3,895
Postretirement benefits other than pensions 63,374 60,938
Other accruals 4,054 5,050
Other 209 151
--------- ---------
Total gross deferred tax assets 76,352 76,585
Less valuation allowance 38,348 38,348
--------- ---------
Net deferred tax assets 38,004 38,237
--------- ---------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation 5,274 5,318
Reduced costs inventoried for tax purposes pursuant
to the Tax Reform Act of 1986 132 60
--------- ---------
Total gross deferred liabilities 5,406 5,378
--------- ---------
Net deferred asset 32,598 32,859
Less current portion 6,210 6,746
--------- ---------
Noncurrent portion $ 26,388 26,113
========= =========
</TABLE>
43 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
There was no change in the valuation allowance for the years ended
October 31, 1999, 1998 and 1997. Subsequently realized tax benefits
relating to the valuation allowance for deferred tax assets will be
allocated to goodwill. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. Based upon
the level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize
the benefits of these deductible differences, net of the existing
valuation allowances at October 31, 1999. The amount of the deferred tax
asset considered realizable, however, could be reduced if estimates of
future taxable income are reduced.
Income taxes receivable represent amounts due from the Parent for Federal
income tax overpayments; it is anticipated such amount will be recovered
from the Parent as tax payments based on future taxable income are
required.
(12) Pension Benefits
The Company has defined benefit pension plans (Defined Benefit Plans)
covering substantially all of its employees. The following table sets
forth the Defined Benefit Plans' funded status and amounts recognized in
the Company's consolidated balance sheet at October 31, 1999 and 1998:
1999 1998
---------- ----------
Change in benefit obligation
Benefit obligation at beginning of year $ 132,758 116,636
Service cost 2,945 2,508
Interest cost 9,149 8,578
Actuarial (gain) loss (9,280) 7,382
Amendments -- 5,332
Benefits paid (7,678) (6,920)
(Gain) loss due to curtailments -- (758)
---------- ----------
Benefit obligations at end of year $ 127,894 132,758
========== ==========
44 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Change in plan assets
Fair value of plan assets at beginning of year $ 140,475 127,306
Actual return on plan assets 22,247 18,517
Employer contribution 4,312 1,572
Benefits paid (7,678) (6,920)
----------- -----------
Fair value of plan assets at end of year 159,356 140,475
----------- -----------
Funded status 31,462 7,717
Unrecognized prior service cost 6,104 7,111
Unrecognized net actuarial (gain) (45,525) (25,373)
----------- -----------
Net amount recognized $ (7,959) (10,545)
=========== ===========
Amounts recognized in the statement of financial
position consist of:
Accrued benefit liability $ (7,959) (10,177)
Accumulated other comprehensive income -- (368)
----------- -----------
Net amount recognized $ (7,959) (10,545)
=========== ===========
Weighted-average assumption as of October 31
Discount rate 7.75% 7.00%
Expected return on plan assets 8.50% 8.50%
Rate of compensation increase 5.00% 5.00%
Components of net periodic benefit cost
Service cost $ 2,945 2,507
Interest cost (9,149) 8,578
Expected return on plan assets (10,532) (9,816)
Recognized actuarial gain (88) (389)
Amortization of prior service cost 1,007 662
Curtailment gain (386) (758)
Amortization of prior service cost on curtailment -- 1,958
----------- -----------
Net periodic benefit cost $ 2,095 2,742
=========== ===========
</TABLE>
At October 31, 1999, the fair value of plan assets for all of the
Company's defined benefit plans exceeded the respective benefit
obligations. At October 31, 1998, the fair value of plan assets and
benefit obligations of plans with benefit obligations in excess of plan
assets were $80,422 and $84,194, respectively.
45 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
Substantially all employees can participate in one of two defined
contribution plans sponsored by the Company. Hourly employees may deposit
the value of certain benefits and awards into their plan which the
Company then matches. Salaried employees may make contributions which the
Company matches at a rate of 50% to a maximum 3% of the employee's base
compensation. Company contributions charged to expense were approximately
$310, $325 and $380 for the years ended October 31, 1999, 1998 and 1997,
respectively.
(13) Other Postretirement Benefit Plans
In addition to the Company's defined benefit pension plans, the Company
sponsors defined benefit health care plans (Health Plans) that provide
postretirement medical and life insurance benefits to employees who meet
minimum age and service requirements. The Health Plans are
noncontributory. The Health Plans contain other cost-sharing features
such as deductibles and coinsurance. The Company's policy is to fund the
cost of medical benefits as incurred.
The following table presents the related amounts recognized in the
Company's consolidated balance sheets at October 31, 1999 and 1998:
1999 1998
---------- ----------
Change in benefit obligation
Benefit obligation at beginning of year $ 151,160 129,335
Service cost 2,305 1,868
Interest cost 10,357 9,485
Amendments -- 614
Actuarial (gain) loss (14,736) 15,477
Benefits paid (5,970) (5,619)
---------- ----------
Benefit obligations at end of year 143,116 151,160
Unrecognized prior service cost (565) (614)
Unrecognized net gain 24,552 9,816
---------- ----------
Accrued benefit cost $ 167,103 $ 160,362
========== ==========
Components of net periodic benefit cost
Service cost $ 2,305 $ 1,868
Interest cost 10,357 9,845
Prior service cost recognized 49 --
Amortization of unrecognized net gain -- (1,075)
---------- ----------
Net periodic benefit cost $ 12,711 10,278
========== ==========
For measurement purposes, a 7.0% and 7.5% annual rate of increase in the
per capita cost of covered benefits was assumed for fiscal 1999 and 1998,
respectively; the rate was assumed to decrease gradually to 5.5% by the
year 2003 and remain at that level thereafter.
46 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% and 7.00% at October 31, 1999
and 1998.
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost
trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of October 31, 1999 by
$19,675 and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost would increase for the year ended
October 31, 1999 by $2,132. Decreasing the assumed health care cost trend
rates by one percentage point in each year would decrease the accumulated
postretirement benefit obligation by $16,013 and the aggregate of the
service and interest cost components of net periodic postretirement benefit
cost would decrease for the year ended October 31, 1999 by $1,697.
(14) Commitments and Contingencies
A portion of the Company's contracts and subcontracts contain terms which
provide for price adjustments. Such adjustments, if any, are not expected
to have a significant effect on the accompanying consolidated financial
statements.
In 1999, the Company settled, for $125, an approximately $8 million claim
made by the US Army in January 1995 under a contract entered into in 1983.
On July 16, 1996, the Company was cited by the Defense Contract Audit
Agency (DCAA) for noncompliance with Cost Accounting Standards as they
relate to the allocation of overhead expenses. DCAA issued a cost impact
audit report dated June 22, 1999 which asserted that the overhead
allocation method used by the Company resulted in a $25,300 overcharge to
the Government on vehicles produced and delivered under the R021 and X001
contracts through March 31, 1999. The Company maintains its position that
its method of cost allocation is consistent with cost accounting
regulations. The Company has entered into a teaming arrangement with
selected representatives of the DCAA and other government contracting
agencies to arrive at a resolution. The Company plans to aggressively
contest the findings of the DCAA report and believes it will prevail.
Accordingly, the Company has not accrued any liability associated with this
potential claim. However, there can be no assurances as to the final
resolution. An adverse decision on this claim could have a material adverse
effect on the Company.
The Company, in the ordinary course of business, is the subject of or party
to various pending or threatened litigation. While it is not possible to
predict with certainty the outcome of these matters, management of the
Company believes that any liabilities resulting from such litigation would
not materially affect the financial position of the Company.
(Continued)
47
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
Payment for sales to commercial Hummer(R) dealers are generally obtained
within five days of delivery by drafts issued against the dealers'
wholesale floorplan accounts. Units wholesaled by the Company under these
accounts are subject to either voluntary or mandatory repurchase agreements
between the Company and four wholesale floorplan creditors. Such agreements
either permit or require the Company to repurchase, at not more than dealer
cost, new, unsold units in the dealers' inventories in the event of
repossession by the dealers' wholesale floorplan lenders. At October 31,
1999 and 1998, the mandatory repurchase agreements covered Hummers(R) with
a total value at dealer cost of $6,797 and $5,907, respectively. The
Company has not repurchased any vehicles under these arrangements.
In the ordinary course of business, the Company has entered into
contractual commitments related to purchases of materials, capital
expenditures, and leases.
(15) Related-party Transactions
During the years ended October 31, 1999, 1998 and 1997, the Company
incurred annual management fees to the Parent of $1,200; $100 of which is
included in accrued expenses at October 31, 1999 and October 31, 1998.
Under the current management consultant agreement between the Company and
the Parent, the monthly fee to the Parent is $100 with the potential for
additional amounts dependent on the Company achieving certain levels of
earnings.
(16) Business and Credit Concentrations
The Company's largest customer is the DoD, which accounted for 70%, 75% and
79% of the Company's sales for the years ended October 31, 1999, 1998 and
1997, respectively. At October 31, 1999, 1998 and 1997, accounts receivable
with the DoD were $61,732, $62,811 and $41,758, respectively.
Export sales to unaffiliated foreign customers, including sales to friendly
foreign nations, were $31,014, $42,509 and $80,951 for the years ended
October 31, 1999, 1998 and 1997, respectively.
The Company's business is significantly impacted by the United States
defense budget. If the U.S. reduces budget allocations for defense
expenditures, sales could be adversely affected. Foreign sales are
dependent on periodic receipt of a relatively few, individually significant
contracts and are negatively impacted by a reduction in foreign demand or
material adverse changes in the U.S. Government foreign military sales
program. The commercial market is impacted by the general economy and
interest rates. Changes in the marketplace of any of the above may
significantly affect management's estimates and the Company's performance.
(Continued)
48
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
The Company is dependent upon certain vendors for the manufacture of
significant components of its Hummer(R)/Humvee(R) vehicles. If these
vendors were to become unwilling or unable to continue to manufacture these
products in required volumes, the Company would have to identify and
qualify acceptable alternative vendors. The inability to develop alternate
sources, if required in the future, could result in delays or reductions in
product shipments. However, the Company has not experienced any significant
problems relative to timeliness, quality or availability of sole-sourced
products. The Company's hourly employees at the Mishawaka
Hummer(R)/Humvee(R) and SPLO operations are represented by the
International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America ("UAW") with a collective bargaining agreement
expiring in September 2001. A new labor agreement (also with UAW) has been
negotiated in connection with the GM Transaction (see note 21). The new
agreement was ratified in August 1999 and will expire in September 2009.
The hourly employees for the new engine production facility will be
represented by the International Union of Electrical Workers ("IUE") and
upon recognition of the contract, the initial agreement will be for six
years.
(17) Plant Closing and Restructuring
The Company completed production under its ESP contract in April 1999 at
which time production at the facility ceased and plant closure operations
commenced. The Company recorded a plant closing charge of $5,231 in the
year ended October 31, 1998. The major components of the plant closing
charge were $2,958 of severance benefits for 277 hourly and 23 salaried
employees, $1,200 of additional pension expense due to curtailment of
certain defined benefit pension plans, and $1,073 of plant shutdown and
other charges. Included in accrued expenses at October 31, 1999, is the
remaining plant closing reserve of $699. Upon completion of the plant
closing, the Company recognized a gain of approximately $2,664 due to
reversal of accrued severance benefits and other plant closing costs due to
lower than anticipated layoffs and other savings.
In recent years, the Company has also experienced reductions in the U.S.
defense budget for Humvee(R) vehicles, reduced direct international sales
of Humvee(R) vehicles, and lower sales volume and higher costs than
expected in the commercial Hummer(R) vehicle program. In order to address
these issues which impact operating results and liquidity, the Company
reduced its Humvee(R)/Hummer(R) vehicle production rate in February, 1997,
from 25 to 16.5 units per day, eliminated certain corporate overhead
positions, outsourced production of certain components and closed its
stamping plant, resulting in a restructuring charge of $3,495 for the year
ended October 31, 1997. The major components of the restructuring charge
were $2,820 for employee severance costs, $1,141 of additional pension
expense due to curtailment of certain defined benefit pension plans, a
$2,597 write-down to fair value of property, plant and equipment to be
disposed of and $1,353 of plant shutdown and other charges. These costs
were partially offset by a $4,416 gain on curtailment of the Company's
other postretirement benefit plan due to the workforce reduction. The
stamping facility equipment was sold during fiscal 1997.
(18) Disclosures About the Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, income taxes receivable,
accounts payable and accrued expenses approximates fair value because of
the short maturity of these financial instruments.
(Continued)
49
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
The revolving line-of-credit approximates fair value because the interest
rate fluctuates with prime. The Company's senior notes are not actively
traded. However, management believes the fair value of the senior notes at
October 31, 1999 and 1998, approximates the par value.
(19) Segment Reporting
The Company identifies segments based on management responsibility within
the organization. The Company classifies its operations into five business
segments: (i) HUMMER/HUMVEEs, (ii) Medium Trucks, (iii) Spare Parts
Logistics Operations (SPLO), (iv) Systems Technical Support (STS)/Other,
and (v) Engines. The HUMMER/HUMVEE classification includes US and Foreign
Military Humvees(R) and commercial Hummers(R).
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Management of the Company
does not prepare or review balance sheet information on a segment basis.
The Company measures segment profit as gross profit (sales less cost of
sales). A reconciliation of net sales and gross profit are as follows (in
millions):
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------------------------------------------
HUMMER/ Medium STS/
HUMVEE Trucks SPLO Other Engines Total
---------------------- ---------- ---------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 236.3 45.6 51.4 14.9 -- 348.2
Gross Profit 22.7 7.8 6.0 1.6 (0.7) 37.4
1998
----------------------------------------------------------------------------------------------------------
HUMMER/ Medium STS/
HUMVEE Trucks SPLO Other Engines Total
---------------------- ---------- ---------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 244.7 85.0 50.7 12.4 -- 392.8
Gross Profit 28.4 19.5 6.5 (5.9) -- 48.5
1997
----------------------------------------------------------------------------------------------------------
HUMMER/ Medium STS/
HUMVEE Trucks SPLO Other Engines Total
--------------------- ---------- ---------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 303.8 77.3 51.0 36.1 -- 468.2
Gross Profit 40.3 0.2 6.0 (3.3) -- 43.2
</TABLE>
50 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollar amounts in thousands)
(20) Reconciliation of Net Loss to Net Cash Provided by (Used in) Operating
Activities
The reconciliation of net loss to net cash provided by operating
activities for the years ended October 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
October 31
----------------------------------------
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (10,249) (8,315) (9,541)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Plant closing and restructuring (2,664) 5,231 3,495
Less plant closing and restructuring
payments (1,895) (2,412) (720)
Depreciation and amortization of
plant and equipment 5,551 7,835 7,378
Other amortization 6,252 6,292 6,371
Decrease in allowance for
doubtful accounts -- -- (48)
Increase (decrease) in inventory reserve (817) 2,862 705
Deferred income taxes 261 (2,307) (6,609)
Discount accretion of debt 56 57 57
Noncash other postretirement cost 6,741 4,660 5,359
Loss (gain) on sale of equipment 23 (11) (6)
Change in assets and liabilities:
Accounts receivable (2,869) (21,551) 4,513
Inventories (12,154) 12,756 33,782
Prepaid expenses 185 489 17
Other assets 1,752 208 549
Accounts payable 4,931 (1,290) (25,428)
Accrued expenses 7,081 4,175 15,235
Income taxes (3,095) (489) 3,278
Other liabilities (3,459) (1,077) 276
--------- --------- ---------
Net cash provided by (used in)
operating activities $ (4,369) 7,113 38,663
========= ========= =========
</TABLE>
51 (Continued)
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(Dollars 31, 1999 and 1998)
(21) Subsequent Events
On December 21, 1999, the Company completed a series of agreements with
General Motors Corporation (GM) through which the Company intends to more
fully utilize the widespread recognition of the Hummer(R) name to
generate incremental revenues and cash flow (the GM Transaction).
Pursuant to the terms of the GM Transaction, GM will, design, engineer,
certify and release a new generation vehicle bearing the Hummer(R)
trademark (New Vehicle). GM has retained the Company to assemble the New
Vehicles for a specified fee which varies with sales volumes (Assembly
Agreement). The Company has the right to assemble GM's requirements, up
to the first 40,000 units annually for a seven and one half year period
effective with the release of the New Vehicle anticipated to be in 2002.
As part of the GM Transaction, the Company assigned the Hummer(R)
trademark and trade name to GM. However, GM has granted the Company a
limited license that allows the Company to continue using the Hummer(R)
trademark for its current vehicle for the duration of the Assembly
Agreement.
With respect to the assembly facility for the New Vehicle, GM will lend
the Company an amount currently anticipated to exceed $200 million
through a non-interest bearing loan for the engineering and construction
of a new production facility, the purchase of certain machinery and
equipment, and all other costs required for the Company to become
prepared to assemble the New Vehicle. In accordance with the terms of the
GM Transaction, the Company is prohibited from using the new facility for
any purpose other than assembly of the New Vehicle. To repay the loan,
the Company will pay to GM a pre-agreed portion of the fees received for
assembling each New Vehicle. The loan is secured by the building and
machinery and equipment purchased with the loan proceeds. Except as
provided above, the Company is not required to repay the outstanding
balance of the loan, but it may elect to do so at any time.
On an annual basis, GM will have the option to convert all or any part of
the unpaid balances, if any, on the GM Loan into an equity interest in
the Company of not more than 40% of the voting stock of the Company for
an amount determined at the time of exercise of options pursuant to
previously established procedures.
52 (Continued)
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
53
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table lists the director and executive officers of the Company as
of January 28, 2000:
<TABLE>
<CAPTION>
Name Age Position
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Ira Leon Rennert 65 Chairman and sole Director of the Company
James A. Armour 56 President and Chief Executive Officer
Edmond L. Peters 55 Senior Vice President, Procurement and Business Development
Adare Fritz 53 Senior Vice President, Operations
Robert J. Gula 53 Senior Vice President, Engineering and Product Development
Paul J. Cafiero 46 Vice President and Chief Financial Officer
Francis R. Scharpf 61 Vice President, Medium Truck Programs and Business Development
Ricky R. Smith 41 Vice President, Manufacturing Engineering and Special Projects
Walter R. Botich 50 Vice President, Corporate Quality
</TABLE>
Ira Leon Rennert has been the Chairman and sole Director of the Company since
1991. The Company acquired the HUMMER/HUMVEE business in 1992 (the
"Acquisition"). Mr. Rennert has been Chairman, Chief Executive Officer and
principal shareholder of Renco (including predecessors) since its first
acquisition in 1975. Renco holds controlling interests in a number of
manufacturing and distribution concerns operating in businesses not competing
with the Company including WCI Steel, Inc., Doe Run, Inc., Lodestar Holdings,
Inc.,and Renco Metals, Inc.
James A. Armour has been President and Chief Executive Officer of the Company
since April 30, 1992 when the Company acquired the HUMMER/HUMVEE business.
Prior thereto, Mr. Armour was President of the former AM General Corporation
since November 1988 and held various other positions prior thereto, including
Vice President and HUMVEE Program Manager, Corporate Director, Quality
Assurance, and Vice President, Materials and Quality Assurance. Mr. Armour has
been with the Company and its predecessor companies for the past 27 years.
Prior thereto, Mr. Armour held various positions with American Motors
Corporation and Ford Motor Company.
Edmond L. Peters has been Senior Vice President Procurement and Business
Development since November 1, 1997. Mr. Peters previously held the position of
Senior Vice President, Contracts Materials and Washington Operations since
October 1, 1996 and Vice President, Contracts & Subcontracts since April 30,
1992. Mr. Peters previously held the position of Director-Purchasing. Mr.
Peters has been with the Company and its predecessor companies for the past 15
years.
Adare Fritz has been Senior Vice President, Operations since April 30, 1992.
Mr. Fritz previously held the position of Vice President, Operations. Mr. Fritz
has been with the Company and its predecessor companies for the past 31 years.
Robert J. Gula has been Senior Vice President, Engineering and Product
Development since November 1, 1997. Mr. Gula previously held the position of
Vice President, Engineering since April 30, 1992. Mr. Gula has been with the
Company and its predecessor companies for the past 28 years. Prior to joining
AM General, Mr. Gula held technical positions within several engineering
services and automotive manufacturing companies.
Paul J. Cafiero has been Vice President and Chief Financial Officer since May 1,
1997. Mr. Cafiero previously held the position of Corporate Controller since
April 30, 1992. Mr. Cafiero previously held the position of Assistant
Controller. Mr. Cafiero has been with the Company and its predecessor companies
for the past 15 years.
54
<PAGE>
Francis R. Scharpf has been Vice President, Medium Truck Programs and Business
Development since June 1, 1998. On March 18, 1996, he was named Executive
Assistant to the President and CEO. Prior to this, he held various positions
involving program management and business planning. Mr. Scharpf has been with
the Company and its predecessor companies for the past 17 years. Before joining
AM General, Mr. Scharpf was a career military officer having served in the US
Army in various command positions.
Ricky R. Smith has been Vice President, Manufacturing Engineering and Special
Projects since November 1, 1999. Previously he held the positions of Director,
Manufacturing Engineering and Plant Manager for the Mishawaka operations. Mr.
Smith has been with the Company and its predecessor companies for the past 19
years.
Walter R. Botich has been Vice President, Corporate Quality since November 1,
1999. Mr. Botich previously held the position of Director, Corporate Quality
since November 21, 1994 and Manager Quality Assurance since December 23, 1991.
Mr. Botich has been with the Company and its predecessor companies for the past
17 years. Prior to joining AM General, Mr. Botich held managerial and technical
positions with other automotive supplier companies.
Item 11. Executive Compensation.
The following table lists all cash compensation paid or accrued by the Company
for services rendered to it in all capacities during the fiscal years ended
October 31, 1999, 1998, and 1997 to the Company's chief executive officer and
its four other highest paid executive officers (excluding Mr. Rennert, the
"Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
-------------------------------------
Other Annual All Other
Name and Principal Position Fiscal Year Salary Bonus Compensation (3) Compensation
- --------------------------------------------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ira Leon Rennert (1) 1999 - - - $1,200,000
Chairman and Sole Director 1998 - - - $1,200,000
1997 - - - $1,200,000
James A. Armour 1999 $250,000 250,000 46,078 -
President & Chief Executive 1998 $250,000 250,000 70,657 -
Officer 1997 $250,000 250,000 48,925 -
Edmund L. Peters 1999 175,000 100,000 30,235 -
Sr. Vice President, 1998 175,000 60,000 (2) -
Procurement 1997 135,000 60,000 23,937 -
Paul J. Cafiero 1999 125,000 100,000 26,014 -
Vice President and Chief 1998 125,000 40,000 (2) -
Financial Officer 1997 105,897 25,000 (2) -
Robert J. Gula 1999 155,000 40,000 8,134 -
Sr. Vice President, Engineering & 1998 155,000 60,000 4,902 -
Product Development 1997 130,000 40,000 5,684 -
</TABLE>
55
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Adare Fritz 1999 135,000 40,000 22,030 -
Senior Vice President, 1998 135,000 60,000 19,903 -
Operations 1997 135,000 40,000 25,320 -
</TABLE>
(1) Mr. Rennert, the sole Director of the Company received no compensation
directly from the Company. Trusts established by Mr. Rennert, for his
benefit and for the benefit of certain members of his family, hold the
stock of Renco, which receives a management fee from the Company pursuant
to a management agreement (the "Management Consultant Agreement"). In
fiscal 1999, Renco received a management fee of $1,200,000 from the
Company.
(2) Value of perquisites and other personal benefits did not exceed the lesser
of $50,000 or 10% of total salary and bonus per Named Executive Officer.
(3) Consisting principally of Company paid expenses for cars, clubs, travel
and other expenses.
Compensation Committee Interlocks and Insider Participation
The Company had no compensation committee during the fiscal year ended October
31, 1999. The sole member of the board of directors was Mr. Rennert. The
compensation for the Named Executive Officers for fiscal 1999 was fixed by their
employment agreements and their Net Worth Appreciation Agreements and
consultation between the Chairman of the Board and the President.
During fiscal 1999, no executive officer of the Company, served (a) as a member
of the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of another entity, one of whose executive officers served on the
Company's board of directors, (b) as a director of another entity, one of whose
executive officers served on the Company's board of directors or (c) as a member
of the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of another entity, one of whose executive officers served as a
Director of the Company.
Employment Agreements
Mr. Armour, Mr. Fritz, Mr. Peters, Mr. Gula, Mr. Cafiero and Mr. Scharpf are
each employed under employment agreements which, pursuant to the terms thereof,
continue until October 31, 2000 and from year to year thereafter unless
terminated by either party with 30 days' prior written notice. The compensation
arrangements as of November 1, 1999 are as follows:
Mr. Armour-Minimum annual salary of $250,000 plus an annual bonus of $250,000
for each fiscal year in which the Company shall not have incurred a net loss
before the bonus payments to all Named Executive Officers and charges for non-
cash postretirement benefits other than pensions.
Mr. Fritz-Minimum annual salary of $135,000 plus an annual bonus of $40,000
subject to the same conditions as applicable to Mr. Armour.
Mr. Peters-Minimum annual salary of $175,000 plus an annual bonus of $100,000
subject to the same conditions as applicable to Mr. Armour.
Mr. Gula-Minimum annual salary of $155,000 plus an annual bonus of $40,000
subject to the same conditions as applicable to Mr. Armour.
Mr. Cafiero-Minimum annual salary of $150,000 plus an annual bonus of $50,000
subject to the same conditions as applicable to Mr. Armour.
Mr. Scharpf-Minimum annual salary of $115,000 plus an annual bonus of $40,000
subject to the same conditions as applicable to Mr. Armour.
56
<PAGE>
Four former officers, three of whose employment terminated in December 1996 and
January 1997, received their contractual compensation through the expiration of
their contracts in October 1997.
Net Worth Appreciation Agreements
The Named Executive Officers and one other officer are each parties to
agreements ("Net Worth Appreciation Agreements") with the Company, where, upon
termination of each person's employment with the Company, he will be entitled to
receive a fixed percentage of the cumulative net income (available for common
stock as defined in such agreements) of the Company from a base date until the
end of the fiscal quarter preceding the date of termination. Such amount is
payable without interest in 40 equal quarterly installments commencing three
months after the date of termination of employment. Because of the net loss in
fiscal 1997, 1998 and 1999, no amounts are payable to contract holders at
October 31, 1999.
Retirement Plans
The AMG Retirement Plan calculates an annual accrual of 1.5% of each employees
annual income (as defined in the plan), up to the Social Security Special "Old
Law" Wage Base (maximum earnings of $160,000.00 in 1999) plus 2.25% of defined
annual income in excess of the Wage Base. At retirement, the qualified salaried
employee's retirement benefit is equal to the accumulated annual accruals for
all years of service. This is referred to as a "Career Earnings" plan.
In January 2000, the Company approved changes in the Retirement Plan to 1)
expand the definition of income from base pay only to include base pay, shift
premium, overtime pay and bonuses, 2) increase the minimum lifetime benefit for
participants retiring with 30 or more years of service at age 65 or older from
$17.00 per month to $50.00 per month per year of service, and 3) to establish a
new "career earnings" accrual for all current salaried employees based on the
revised definition of annual income, the new minimum benefit, and their average
income for 1997, 1998 and 1999.
The definition of annual income and the increased minimum benefit are permanent
changes to the Retirement Plan. The recalculated career earnings represents a
one-time update only to accumulated annual accruals. Future annual accruals
will be based on career earnings going forward.
The Company maintains two salaried retirement plans. First, the AMG Retirement
Plan is a defined benefit plan which is ERISA qualified and fully funded. All
salaried employees are covered by this plan. Second, the AMG ERISA Excess Plan
provides benefits for those participants in the AMG Retirement Plan with income
in excess of the limitations of the Internal Revenue Code. The ERISA Excess
Plan is not funded.
<TABLE>
<CAPTION>
AMG Retirement Plan ERISA Qualified
-----------------------------------
Current
--------------------------- Retirement @ age 65
Named Executive Age Service Annual Earliest Benefit at -------------------------
Years* Income Retirement Early Service Benefit**
Age Retirement Years
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
J.A. Armour 56 27.3 $500,000 56 53,244.00 36.3 $123,576.00
E.L. Peters 56 14.2 275,000 60 50,844.00 23.2 81,696.00
R.J. Gula 53 28.5 195,000 53 44,640.00 40.5 142,428.00
P.J. Cafiero 46 15.6 200,000 58 70,860.00 34.6 140,820.00
A. Fritz 53 31.7 175,000 53 43,032.00 43.7 139,140.00
* - As of January 1, 2000
** - Assumes 5% annual growth based on actuarial assumptions
</TABLE>
57
<PAGE>
AMG ERISA Excess Plan - Unfunded
-----------------------------------
Current Retirement @ Age 65
------------------------------ ----------------------
Named Age Service Annual Service Benefit**
Executive Years* Income Years
- -----------------------------------------------------------------------------
J.A. Armour 56 27.3 $500,000 36.3 $271,080.00
E.L. Peters 56 14.2 275,000 23.2 53,208.00
R.J. Gula 53 28.5 195,000 40.5 33,288.00
P.J. Cafiero 46 15.6 200,000 34.6 10,656.00
A. Fritz 53 31.7 175,000 43.7 8,748.00
* - As of January 1, 2000
** - Assumes 5% annual growth based on actuarial assumptions
Benefits under this plan are accrued on the same basis as those under the ERISA
Qualified Plan. All benefits accrued under this plan are unfunded. Benefits
provided under the plan are payable only upon retirement at age 65 or older,
death or disability.
58
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Renco owns all of the outstanding capital stock of the Company. Trusts
established by Mr. Rennert for his benefit and for the benefit of certain
members of his family hold all of the capital stock of Renco. Mr. Rennert is
Chairman of Renco and of the Company and may be deemed to be the beneficial
owner of the Company's capital stock. The address of Renco and of Mr. Rennert is
The Renco Group, Inc., 30 Rockefeller Plaza, New York, NY 10112. No other
executive officer of the Company has any ownership interest in the Company.
By virtue of Renco's ownership of all the outstanding shares of capital stock of
the Company, and Mr. Rennert's ownership of all the capital stock of Renco, Mr.
Rennert is in a position to control actions that require the consent of a
majority of the holders of the Company's outstanding shares of capital stock,
including the election of the board of directors.
Item 13. Certain Relationships and Related Transactions.
Management Agreement
Renco provides management services to the Company under a management agreement
(the "Management Agreement") expiring October 31, 2001, subject to renewal for
additional terms of three years each, unless terminated by either party. Such
services include operational consulting, budget review, income tax consulting
and contracting for insurance under master policies. Pursuant to the Management
Agreement effective as of April 1, 1995, Renco provides such services to the
Company for an annual management fee equal to $1.2 million. Additionally, Renco
will receive an annual fee for each fiscal year, commencing with fiscal 1995,
equal to the excess, if any, of (i) ten percent (10%) of the Company's
consolidated net income before deductions for federal and state income taxes,
fees associated with the Management Agreement and expenses related to the
Company's Net Worth Appreciation Agreements, over (ii) the aggregate annual
management fee of $1.2 million.
The Management Agreement provides that the Company shall not make any payment
thereunder which would violate any of its agreements with respect to any of its
outstanding indebtedness. Annual payments by the Company in excess of $1.2
million under the Management Consultant Agreement must comply with the
restricted payments covenant of the Indenture governing the Senior Notes.
Management fees are paid monthly in arrears in installments of $100,000. The
Company paid management fees of $1.2 million to Renco in the year ended October
31, 1999.
Insurance Sharing Program
To obtain the advantages of volume, Renco purchases certain insurance coverage
for its subsidiaries, including the Company, and the actual cost of such
insurance, without markup, is reimbursed by the covered subsidiaries. The major
areas of the Company's insurance coverage obtained under the Renco programs are
fidelity and special crime insurance. The premiums for fidelity and special
crime insurance are allocated by Renco substantially as indicated in the
underlying policies. Renco also purchased and administered certain insurance
exclusively for the Company of which the Company financed $.7 million directly
with insurance premium finance companies. In fiscal 1999, the Company incurred
costs of approximately $.8 million under the Renco insurance program. The
Company believes that its insurance costs under this program were less than it
would have incurred if it had obtained its insurance directly.
Tax Sharing Agreement.
Through the fiscal year ended October 31, 1998 AM General was included in the
consolidated federal and state income tax returns of the Renco Group. For the
fiscal year ended October 31, 1999 and thereafter AM General will file its own
consolidated federal and state income tax returns.
59
<PAGE>
Under the terms of the tax sharing agreement with Renco, income taxes are
allocated to AM General on a separate return basis except that transactions
between AM General and Renco and its other subsidiaries are accounted for on a
cash basis and not on an accrual basis. AM General is not entitled to the
benefit of net tax loss carryforwards, unless such tax losses were a result of
timing differences between AM General's accounting for tax and financial
reporting purposes. As of October 31, 1999, AM General had no net operating tax
loss carryforwards. As of October 31, 1999, AM General had a long term
receivable for income taxes of $4.8 million under this agreement, representing
estimated tax payments made by the Company to Renco in excess of the Company's
actual tax liability.
Other
The 5,000 outstanding shares of Preferred Stock of the Company, all of which is
held by Renco, are entitled to receive cumulative preferential cash dividends at
an annual rate of 8% from May 1, 1995.
The Preferred Stock is redeemable by the Company at its option, subject to
compliance with long-term debt covenants, at the par value thereof plus any
accrued and unpaid dividends thereon. The Preferred Stock has preference in
liquidation or dissolution of the Company over common stock to the extent of the
par value of the Preferred Stock plus any accrued and unpaid dividends thereon.
60
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. and 2. List of Financial Statements and Financial Statement Schedules:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Page
-------------
<S> <C>
Independent Auditors' Report......................................... 27
Consolidated Balance Sheets as of October 31, 1999 and 1998.......... 28
Consolidated Statements of Operations for the years ended
October 31, 1999, 1998 and 1997.................................... 29
Consolidated Statements of Stockholder's Equity for the years ended
October 31, 1999, 1998 and 1997.................................... 30
Consolidated Statements of Cash Flows for the years ended
October 31, 1999, 1998 and 1997.................................... 31
Notes to Consolidated Financial Statements........................... 32 through 52
</TABLE>
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission have been omitted from this
Annual Report because they are not required, are not applicable, or the required
information is included in the consolidated financial statements or the notes
thereto.
61
<PAGE>
(a) 3. Listing of Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ------------------------------------------------------------------------
<S> <C>
*3.1 Certificate of Incorporation of Ren Acquisition Corp., filed with the
Delaware Secretary of State on November 26, 1991.
*3.2 Certificate of Amendment, changing name to AM General Corporation, filed
on April 30, 1992.
*3.3 Bylaws.
*4.1 Indenture dated as of April 27, 1995 between AM General Corporation as
Issuer and Shawmut Bank Connecticut, National Association as Trustee
relative to $75,500,000 in principal amount of 12-7/8% Senior Notes due
2002, with form of Series A Senior Note annexed as Exhibit A and form of
Series B Senior Note annexed as Exhibit B.
*******4.2 Form of Amendment No. 1 to the Indenture, dated as of April 27, 1995,
between AM General Corporation and Shawmut Bank Connecticut (now known
as Fleet National Bank).
*10.1 Loan and Security Agreement dated as of April 30, 1992 between Congress
Financial Corporation and AM General Corporation, and amendments 1
through 8 thereto.
****10.1.1 Amendment No. 9 dated June 26, 1996 to Loan and Security Agreement,
dated as of April 30, 1992 between Congress Financial Corporation and AM
General Corporation
*****10.1.2 Amendment No. 10 dated August 22, 1996 to Loan and Security Agreement,
dated as of April 30, 1992 between Congress Financial Corporation and AM
General Corporation
*****10.1.3 Amendment No. 11 dated December 17, 1996 to Loan and Security Agreement,
dated April 30, 1992 between Congress Financial Corporation and AM
General Corporation.
*****10.1.4 Amendment No. 12 dated March 14, 1997 to Loan and Security Agreement,
dated April 30, 1992 between Congress Financial Corporation and AM
General Corporation.
******10.1.5 Amendment No. 13 dated October 30,1998 to Loan and Security Agreement,
dated April 30, 1992 between Congress Financial Corporation and AM
General Corporation.
*******10.1.5 Amendment No. 14 dated December 21, 1999 to Loan and Security Agreement,
dated April 30, 1992 between Congress Financial Corporation and AM
General Corporation.
*10.2 Employment Agreement with James A. Armour, dated May 1, 1992, as
supplemented December 16, 1993 and September 1, 1994.
*10.3 Employment Agreements dated May 1, 1992 as supplemented December 16,
1993 with:
Adare Fritz
Gary L. Wuslich
Robert J. Gula
Edmond L. Peters
**10.3.1 Supplement No. 2, dated February 16, 1995, to Employment Agreements of
Messrs. Fritz, Wuslich, Gula and Peters.
10.3.2 Employment Agreement with Paul J. Cafiero, dated May 1, 1997
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ------------------------------------------------------------------------
<S> <C>
*10.6 Net worth appreciation agreements dated May 1, 1992 with:
James A. Armour
Paul R. Schuchman
Adare Fritz
Kenneth M. Jordan
Gary L. Wuslich
Robert J. Gula
**10.6.1 Net worth appreciation agreement with Edmond L. Peters dated as of
February 1, 1995
10.6.2 Net worth appreciation agreement with Paul J. Cafiero dated May 1, 1997
*10.7 Management Consultant Agreement effective as of April 1, 1995 with The
Renco Group, Inc.
*10.9 Deferred Payment Agreement dated May 5, 1995 between the United States
of America and the Corporation.
**10.10 Letter Agreement dated 23 December 1994 between the Company and
Department of the Army-Tank-Automotive and Armaments Command (technical
schedules omitted).
**10.11 Lease dated September 11, 1984 between Amland Properties, Inc. and AM
General Corporation.
**10.12 Lease dated May 12, 1989 between Niles/Washington Associates Limited and
AM General Corporation.
**10.13 Lease dated January 1, 1989 between WF Associates Limited Partnership
and AM General Corporation as amended August 23, 1989, July 30, 1993 and
December 31, 1993.
**10.14 Lease dated September 17, 1993 between Indiana GRQ, Inc. and AM General
Corporation.
**10.15 Lease dated July 25, 1984 between Oppenheimer Livonia Associates and AM
General Corporation.
**10.16 Intentionally Omitted
**10.17 Commercial lease dated April 28, 1992 between Amland Corporation and Ren
Acquisition Corp.
***10.18 Contract dated December 14, 1995 between the Company and the Department
of the Army-Tank -Automotive and Armaments Command (technical schedules
omitted)
*****10.19 Commercial lease dated November 6, 1997 between the Company and Chippewa
Corporation
*******10.20 Lease dated June 30, 1999 between Amland Properties, Inc. and AM General
Corporation.
*******10.21 Lease dated January 1, 1999 between Holladay Mishawaka, LLC and AM
General Corporation.
</TABLE>
63
<PAGE>
<TABLE>
<S> <C>
*******10.22 Master Agreement dated December 21, 1999 between AM General Corporation
and General Motors Corporation.
*******10.23 Assignment Agreement dated December 21, 1999 between AM General
Corporation and General Motors Corporation.
*******10.24 New Vehicle Assembly Agreement dated December 21, 1999 between AM
General Corporation and General Motors Corporation.
*******10.25 Management Services Agreement dated December 21, 1999 between AM General
Corporation and General Motors Corporation.
*******10.26 Trademark License Agreement dated December 21, 1999 between AM General
Corporation and General Motors Corporation.
*******10.27 Promissory Note dated December 21, 1999 between AM General Corporation
and General Motors Corporation.
*******10.28 Security Agreement dated December 21, 1999 between AM General
Corporation and General Motors Corporation.
*******10.29 Right of Access Agreement dated December 21, 1999 between AM General
Corporation and General Motors Corporation.
*******10.30 HUMVEE Trademark Agreement dated December 21, 1999 between AM General
Corporation and General Motors Corporation.
*******10.31 Royalty Sharing Agreement dated December 21, 1999 between AM General
Corporation and General Motors Corporation.
*******10.32 Joint Review Board Agreement dated December 21, 1999 between AM General
Corporation and General Motors Corporation.
*******10.33 Equity Conversion Agreement dated December 21, 1999 between AM General
Corporation and General Motors Corporation.
21 Subsidiaries of Registrant.
*******27 Financial Data Schedule
*Filed with the Registration Statement No. 33-93302 filed June 9, 1995.
**Filed with Amendment No. 1 to Registration Statement No. 33-93302 filed August 9, 1995
*** Filed with Company's Form 10-K, No. 33-93302, filed January 28, 1996.
**** Filed with Company's Form 10-Q, No. 33-93302, filed September 16, 1996.
***** Filed with Company's Form 10-K, No. 33-93302, filed January 29, 1997
******Filed with Company's Form 10-K No. 33-93302, filed January 29, 1999
*******Filed with Company's Form 10-K No. 33-93302 filed January 31, 2000
</TABLE>
(b) No reports on Form 8-K were filed by the registrant during the last
quarter of the period covered by this report.
64
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on January 31, 2000.
AM GENERAL CORPORATION
By: /s/ James A. Armour
----------------------
James A. Armour
President and Chief Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on January 31, 2000.
Signature Title
--------- -----
/s/ Ira Leon Rennert Chairman and sole Director
- -------------------------------
Ira Leon Rennert
/s/ James A. Armour President and Chief Executive Office
- ------------------------------- (Principal Executive Officer)
James A. Armour
/s/ Paul J. Cafiero Vice President and Chief Financial Officer
- ------------------------------- (Principal Financial and Accounting Officer)
Paul J. Cafiero
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.
No annual report to security holders covering the registrant's last fiscal
year and no proxy statement, form of proxy or other proxy soliciting material
with respect to any annual or other meeting of security holders has been nor
will be sent to security holders.
65
<PAGE>
Consent Solicitation Statement
AM GENERAL CORPORATION
Solicitation of Consents for Amendments of Indenture Provisions
12 7/8 % Senior Notes Due 2002
AM General Corporation (the "Company") hereby solicits (the "Solicitation")
consents (the "Consents") for certain proposed amendments as described herein in
Section 5 and shown in Annex A hereto (the "Proposed Amendments") to the
indenture, dated as of April 27, 1995 (the "Indenture"), by and among AM General
Corporation, as issuer, and Shawmut Bank Connecticut, National Association (now
known as Fleet National Bank), as trustee (the "Trustee"), pursuant to which the
12 7/8% Senior Notes due 2002 of the Company were issued ("Notes"). The
Proposed Amendments are necessary for the Company to enter into a transaction
(the "Transaction") with General Motors Corporation ("GM"), described herein in
Section 2 and consisting of the agreements summarized in Annex B hereto. The
completion, execution and delivery of the Consent and Letter of Transmittal by a
holder of the Notes ("Holder") in connection with the Solicitation will be
deemed to constitute the Consent of such Holder to the Proposed Amendments. The
adoption of the Proposed Amendment require the valid Consents of the Holders of
at least 75% in aggregate principal amount of the Notes outstanding (the
"Requisite Consents"). The Company intends to effect the Proposed Amendments by
execution of a supplemental indenture (the "Supplemental Indenture") immediately
upon receipt of the Requisite Consents.
The consideration for Consents pursuant to the Solicitation (the
"Consideration") shall be $2.50 per $1,000 aggregate principal amount of Notes
for which a Consent was validly made, provided that no Holder will be entitled
to Consideration unless the Company (i) receives the Requisite Consents and (ii)
enters into the Transaction.
Holders are urged to review this Consent Solicitation Statement carefully.
In no event should a Holder tender or deliver any Notes.
- --------------------------------------------------------------------------------
THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
DECEMBER 6, 1999 (THE "EXPIRATION DATE"), UNLESS EXTENDED. CONSENTS MAY NOT
BE REVOKED.
- --------------------------------------------------------------------------------
The Solicitation is made to record owners as of 5:00 pm New York City time on
November 23, 1999 (the "Record Date"). See Section 3 for discussions of certain
factors that should be considered in evaluating the Solicitation.
November 23, 1999
<PAGE>
IMPORTANT
Any Holder desiring to consent to the Proposed Amendments should either (a)
complete and sign the Consent and Letter of Transmittal (or a manually signed
facsimile thereof) in accordance with the instructions in the Consent and Letter
of Transmittal, have the signature thereon guaranteed if required by Instruction
1 of the Consent and Letter of Transmittal and deliver it and any other required
documents to State Street Bank and Trust Company (the "Tabulation Agent") or (b)
request its broker, dealer, commercial bank, trust company or other nominee to
execute the Consent and Letter of Transmittal for such Holder. Beneficial owners
whose Notes are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee must contact such broker, dealer, commercial
bank, trust company or other nominee if they desire to deliver Consents with
respect to Notes so registered. See Section 6.
Consents and Letters of Transmittal should be sent to the Tabulation Agent
only, and the method of delivery of such documents to the Tabulation Agent is at
the election and risk of the Holder. Questions and requests for assistance may
be directed to the Company or to The Renco Group, Inc. at the address and
telephone number of each as set forth on the back cover of this Consent
Solicitation Statement (the "Statement"). Additional copies of the Statement,
the Consent and Letter of Transmittal, the Notice of Guaranteed Delivery and
other related materials may be obtained from the Company.
THIS STATEMENT DOES NOT CONSTITUTE A SOLICITATION OF CONSENTS IN ANY
JURISDICTION IN WHICH, OR FROM ANY PERSON FROM WHOM, IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION UNDER APPLICABLE SECURITIES OR BLUE SKY LAWS. THE DELIVERY OF THIS
STATEMENT SHALL NOT UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR
IN ANY ATTACHMENTS HERETO OR IN THE AFFAIRS OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES OR AFFILIATES SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
In the absence of any legal obligation to do so, the Indenture obligates
the Company to file pursuant to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Company files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy and information statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material may be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material also can be reviewed
through the Commission's Electronic Data Gathering, Analysis, and Retrieval
System, which is publicly available through the Commission's website
(http://www.sec.gov).
CERTAIN SOLICITATION MATTERS
Consents are irrevocable. Notwithstanding the foregoing, if prior to the
Consent Date, the Solicitation is amended in a manner determined by the Company,
in its sole discretion, to constitute a material adverse change to the Holders,
the Company promptly will disclose such amendment and may extend the
Solicitation for a period deemed by the Company to be adequate to permit Holders
to properly deliver or revoke Consents delivered prior to such amendment. See
Section 4. Holders who revoke Consents pursuant to the preceding sentence will
not receive Consideration for the revoked Consents.
ii
<PAGE>
THIS STATEMENT AND THE RELATED CONSENT AND LETTER OF
TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH
SHOULD BE READ CAREFULLY BEFORE ANY DECISION
IS MADE WITH RESPECT TO THE SOLICITATION.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. SUMMARY 1
SECTION 2. PURPOSES OF THE SOLICITATION 3
SECTION 3. CERTAIN SIGNIFICANT CONSIDERATIONS 4
SECTION 4. PRINCIPAL TERMS OF THE SOLICITATION 6
SECTION 5. PROPOSED AMENDMENTS TO THE INDENTURE 7
SECTION 6. PROCEDURES FOR DELIVERING CONSENTS 8
SECTION 7. TABULATION AGENT 10
SECTION 8. FEES AND EXPENSES 10
SECTION 9. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS 11
SECTION 10. MISCELLANEOUS 12
TEXT OF PROPOSED AMENDMENTS ANNEX A
SUMMARY OF AGREEMENTS WHICH COMPRISE THE TRANSACTION ANNEX B
</TABLE>
iv
<PAGE>
Section 1. Summary
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the information appearing elsewhere in this
Statement, Annex A and Annex B hereto.
Overview
The Company is the largest supplier of light Tactical Wheeled Vehicles for
the Department of Defense ("DoD"). The Company (including its predecessors) has
a history of over 50 years of successfully competing for government procurement
contracts. The Company is the designer and the sole manufacturer of the High
Mobility Multipurpose Wheeled Vehicle (the HUMVEE), which it sells to the U.S.
and foreign military services. From the introduction of the HUMVEE in 1984
through October 31, 1999, the Company delivered approximately 151,000 HUMVEES to
the military services of the U.S. and 40 foreign countries.
The Company introduced the HUMMER, a commercial version of the HUMVEE (the
"Current Vehicle") in 1993 with the objective of expanding the market for the
Company's vehicles to industrial and retail users. The Company has also invested
significant resources in the promotion, marketing and distribution of the
Current Vehicle. In that regard, the Company established a dealer network
through which it has sold 7,500 Current Vehicles. Notwithstanding these efforts
over the past 6 years, the Company presently believes that the business
prospects for the Current Vehicle are limited with respect to demand, price and
profitability. As a result, the Company has investigated various strategies to
maximize the value of its non-military business.
In that regard, the Company has substantially completed a series of
agreements with GM through which the Company intends to more fully utilize the
widespread recognition of the HUMMER name to generate incremental revenues and
cash flow. Pursuant to the terms of the Transaction GM will, at GM's sole
expense, design, engineer, certify and release a new generation vehicle bearing
the HUMMER trademark (the "New Vehicle") and retain the Company to assemble New
Vehicles over a seven and one half year period. As part of the Transaction, the
Company will assign the HUMMER trademark and trade name (the "Trademark") to GM.
If the New Vehicle is a success, the Transaction could result in substantial
revenues for the Company.
With respect to the creation of the New Vehicle, GM will lend the Company
approximately $235 million through a non-interest bearing loan (the "GM Loan").
The proceeds of the GM Loan will be used to finance (i) the engineering and
construction of a new structure, (ii) the purchase of certain machinery and
equipment, and (iii) all other costs (except for the cost of the time dedicated
to the project by the Company's management and employees) required for the
Company to become prepared to assemble the New Vehicle (collectively, the "New
Facility").
The GM Loan will be non-recourse to the Company, but will be secured by a lien
on the assets acquired with the proceeds of the GM Loan. To repay the GM Loan,
the Company will, for each New Vehicle assembled, pay to GM a pre-agreed portion
of the fee it receives for such assembly. At any time, the Company has the
option to repay the full outstanding balance on the GM Loan or any portion
thereof. In addition, GM has the option, at various points in time, to convert
all or part of the outstanding balance on the GM Note into equity in the
Company, but in no case more than 40% of the Company's voting stock.
In addition to the Requisite Consents, the Company requires the consents of
the Company's senior lender and the lessor of the Company's primary facilities
in order to proceed with the Transaction.
The Company anticipates that the agreements that comprise the Transaction
would be executed shortly after receipt of the Requisite Consents and the
consents required from the Company's senior lender and the lessor of the
Company's primary facilities. The design and construction of the New Facility
will commence shortly thereafter. The anticipated economic benefit from the
Transaction is estimated to occur after the scheduled maturity of the Notes.
1
<PAGE>
Purposes of the Solicitation
The Indenture in its current form may limit the Company's ability to enter
into the Transaction with GM. The purpose of the Solicitation is to obtain the
Requisite Consents to execute the Proposed Amendments to permit the Transaction.
The Solicitation is being made prior to the consummation of definitive
agreements in order to facilitate the Company's entering into the Transaction.
The agreements which as a whole comprise the Transaction are summarized in Annex
B hereto.
The Solicitation
The Solicitation The Company is seeking Consents from
Holders to the Proposed Amendments to
the Indenture. See Section 5.
Consideration for Consents The consideration for Consents pursuant
to the Solicitation shall be $2.50 per
$1,000 aggregate principal amount of
Notes for which a Consent was validly
made, provided that no Holder will be
entitled to Consideration unless the
Company (i) receives the Requisite
Consents and (ii) enters into the
Transaction.
Requisite Consents Approval of the Proposed Amendments to
the Indenture requires the Consent of
the Holders of at least 75% in aggregate
principal amount of the Notes
outstanding.
Effectiveness of Proposed Amendments Immediately upon receipt of the
Requisite Consents, the Supplemental
Indenture providing for the Proposed
Amendments will be executed and become
effective upon execution. If the
Proposed Amendments become effective,
all persons who continue to hold Notes
thereafter will be subject to the
provisions of the Indenture as amended
by the Proposed Amendments.
Proposed Amendments The Proposed Amendments would
effectively (i) waive all or part of the
following covenants in the Indenture
solely for purposes of consummating the
Transaction: Section 4.9--Limitation on
Incurrence of Indebtedness and Issuance
of Preferred Stock; Section 4.12--
Limitation on Liens; and 4.13--
Limitation on Asset Sales; and (ii)
modify certain definitions contained in
the Indenture, as appropriate. See
Section 5 and Appendix A.
Expiration Date 12:00 midnight, New York City time, on
December 6, 1999, 1999, unless extended.
Procedure to Consent For a Holder to validly Consent pursuant
to the Solicitation, a properly
completed and duly executed Consent and
Letter of Transmittal (or a manually
signed facsimile thereof), together with
any signature guarantees and any other
documents required by the instructions
to the Consent and Letter of
Transmittal, must be received by the
Tabulation Agent prior to the Expiration
Date.
Withdrawal of Consents Consents may not be revoked at any time,
except after notice of a material
amendment to the Solicitation.
Certain Significant Considerations See Section 3 for a discussion of
certain significant considerations that
should be carefully considered in
evaluating the Solicitation.
Tabulation Agent State Street Bank and Trust Company is
serving as Tabulation Agent in
connection with the Solicitation. Its
-2-
<PAGE>
address and telephone number are set forth
on the back cover of this Statement.
Certain Federal Income Tax See Section 9 for a discussion of certain
Considerations federal income tax considerations relating
to the Solicitation.
Section 2. Purposes of the Solicitation
Background
The terms of the Transaction are set forth in a series of agreements that
the Company and GM are prepared to execute. The agreements which as a whole
comprise the Transaction are summarized in Annex B hereto.
The Indenture in its current form may limit the Company's ability to enter
into the Transaction. The purpose of the Solicitation is to obtain the Requisite
Consents to execute the Proposed Amendments to facilitate and permit the Company
to enter into the Transaction.
The New Vehicle
GM will, at GM's sole expense, design, engineer, certify and release the
New Vehicle. GM will be the manufacturer of and own design rights for the New
Vehicle and will be responsible for providing, at GM's sole expense, component
parts and materials for the New Vehicle. In addition, at GM's sole expense, GM
will provide all vendor tooling. For at least seven and one half years, the
Company will assemble, upon GM's request, New Vehicles, according to agreed-upon
specifications, for a specified fee which varies with sales volumes (the
"Assembly Fee"). The Company will have the right to assemble GM's requirements,
up to the first 40,000 units annually. See Annex B for a description of the New
Vehicle Assembly Agreement.
GM Right of Access
In the event of certain defaults by the Company, GM will have a right to
enter, occupy and utilize certain real and personal property of the Company for
the production of the New Vehicle (the "Right of Access"). See Annex B,
description of Right of Access Agreement.
Assignment of HUMMER Trademark
The Transaction includes the Company's execution of an exclusive and
irrevocable assignment of the Trademark in favor of GM. GM, in turn, will grant
the Company a limited license that allows the Company to use the Trademark in
connection with the Current Vehicle for the duration of the New Vehicle Assembly
Agreement. After such period, GM will consider, upon the Company's request,
extending the term of such license or replacing such license with an equivalent
license. However, the extension or replacement of such license will be at GM's
sole discretion. See Annex B for a description of the Assignment Agreement and
the License Agreement.
Impact on Current Business
The Company's existing manufacture and design rights with respect to the
Current Vehicle and the military HUMVEE will remain unchanged, except that the
Company's use of the Trademark on the Current Vehicle will be through license
instead of ownership.
-3-
<PAGE>
Construction and Finance of the New Facility
The Company will construct and own the New Facility which will be financed
by the proceeds of the GM Loan. Pursuant to the New Vehicle Assembly Agreement,
the Company will execute in favor of GM a non-interest bearing, debt instrument
or note (the "GM Note") in the amount of the GM Loan (financing construction of
the New Facility) which will be secured by a lien on and limited to the New
Facility (the "GM Lien").
To repay the GM Note, the Company will repay to GM a pre-agreed portion of
the Assembly Fee received for assembling each New Vehicle. If New Vehicles are
ordered and assembled at the forecasted rate, the GM Note would be repaid within
seven and one half years. Except as provided above, the Company is not required
to repay the outstanding balance of the GM Note but it may elect to do so at any
time. If the Company pays such balance, it will own the New Facility free of
liens held by GM and, upon completion of the New Vehicle Assembly Agreement, be
permitted to use the New Facility for any purpose.
At various times, GM will have the annual option to convert all or any part
of the unpaid balances, if any, on the GM Note into an equity interest in the
Company pursuant to certain terms and conditions. Notwithstanding the foregoing,
in no case will such equity interest allow GM to control more than 40% of the
voting stock of the Company. See Annex B, description of Equity Rights
Agreement.
The Company's Reasons for Entering into the Transaction
The Company launched the Current Vehicle in 1993 and believes that the
business prospects for the Current Vehicle are limited with respect to demand,
price and profitability. The Company believes that annual sales levels are not
likely to grow substantially beyond levels reached in 1997 and 1998. The
Transaction presents the Company with an opportunity to generate greater
revenues and cash flow from the commercial use of the Trademark by assigning the
Trademark to GM and in return being hired by GM to be the primary assembler of
the New Vehicle.
The Company believes that GM's resources and expertise in the design,
marketing and distribution of automobiles should result in the sale of a
significantly greater number of New Vehicles with the opportunity for
substantially greater manufacturing revenues and cash flow than have been
achieved by the Company in manufacturing and selling the Current Vehicle. The
Company further believes that the Transaction presents the Company with an
opportunity to improve the Company's financial results.
The Transaction does not interfere with the Company's manufacture and sale
of the military HUMVEE.
Proposed Amendments
Several provisions in the Indenture, described in detail in Section 5 of
this Solicitation, may limit the Company's ability to enter into the
Transaction. The Indenture places certain restrictions on Indebtedness (as
defined in the Indenture) that would prevent the Company from borrowing funds
from GM and executing the GM Note. Similarly, although no existing Company
assets will secure the GM Note, the lien on the New Facility is prohibited by
the Indenture and certain currently existing Company assets may be subject to
the Right of Access. Additionally, the assignment of the Trademark to GM may
constitute an "Asset Sale" as defined by the Indenture, making it subject to
restrictions on the type of consideration received and the use of the proceeds
resulting from the transfer. This Solicitation asks you to consent to the
Proposed Amendments to the Indenture, described herein in Section 5 and quoted
in full in Annex A hereto, that will waive these provisions solely for purposes
of consummating the Transaction.
Section 3. Certain Significant Considerations
If the Proposed Amendments become effective, the Company will be able to
proceed with the Transaction without violating certain restrictive covenants in
the Indenture. If the New Vehicle is successful, the Transaction
-4-
<PAGE>
could have a positive effect on the market price of the Notes. However, the
Company cannot guarantee that the Transaction will have such desired effect or
even that the Notes will maintain the current market price.
Specific Risks Associated with Consenting to the Proposed Amendments
The Company plans to enter into the Transaction if it obtains the Requisite
Consents. When deciding whether or not to consent to the Proposed Amendments,
Holders and their financial advisors should consider the following risks which
are associated with the Transaction:
. GM will be assigned the Trademark and the Company's only payment or
consideration for the Trademark will be GM's entering into the
Transaction.
. GM may at any time choose not to proceed with the creation of the New
Vehicle or, once created, may not succeed in achieving anticipated
sales volumes or may discontinue the New Vehicle.
. GM has agreed to loan the Company up to $235 million to construct the
New Facility. While the Company believes that $235 million is
sufficient, if the New Facility costs more than such amount, the
Company may have to expend its own resources to meet its contractual
obligations.
. The Company will agree to assemble the New Vehicle for GM in exchange
for the Assembly Fee per New Vehicle, which varies with sales volumes.
There is no assurance that the Company will be able to assemble the
New Vehicle at costs less than the Assembly Fee per New Vehicle,
particularly if GM only requests a small number of New Vehicles.
. Under certain circumstances, GM will have the right to temporarily
occupy and use the New Facility and other assets of the Company, or to
replace the Company as assembler of the New Vehicle, as may be
necessary to ensure continued deliveries. See Annex B, Summary of
Right of Access Agreement.
. GM will become responsible for the distribution and marketing of the
Current Vehicle. The Company has no assurance that GM's marketing
effort will have a positive effect on sales of the Current Vehicle.
. If and when the Company's license to use the Trademark on the Current
Vehicle is no longer in effect and the Company wishes to continue to
produce the Current Vehicle, the Company will be required to do so
under a name other than HUMMER.
. The Company has no contractual right to participate in the use of the
Trademark on GM vehicles other than the New Vehicle (and its
derivatives).
. The assignment of the Trademark to GM should result in a gain taxable
to the Company. The Company believes that such taxable gain will not
be substantial and will not impair the Company's ability to meet
obligations to Holders. However, the Company can provide no assurance
that the Internal Revenue Service will not dispute valuation of the
Trademark and demand substantial tax payments.
. The Company will be precluded from developing new vehicles that bear
the HUMMER name both independently or with a partner other than GM.
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<PAGE>
Section 4. Principal Terms of the Solicitation
The Company is soliciting Consents to the Proposed Amendments from Holders
of Notes upon the terms set forth herein and in the related Consent and Letter
of Transmittal. The completion, execution and delivery of the Consent and Letter
of Transmittal will constitute the Consent of such Holder to the Proposed
Amendments with respect to such Notes. The consideration for Consents pursuant
to the Solicitation shall be $2.50 per $1,000 aggregate principal amount of
Notes for which a Consent was validly made, provided that no Holder will be
entitled to Consideration unless the Company (i) receives the Requisite Consents
and (ii) enters into the Transaction.
Pursuant to the terms of the Indenture, the adoption of Proposed Amendments
in their entirety will require the written consent of the Holders of at least
75% in aggregate principal amount of the Notes outstanding. If the Requisite
Consents are received and the Supplemental Indenture is executed, the
Supplemental Indenture reflecting the Proposed Amendments will become operative,
and all persons who hold Notes thereafter will be subject to the provisions of
the Indenture as amended by the Proposed Amendments.
Upon receipt of the Requisite Consents from Holders of Notes, the Company
will certify in writing to the Trustee that the Requisite Consents to the
adoption of the Proposed Amendments have been received with respect to the
Notes. After receipt by the Trustee of, among other things, certification by the
Company that the Requisite Consents with respect to the Notes have been
received, the Company and the Trustee will execute the Supplemental Indenture to
evidence the adoption of the Proposed Amendments. Upon the acceptance by the
Company of the Requisite Consents from Holders of Notes and the execution of the
Supplemental Indenture, the Supplemental Indenture evidencing the Proposed
Amendments will immediately become effective.
Upon the receipt of the Requisite Consents and the execution of the
Supplemental Indenture (a) the Tabulation Agent, as soon as practicable, will
transmit a copy of the Supplemental Indenture to all registered Holders of Notes
which remain outstanding, and (b) Holders will hold their Notes under the
Indenture as amended by the Supplemental Indenture evidencing the Proposed
Amendments, whether or not that Holder consented to the Proposed Amendments.
Expiration Date; Extension; Amendment; Termination
The Solicitation will expire at 12:00 midnight, New York City time, on the
Expiration Date unless extended by the Company. The Company expressly reserves
the right to extend the Solicitation on a daily basis or for such period or
periods as it may determine in its sole discretion from time to time by giving
written or oral notice followed by written notice to the Tabulation Agent and by
making a public announcement by press release (which shall include disclosure of
the approximate principal amount of Notes for which Consents have been delivered
to date) to the Dow Jones News Service prior to 9:00 a.m., New York City time,
on the next business day following the previously scheduled Expiration Date, in
which event the term "Expiration Date" shall mean the latest time and date at
which the Solicitation, as the case may be, as so extended by the Company, shall
expire. During any extension of the Solicitation, all Consents previously
delivered will remain subject to terms of the Solicitation, as applicable. For
purposes of the Solicitation, the term "business day" means any day other than a
Saturday, Sunday or Federal holiday and consists of the time period from 12:01
a.m. through midnight, New York City time.
Notwithstanding anything herein to the contrary, the Company expressly
reserves the absolute right, in its sole discretion, at any time and from time
to time, to amend any term of the Solicitation, including the amount of
Consideration paid for consents. Any amendment applicable to the Solicitation
will apply to all Notes for which a Consent was delivered, regardless of when or
in what order such Consents were delivered. If the Solicitation is amended prior
to the Expiration Date in a manner determined by the Company to constitute a
change materially adverse to the Holders of Notes, including but not limited to
a reduction in the amount of Consideration to be paid for Consents, the Company
will promptly disclose such amendment in a public announcement and will extend
the Solicitation for a period deemed by it to be adequate to permit such Holders
to revoke their Consents made prior to such amendment. Holders who revoke
Consents pursuant to the preceding sentence will not be entitled to receive
Consideration for the revoked Consents.
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Section 5. Proposed Amendments to the Indenture
Purposes and Effects
The Notes were issued pursuant to the Indenture. In connection with the
Transaction, the Company is seeking Consents to the Proposed Amendments in the
Solicitation in order to permit the Transaction and to suspend certain
restrictive covenants in the Indenture solely for the purpose of consummating
the Transaction.
This Section sets forth a list of the covenants and certain other sections
of the Indenture proposed to be modified by the Proposed Amendments for which
Consents are being sought pursuant to the Solicitation. Each Holder, by
executing and delivering a Consent and Letter of Transmittal, will consent to
the Proposed Amendments as described below and set forth in Annex A hereto. The
Proposed Amendments constitute a single proposal and a consenting Holder must
consent to the Proposed Amendments in their entirety and may not consent
selectively with respect to certain of the Proposed Amendments. The Proposed
Amendments will be embodied in an amendment to the Indenture in the form of the
Supplemental Indenture which will be executed upon receipt of the Requisite
Consents. The Proposed Amendments, however, will not become operative until the
requisite number of solicitations have been obtained. Thereafter, the Proposed
Amendments will be binding on all Holders, including any non-consenting Holders.
Proposed Amendments
The paragraphs below describe how the current covenants limit the Company's
ability to enter into the Transaction and the covenants modified by the Proposed
Amendments. Holders should refer to the full text of the Proposed Amendments
contained in Annex A hereto. Each capitalized term used below and not otherwise
defined herein shall have the meaning ascribed to it in the Indenture. Holders
may obtain copies of the Indenture and the proposed form of Supplemental
Indenture from the Company without charge.
Indebtedness
Section 4.9 of the current Indenture prohibits the Company from incurring
Indebtedness unless (i) the Indebtedness falls within certain exceptions or (ii)
the Company incurs the Indebtedness at least eighteen months after the Issue
Date and at the time of such incurrence and after giving pro forma effect
thereto, the Fixed Charge Coverage Ratio of the Company is at least equal to
2.5:1.00.
The Indenture would prohibit the Company from executing the GM Loan
Agreement and the GM Note if after giving pro forma effect to the Transaction,
the Company did not have a Fixed Charge Coverage Ratio that is at least equal to
2.5:1.00. The Proposed Amendments waive Section 4.9 of the Indenture solely for
the purpose of consummating the Transaction. Section 4.9 will continue to apply
to Indebtedness not incurred as a result of the Transaction.
Fixed Charge Coverage Ratio
The Indenture limits the Company's ability to engage in certain activities,
including the payment of Restricted Payments and incurrence of Indebtedness,
unless it maintains a Fixed Charge Coverage Ratio of at least 2.5:1.00. The
definition of the Fixed Charge Coverage Ratio reflects, with respect to any
Person for any period (and according to the terms specified in the Indenture),
the ratio of the Consolidated Cash Flow of such Person and its Subsidiaries for
such period to the Fixed Charges of such Person and its Subsidiaries for such
period. Fixed Charges are defined as, with respect to any Person for any period,
the sum of certain charges and expenses (specified in the Indenture) associated
with such period, including interest expense resulting from amortization of
original issue discount.
The GM Loan could affect the Company's Fixed Charge Coverage Ratio. GM will
receive the right to convert the GM Loan into an equity interest in the Company
at various points during the agreement, with a discount from estimated market
value based on a discounted value of the New Vehicle Assembly Agreement. This
beneficial conversion feature may require the Company to record a discount on
the GM Loan and to recognize on the Company's financial statements significant
interest expense as the discount is amortized through the date when GM
-7-
<PAGE>
can first exercise GM's conversion option. The additional interest expense, if
any, will impact the Fixed Charge Coverage Ratio and could preclude the Company
from engaging in certain actions in the future.
The Proposed Amendments amend the definition of "Fixed Charges" to
provide that notwithstanding the normal method of calculating the Fixed Charges,
the amortization of debt discount associated with the GM Loan will have no
impact on Fixed Charges.
Liens
Section 4.12 of the Indenture currently prevents the Company from incurring
Liens, other than Permitted Liens, unless the Notes are equally and ratably
secured for as long as Indebtedness secured by such Liens is secured.
The Transaction includes the GM Lien securing the GM Loan through a lien on
the New Facility and would be subject to the restriction described in the
preceding paragraph. To facilitate the transaction, the Proposed Amendments
amend the definition of "Permitted Liens" in the Indenture to include the GM
Lien. Accordingly, the Proposed Amendments would allow the Company to enter into
the Transaction and incur the GM Lien without being subject to Section 4.12.
Section 4.12 will remain in effect for all other purposes.
Asset Sales
Section 4.13 of the Indenture currently provides, generally, that the
Company may engage in an Asset Sale only if the Company receives at the time of
the Asset Sale consideration at least equal to the fair market value of the
asset, and at least 85% of such consideration consists of cash or Cash
Equivalents. The Indenture provides that within 180 days after any Asset Sale,
the Company must reinvest the proceeds of such Asset Sale in the business of the
Company or, when such unreinvested amounts exceed $5 million, make an offer to
all Holders to purchase the maximum principal amount of Notes that can be bought
with such funds at an offer price in cash in an amount equal to 101% of the
principal amount thereof.
Assuming the Trademark is worth more than $500,000, the assignment of the
Trademark would be subject to Section 4.13 of the Indenture. The Transaction
would then violate the Indenture in numerous ways, including the failure of the
Company (i) to receive 85% of the consideration for the Asset Sale in cash or
Cash Equivalents and (ii) to receive such consideration immediately.
The Proposed Amendments amend the definition of "Asset Sale" in the
Indenture to exclude assignment of the Trademark in connection with the
Transaction. Accordingly, under the Proposed Amendments, the assignment of the
Trademark to GM would not be subject to Section 4.13 of the Indenture's
Limitation of Asset Sales provision. Section 4.13, however, would continue to
apply to all other Asset Sales.
Section 6. Procedures for Delivering Consents
General
Delivery of the Consent and Letter of Transmittal in accordance with the
procedures described below will constitute the delivering Holder's consent to
the Proposed Amendments. All questions as to the form of all documents and the
validity (including the time of receipt), eligibility, acceptance or withdrawal
of delivery or revocation of Consents will be determined by the Company, in its
sole discretion, which determination shall be final and binding. Alternative,
conditional or contingent deliveries of Consents will not be considered valid.
The Company reserves the absolute right, subject to applicable law, to waive any
defect or irregularity as to delivery of particular Consents. None of the
Company, the Tabulation Agent, the Trustee or any other person will be under any
duty to give notification of any defects or irregularities in Consents or will
incur any liability for failure to give any such notification. The Company's
interpretation of the terms and conditions of the Solicitation (including the
Consent and Letter of Transmittal and the instructions thereto) will be final
and binding on all parties.
-8-
<PAGE>
For a Holder to validly Consent pursuant to the Solicitation, a
properly completed and validly executed Consent and Letter of Transmittal (or a
manually signed facsimile thereof), together with any signature guarantees and
any other documents required by the instructions to the Consent and Letter of
Transmittal, must be received by the Tabulation Agent at one of its addresses
set forth on the back cover of this Statement prior to the Expiration Date.
THE SOLICITATION IS NOT BEING MADE TO HOLDERS IN ANY JURISDICTION IN WHICH
THE SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION.
Holders of Notes should review this Statement and the accompanying Consent
and Letter of Transmittal carefully.
Delivery of Consent and Letter of Transmittal
If the Consent and Letter of Transmittal is signed by a beneficial owner
who is not either (a) the registered owner of the Notes or (b) the agent thereof
duly appointed by written proxy delivered to the Tabulation Agent, the
registered owner must complete and sign the "Consent Box" set forth in the
Consent and Letter of Transmittal, as only registered owners (or such duly
appointed agents) are entitled to deliver Consents.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
deliver a Consent should contact such registered holder promptly and instruct
such registered holder to deliver Consents on such beneficial owner's behalf. If
such beneficial owner wishes to personally deliver the Consents, such beneficial
owner must, prior to completing and executing the Consent and Letter of
Transmittal and, where applicable, delivering such Consents, either make
appropriate arrangements to register ownership of the Notes in such beneficial
owner's name or follow the procedures described in the immediately preceding
paragraph. The transfer of record ownership may take a considerable amount of
time.
CONSENTS AND LETTERS OF TRANSMITTAL, SHOULD BE SENT TO THE TABULATION AGENT
ONLY AND NOT TO THE COMPANY OR THE TRUSTEE. IN NO EVENT SHOULD A HOLDER TENDER
OR DELIVER ANY NOTES.
THE METHOD OF DELIVERY OF THE CONSENT AND LETTER OF TRANSMITTAL TO THE
TABULATION AGENT IS AT THE ELECTION AND RISK OF THE DELIVERING HOLDER AND,
EXCEPT AS OTHERWISE PROVIDED PURSUANT TO GUARANTEED DELIVERY, DELIVERY WILL BE
DEEMED MADE WHEN ACTUALLY RECEIVED BY THE TABULATION AGENT. INSTEAD OF EFFECTING
DELIVERY BY MAIL IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IF SUCH DELIVERY IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER
USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT
THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT
DELIVERY TO THE TABULATION AGENT PRIOR TO SUCH DATE.
Signature Guarantees
Signatures on the Consent and Letter of Transmittal must be guaranteed
by a firm which is a member of the Securities Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Program or the Stock Exchanges
Medallion Program or by any other "Eligible Guarantor Institution" as such term
is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing being
referred to herein as an "Eligible Institution") unless (a) the Consent and
Letter of Transmittal is signed by the registered Holder of the Notes for which
Consents are delivered and the "Special Payment Instructions" box on the Consent
and Letter of Transmittal is not completed, or (b) such Consents are delivered
for the account of an Eligible Institution. If Notes are registered in the name
of a person other than the signer of the Consent and Letter of Transmittal or if
payment is to be made to a person other than the registered Holder, then the
registered Holder should complete and sign the appropriate box on the Consent
and Letter of Transmittal, with such signature guaranteed by an Eligible
Institution.
-9-
<PAGE>
Special Payment Instructions
Holders should indicate in the applicable box in the Consent and
Letter of Transmittal the name and address to which payment of the Consideration
is to be sent, if different from the name and address of the person signing the
Consent and Letter of Transmittal. If no such instructions are given, payment of
the Consideration will be made to the registered Holder of Notes for which
Consents are given.
Backup Federal Income Tax Withholding
To prevent backup federal income tax withholding, each Holder of Notes
delivering Consents must provide the Tabulation Agent with such Holder's correct
taxpayer identification number and certify that such Holder is not subject to
backup federal income tax withholding by completing the Substitute Form W-9
included in the Consent and Letter of Transmittal. See Section 9.
Other Matters
NOTWITHSTANDING ANY OTHER PROVISION HEREOF, PAYMENT OF THE
CONSIDERATION FOR CONSENTS DELIVERED AND ACCEPTED PURSUANT TO THE SOLICITATION
WILL OCCUR ONLY AFTER TIMELY RECEIPT BY THE TABULATION AGENT OF A PROPERLY
COMPLETED AND VALIDLY EXECUTED CONSENT AND LETTER OF TRANSMITTAL (OR A MANUALLY
SIGNED FACSIMILE THEREOF) TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES AND
ANY OTHER REQUIRED DOCUMENTS.
Section 7. Tabulation Agent
Tabulation Agent
State Street Bank and Trust Company has been appointed Tabulation Agent for
the Solicitation. All deliveries and correspondence sent to the Tabulation Agent
should be directed to one of its addresses set forth on the back cover of this
Statement.
Requests for assistance or additional copies of this Statement and the
Consent and Letter of Transmittal may be directed to the Tabulation Agent at its
address and telephone number set forth on the back cover of this Statement.
Section 8. Fees and Expenses
The Company will pay the Tabulation Agent reasonable and customary fees for
its services (and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith), and will pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Statement and related documents to the beneficial
owners of the Notes and in handling or forwarding Consents. In addition, the
Company will indemnify the Tabulation Agent against certain liabilities in
connection with its services, including liabilities under the federal securities
laws.
In connection with the Solicitation, directors, officers and regular
employees of the Company (who will not be specifically compensated for such
services) may solicit consents by use of the mails, personally or by telephone,
telegram or facsimile transmissions.
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<PAGE>
Section 9. Certain Federal Income Tax Considerations
The following summary discusses certain U.S. federal tax consequences of
the Solicitation and adoption of the Proposed Amendments to Holders of Notes.
For purposes of this summary, a "U.S. Holder" means a beneficial owner of a Note
that is for U.S. federal income tax purposes:
. an individual who is a citizen or resident of the United States;
. a corporation, partnership or other business entity created or
organized under the laws of the United States or any state or
political subdivision thereof (including the District of Columbia);
. an estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
. a trust with respect to which a court within the United States is able
to exercise primary supervision over its administration, and one or
more United States persons have the authority to control all of its
substantial decisions.
An individual may, subject to certain exceptions, be deemed to be a
resident of the United States by reason of being present in the United States
for at least 31 days in the calendar year and for an aggregate of at least 183
days during a three-year period ending in the current calendar year (counting
for such purposes of all the days present in the current year, one-third of the
days present in the immediately preceding year, and one-sixth of the days
present in the second preceding year). A "Non-U.S. Holder" is a beneficial owner
of a Note that is not a U.S. Holder.
This summary is based on interpretations of the Internal Revenue Code of
1986, as amended (the "Code"), regulations issued thereunder, and rulings and
decisions currently in effect (or in some cases proposed), all of which are
subject to change. Any such change may be applied retroactively and may
adversely affect the federal tax consequences described herein. This summary
addresses only Holders that beneficially own Notes as capital assets and not as
part of a "straddle" or a "conversion transaction" for U.S. federal income tax
purposes or as part of some other integrated investment. This summary does not
discuss all of the tax consequences that may be relevant to particular investors
or to investors subject to special treatment under the U.S. federal income tax
laws (such as life insurance companies, tax-exempt entities, regulated
investment companies, securities dealers, or investors whose functional currency
is not the U.S. dollar). Holders should consult their tax advisors concerning
the application of U.S. federal tax laws to their particular situations as well
as any consequences of the Solicitation and adoption of the Proposed Amendments
under the laws of any state or other taxing jurisdiction.
Federal Income Tax Consequences to U.S. Holders of the Consideration
The Company intends to treat the Consideration for U.S. federal income tax
purposes as compensation paid to U.S. Holders that grant Consent to the Proposed
Amendments pursuant to the Solicitation. If this treatment is respected, a U.S.
Holder would be required to recognize ordinary income for U.S. federal income
tax purposes in an amount equal to the Consideration to which it is entitled,
when the Consideration is received or accrued, in accordance with its method of
accounting. U.S. Holders should consult their tax advisors regarding the proper
federal income tax treatment of the Consideration.
Federal Income Tax Consequences to U.S. Holders of the Adoption of the Proposed
Amendments
The adoption of the Proposed Amendments will not be treated as a taxable
event for U.S. federal income tax purposes. Therefore, U.S. Holders will not
recognize any taxable gain or loss, and will retain their adjusted tax basis and
holding period in their Notes after adoption of the Proposed Amendments.
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<PAGE>
Federal Income Tax Consequences to Non-U.S. Holders of the Adoption of the
Proposed Amendments
Although it is unclear whether Non-U.S. Holders are subject to U.S. federal
income tax with respect to the Consideration, the Company will withhold tax from
the Consideration paid to such Non-U.S. Holders at a rate of 30% unless (i) such
Non-U.S. Holder is engaged in the conduct of a trade or business in the United
States to which the receipt of the Consideration is effectively connected and
such Non-U.S. Holder provides a properly executed IRS Form W-8ECI or (ii) a tax
treaty between the United States and the country of residence of the Non-U.S.
Holder eliminates or reduces the withholding tax in respect of the Consideration
and such Non-U.S. Holder provides a properly executed IRS Form W-8BEN. Non-U.S.
Holders should consult their own tax advisors regarding the availability of a
refund of any U.S. withholding tax.
Backup Withholding Tax
The receipt of the Consideration by a U.S. Holder may be subject to backup
withholding at the rate of 31% with respect to such payments unless such Holder
(i) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. Any amount withheld under these rules will be credited
against the U.S. Holder's U.S. federal income tax liability. If backup
withholding results in an overpayment of U.S. federal income taxes, a refund may
be obtained from the IRS provided the required information is furnished. A U.S.
Holder who does not provide its correct taxpayer identification number may be
subject to penalties imposed by the IRS.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO PARTICULAR HOLDERS IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATIONS, AND DOES NOT DISCUSS ANY POSSIBLE
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE SOLICITATION AND ADOPTION OF
THE WAIVERS. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE SOLICITATION AND ADOPTION OF THE WAIVERS, INCLUDING
THE EFFECT OF ANY FEDERAL, STATE, LOCAL, FOREIGN TAX AND OTHER LAWS.
Section 10. Miscellaneous
THE SOLICITATION IS NOT BEING MADE TO HOLDERS OF NOTES IN ANY JURISDICTION
IN WHICH THE MAKING OR OF THE SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE
LAWS OF SUCH JURISDICTION. HOWEVER, THE COMPANY IN ITS SOLE DISCRETION, MAY
TAKE SUCH ACTION AS IT MAY DEEM NECESSARY TO MAKE THE SOLICITATION IN ANY SUCH
JURISDICTION, AND MAY EXTEND THE SOLICITATION TO HOLDERS OF NOTES IN SUCH
JURISDICTION.
No person has been authorized to give any information or make any
representation on behalf of the Company which is not contained in this Statement
or in the Consent and Letter of Transmittal and if given or made, such
information or representation should not be relied upon.
THE DELIVERY OF THIS STATEMENT SHALL NOT UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN ANY ANNEXES HERETO OR IN THE AFFAIRS OF THE
COMPANY OR ANY OF ITS SUBSIDIARIES OR AFFILIATES SINCE THE DATE HEREOF.
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The Consent and Letter of Transmittal should be sent or delivered by each
Holder or his or her broker, dealer, commercial bank, trust company or other
nominee to the Tabulation Agent at the address set forth below.
The Tabulation Agent for the Solicitation is:
State Street Bank and Trust Company
Telephone:
(617) 662-1548
<TABLE>
<S> <C>
By Overnight Courier or Hand Delivery: By Mail:
State Street Bank and Trust Company State Street Bank and Trust Company
Global Investor Services Group Global Investor Services Group
2 Avenue de Lafayette Corporate Trust Department
Corporate Trust Window P.O. Box 778
Fifth Floor Boston, MA 02102-0778
Boston, MA 02111-1724
Attention: Ralph Jones New York (as DROP AGENT ONLY):
State Street Bank and Trust Company, N.A.
Corporate Trust Department
61 Broadway, 15/th/ Floor
New York, NY 10006
</TABLE>
Any questions or requests for assistance or additional copies of this
Statement or the Consent and Letter of Transmittal may be directed to the
Tabulation Agent or the Company, each at its respective address and telephone
number set forth on this page. Holders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Solicitation.
Inquiries should be addressed to the Company or the Renco Group, Inc., each at
its respective address and telephone number set forth below.
AM General Corporation The Renco Group, Inc.
105 North Niles Avenue 30 Rockefeller Plaza, 42/nd/ Floor
South Bend, IN 46617 New York, NY 10112
Attention: Paul J. Cafiero Attention: James N. Chapman
Telephone: (219) 285 - 2907 Telephone: (212) 541-6000
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ANNEX A
Proposed Amendments to the Indenture
------------------------------------
The definition of "Asset Sale" in Section 1.1 of the Indenture is hereby amended
- --------------------------------------------------------------------------------
by adding the following to the end thereof:
- -------------------------------------------
Notwithstanding the foregoing, any assignment or licensing of the HUMMER
trademark and/or tradename or assignment of any rights to the HUMVEE trademark
and/or tradename made by the Company in favor of GM in connection with the GM
Transaction shall not be deemed an Asset Sale.
The definition of "Fixed Charges" in Section 1.1 of the Indenture is hereby
- ---------------------------------------------------------------------------
amended by adding the following to the end thereof:
- ---------------------------------------------------
Notwithstanding the foregoing, Fixed Charges shall not include the amortization
of debt discount, if any, associated with the GM Loan.
The definition of "Permitted Liens" in Section 1.1 of the Indenture is hereby
- -----------------------------------------------------------------------------
amended by adding the following to the end thereof:
- ---------------------------------------------------
Notwithstanding the foregoing, the definition of Permitted Liens shall include
the GM Lien.
Section 1.1 is hereby further amended by adding the following new definitions:
- ------------------------------------------------------------------------------
"GM" means General Motors Corporation, a Delaware corporation.
"GM Lien" means the Lien which secures the GM Loan.
"GM Loan" means a non interest bearing loan or loan facility made in connection
with the GM Transaction pursuant to which GM will lend the Company up to $235
million and such additional amounts as GM and the Company may mutually agree in
order to finance the construction and preparation of the New Facility.
"GM Transaction" means a series of agreements that shall include but not be
limited to (i) an assignment agreement through which the Company shall
irrevocably assign to GM all rights, title and interest to the HUMMER trademark
and trade name, (ii) an agreement pursuant to which GM shall agree to pay the
Company a pre-agreed fee for the assembly of New Vehicles ordered by GM, (iii)
an agreement or provisions of an agreement which will obligate GM to finance the
construction and preparation of the New Facility, (iv) a security agreement
which shall grant GM a purchase money security interest in the real and personal
property acquired or otherwise produced with the proceeds of the GM Loan and (v)
a master agreement integrating the agreements related to the Transaction.
"New Facility" means, in connection with the assembly of the New Vehicle, (i)
certain engineering and/or construction of facilities and improvements on
existing facilities and/or (ii) other related capital investments and (iii)
other expenditures (with the exception of compensating employees) necessary to
enable the Company to assemble the New Vehicle.
"New Vehicle" means a new generation motor vehicle bearing the HUMMER name which
will be engineered and designed by GM and with respect to which the Company
shall have certain rights to assemble such vehicle for a fee.
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<PAGE>
Section 4.9 is hereby amended by adding the following new clause (c) at the end
- -------------------------------------------------------------------------------
thereof:
- -------
Notwithstanding the foregoing, the provisions of this Section 4.9 shall not
apply to the GM Loan.
A-2
<PAGE>
ANNEX B
Agreements Associated With the Transaction
1. Master Agreement. An agreement which summarizes the main agreements (listed
below) to be executed, contains certain general representations and
warranties and specifies other general terms that apply to the Transaction.
2. Assignment Agreement. An agreement through which the Company would
irrevocably assign to GM all rights, title and interest to the Trademark.
3. New Vehicle Assembly Agreement. An agreement for the assembly of New
Vehicles through which GM would provide to the Company production rights
for a seven and one half year period and pay the Company for the assembly
of New Vehicles ordered by GM. The amount of the fee the Company would
receive for the assembly of the New Vehicle would be determined by a pre-
agreed schedule that would vary based on the volume of New Vehicles ordered
and assembled during a twelve month period. Such fee schedule would govern
fees during the entire term unless the volume of New Vehicles produced by
the Company caused the GM Note (which would be repaid by offset of
specified amortization against assembly fees otherwise payable by GM to the
Company per each New Vehicle Assembled) to be repaid in full. The Company
would be responsible for the construction of the New Facility to be
financed by GM.
4. Management Services Agreement. A marketing and distribution support
agreement through which GM would be the exclusive provider of global
marketing and distribution support services for the Current Vehicle.
5. License Agreement. A license agreement through which GM would grant to the
Company a limited license to utilize the HUMMER trademark in connection
with the Current Vehicle for the duration of the New Vehicle Assembly
Agreement. After such period, GM would consider, upon the Company's
request, extending the term of such license or granting the Company an
equivalent license, provided however, that the granting of such license
would be at GM's sole discretion.
6. GM Note. An interest-free promissory note (or series of interest-free
promissory notes) in the aggregate amount of up to $235 million, subject to
any mutually agreed upon changes, representing amounts loaned to the
Company pursuant to GM's obligation to finance the New Facility.
7. Security Agreement. A security agreement through which the Company would
grant to GM a purchase money security interest in the real and personal
property acquired with the proceeds of the GM Loan. The agreement would
require the Company to take certain steps to preserve such collateral, and
would require the Company to maintain specified types of insurance.
8. Right of Access Agreement. A right of access agreement through which the
Company would grant to GM, in the event of certain specified events of
default, the right to enter, occupy and utilize certain real and personal
property for the production of the New Vehicle, pursuant to terms of that
agreement. An event of default would be deemed to occurs if (1) the Company
failed to meet a delivery schedule over a specified period and did not cure
such failure within a specified period, (2) the President and CEO of the
Company would acknowledge in writing that the Company is unable to timely
satisfy its delivery requirements, (3) the Company would refuse for any
reason to deliver or assemble the required volume of New Vehicles ordered
by GM, (4) if a voluntary or involuntary bankruptcy petition under the
Bankruptcy Code were filed by or against the Company and a final order of
relief under Chapter 7 were entered, or any proceedings under
A-3
<PAGE>
Chapter 11 of the Bankruptcy Code were converted to proceedings under
Chapter 7 of the Bankruptcy Code pursuant to a final order of relief, (5)
the Company made a general assignment for the benefit of creditors or a
similar transfer or took action involving a material portion of certain
assets of the Company for purposes of liquidating such assets, (6) any
secured or lien creditor of the Company commenced foreclosure action on the
property its lien encumbers and obtained the right to possess or control a
material portion of the Company's assets, (7) bankruptcy proceedings were
filed by or against the Company, an order authorizing the use of cash
collateral or post-petition financing by the Company were not approved by
the Bankruptcy Court prior to termination or expiration of the major
portion of the Company's working capital financing arrangements and no
alternative arrangements were then in place, (8) the Company became
financially unable to perform its obligations under the New Vehicle
Assembly Agreement or any purchase order thereunder and such inability to
perform were not timely cured, (9) any of the Company's lenders terminated
or failed to extend their working capital or other financing arrangements
with the Company and the Company did not timely secure comparable
alternative financing, or (10) in the event of any material action or
inaction by the Company which can reasonably be expected to directly result
in the imminent interruption of GM's ability to supply New Vehicles to its
dealers and/or authorized distributors, provided the Company did not timely
cure.
9. HUMVEE Trademark Agreement. An agreement through which the Company would
commit for the duration of the New Vehicle Assembly Agreement to limit the
use of the HUMVEE trademark to its present use in connection with military-
related vehicles, goods and services.
10. Royalty Sharing Agreement. An agreement that would provide that the Company
and GM share royalties and licensing fees derived from the non-automotive
licensed merchandise that utilize the Trademark and/or the HUMVEE trademark
during the calendar years 2000 through 2009 (the "Royalties"). The
Company's share of the Royalties would be reduced yearly on a decreasing
sliding scale.
11. Joint Review Board Agreement. An agreement through which the Company and GM
would establish one or more Joint Review Boards for the purposes of
managing this Agreement and other business relationships and possible
collaborations between the parties.
12. Equity Rights Agreement. An agreement giving GM the option, exercisable at
certain times, to convert unpaid portions of the GM Note into equity in the
Company. In no case would GM be able to obtain more than 40% of the
Company's voting stock. The Company has the right to repay at par value the
outstanding balance or any part thereof at any time. Notwithstanding the
foregoing, in the event GM provides notice of GM's intention to convert all
or part of the GM Note and the Company wishes to prepay all or a portion of
such amount, the Company may do so only if the Company also pays a premium
of 20% of the amount actually prepaid.
A-4
<PAGE>
AMENDMENT NO. 14 TO LOAN AND SECURITY AGREEMENT
-----------------------------------------------
AM GENERAL CORPORATION
105 North Niles Avenue
South Bend, Indiana 46634-7025
December 21, 1999
Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Gentlemen:
Congress Financial Corporation ("Lender") and AM General Corporation
("Borrower") have entered into financing arrangements pursuant to which Lender
may make loans and advances and provide other financial accommodations to
Borrower as set forth in the Loan and Security Agreement, dated as of April 30,
1992, by and between Lender, Borrower, AM General Sales Corporation ("AM Sales")
and General Engine Products, Inc. ("General Engine"), as amended pursuant to
Amendment No. 1 to Loan and Security Agreement, dated July 10, 1992, Amendment
No. 2 to Loan and Security Agreement, dated October 27, 1992, Amendment No. 3 to
Loan and Security Agreement, dated September 15, 1993, Amendment No. 4 to Loan
and Security Agreement, dated November 16, 1994, Amendment No. 5 to Loan and
Security Agreement, dated December 14, 1994, Amendment No. 6 to Loan and
Security Agreement, dated February 23, 1995, Amendment No. 7 to Loan and
Security Agreement, dated April 25, 1995, Amendment No. 8 to Loan and Security
Agreement, dated April 27, 1995, Amendment No. 9 to Loan and Security Agreement,
dated June 26, 1996, Amendment No. 10 to Loan and Security Agreement, dated
August 22, 1996, Amendment No. 11 to Loan and Security Agreement, dated December
17, 1996, Amendment No. 12 to Loan and Security Agreement, dated March 14, 1997
and Amendment No. 13 to Loan and Security Agreement, dated as of October 30,
1998 (as the same may hereafter be further amended, modified, supplemented,
extended, renewed, restated or replaced, the "Loan Agreement," and together with
all agreements, documents and instruments at any time executed and/or delivered
in connection therewith or related thereto, collectively, the "Financing
Agreements").
<PAGE>
Borrower designs and manufactures High-Mobility Multipurpose Wheeled
Vehicles for sale to the U.S. and foreign military services (the "HUMVEE").
Borrower also designs and manufactures a commercial version of the HUMVEE under
the name, "HUMMER" (the "Current Vehicle").
Borrower has advised Lender that it may acquire its current plant and
property located in Mishawaka, Indiana (the "Existing Facility") and enter into
mortgage financing for such acquisition secured by a lien on the Existing
Facility.
Borrower is also entering into arrangements with General Motors
Corporation, a Delaware corporation ("GM"), pursuant to which GM will, at its
expense, design, engineer, certify and release a new generation vehicle based
upon an existing GM platform bearing the HUMMER trademark (the "New Vehicle")
and retain Borrower to assemble the New Vehicle. In connection with these
arrangements, GM will make a non-interest bearing, secured loan to Borrower in
the approximate amount set forth in Exhibit A hereto ("GM Loan"). Borrower will
use the proceeds of the GM Loan to finance: (i) the engineering and construction
of a new addition on to the Existing Facility (the "HUMMER Annex"); (ii) the
purchase of certain machinery and equipment for use in the production of the New
Vehicle and to be installed in the HUMMER Annex; and (iii) costs required for
Borrower to prepare to assemble the New Vehicles (except for the cost of the
time of Borrower's management and employees dedicated to the performance of the
activities contemplated by the GM Agreements (as such term is hereinafter
defined)). Borrower will repay the GM Loan with a portion of the fee it receives
from GM for the delivery by Borrower to GM of an assembled New Vehicle. At
certain times, GM has the option to convert all or part of the outstanding
balance of the GM Loan into capital stock of Borrower, subject to certain
limitations as set forth in the GM Equity Conversion Agreement (as hereinafter
defined). Borrower will also assign all of its right, title and interest to the
HUMMER Trademark (as hereinafter defined) to GM and GM will license such
trademark to Borrower for Borrower to continue to use in connection with the
manufacture and distribution of the Current Vehicle.
Borrower has requested that Lender consent to: (i) the assignment by
Borrower to GM of the HUMMER Trademark pursuant to the GM Assignment, (ii) the
Indebtedness of Borrower to GM arising pursuant to the GM Loan, (iii) the grant
of a security interest in and lien upon the GM Collateral (as hereinafter
defined) by Borrower to GM to secure the GM Loan, (iv) the release by Lender of
its liens on the HUMMER Trademark, (v) certain amendments to the Senior Note
Indenture required by the arrangements of Borrower with GM, (vi) the issuance of
additional shares of common stock by Borrower to GM pursuant to the GM Equity
Conversion Agreement, (vii) the grant by Borrower to GM of the right to use the
GM Collateral and the right to use or occupy certain assets of Borrower pursuant
to the GM Right of Access Agreement, (viii) the amendment to the Loan Agreement
with respect to the amount of Capital Expenditures permitted thereunder, (ix)
contract assembly work by Borrower, and (x) certain other amendments to the Loan
Agreement as set forth herein.
1. Definitions
-----------
1.1 Additional Definitions. As used herein, the following terms shall have
----------------------
the respective meanings given to them below and the Loan Agreement shall be
deemed and is hereby amended to include, in addition and not in limitation of,
each of the following definitions:
(1) "Amendment No. 14" shall mean this Amendment No. 14 to the Loan
----------------
and Security Agreement by and among Borrower, AM Sales, General Engine and
Lender.
(2) "Current Vehicle" shall have the meaning set forth above.
---------------
(3) "Eligible HUMVEE Finished Goods Inventory" shall mean Inventory of
----------------------------------------
Borrower which is otherwise Eligible Inventory consisting of HUMVEES which are
first quality finished goods held for resale in the ordinary course of the
business of Borrower, which do not use or bear any of the HUMMER Trademarks.
-6-
<PAGE>
(4) "Eligible HUMVEE Service Parts Inventory" shall mean engines,
---------------------------------------
transmissions, wheels, doors, tires, panels, and other components, parts,
appliances, accessories, accessions, attachments or other equipment to be
incorporated in, affixed or attached to, installed on or otherwise related to
the HUMVEES constituting current service parts, which do not use or bear any of
the HUMMER Trademarks.
(5) "Eligible HUMVEE Work-In-Process Inventory" shall mean engines,
-----------------------------------------
transmissions, wheels, doors, tires, panels and other components, parts,
appliances, accessories, accessions, attachments or other equipment to be
incorporated in, affixed or attached to, installed on or otherwise related to
the HUMVEES constituting current work-in-process, which do not use or bear any
of the HUMMER Trademarks.
(6) "GM" shall mean General Motors Corporation, a Delaware
--
corporation, and its successors and assigns.
(7) "GM Agreements" shall mean, collectively, the following (as the
-------------
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced): (i) the GM Note, (ii) the GM Security Agreement,
(iii) the GM Right of Access Agreement, (iv) the GM Assignment, (v) the GM
Equity Conversion Agreement, (vi) the GM Assembly Agreement, (vii) the GM
License Agreement, and (viii) all agreements, documents and instruments executed
and/or delivered in connection therewith; the foregoing may sometimes be
referred to herein, individually, as a "GM Agreement".
(8) "GM Assembly Agreement" shall mean the New Vehicle Assembly
---------------------
Agreement, dated on or about the date hereof, by and between GM and Borrower, as
the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
(9) "GM Assignment" shall mean the Assignment Agreement, dated on or
-------------
about the date hereof, by and between Borrower, as assignor and GM, as assignee,
with respect to the HUMMER Trademark as the same now exists and may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
(10) "GM Collateral" shall mean the equipment and the HUMMER Annex
-------------
acquired by Borrower after the date hereof, with the proceeds of the GM Loan,
used in the production of the New Vehicles; provided, that, in no event shall
-------- ----
the "GM Collateral" include: (i) any of the assets and properties of Borrower
existing as of the date hereof, (ii) any existing or hereafter arising or
acquired accounts receivable, chattel paper, documents, instruments, letters of
credit, deposit accounts, inventory or general intangibles of Borrower (other
than general intangibles relating specifically and directly to the equipment and
real property constituting the GM Collateral), and (iii) any amounts at any time
deposited in or received in the lockbox or blocked account established by
Borrower in connection with its financing arrangements with Lender for the
handling of collections of accounts or other assets and the remittance thereof
to Lender or any other amounts at any time paid to Lender in respect of the
obligations of Borrower to Lender.
(11) "GM Equity Conversion Agreement" shall mean the Equity Conversion
------------------------------
Agreement, dated on or about the date hereof, by and between Borrower and GM, as
the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
(12) "GM Note" shall mean the Promissory Note, dated on or about the
-------
date hereof, issued by Borrower payable to GM in the original principal amount
set forth in Exhibit A hereto as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
(13) "GM Right of Access Agreement" shall mean the Right of Access
----------------------------
Agreement, dated on or about the date hereof, by and between Borrower and GM, as
the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
-7-
<PAGE>
(14) "GM Security Agreement" shall mean the Security Agreement, dated
---------------------
on or about the date hereof, by Borrower in favor of GM with respect to the GM
Collateral, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(15) "HUMMER Annex" shall have the meaning set forth above.
------------
(16) "HUMVEE" shall have the meaning set forth above.
------
(17) "HUMMER Trademark" shall mean the trademarks, marks, words, names,
----------------
letters, numbers, symbols, emblems, shapes, designs, devices and trade dress, or
any combination thereof listed on Exhibit B hereto.
(18) "New Vehicle" shall have the meaning set forth above.
-----------
(19) "Supplemental Senior Note Indenture" shall mean the Supplement to
----------------------------------
Indenture, dated on or about the date hereof, by and between Borrower and
Trustee.
1.2 Amendment to Definition.
-----------------------
(1) The term "Eligible Non-Hummer Part Inventory" shall be amended to
add the following on the end of that definition immediately before the period:
"and HUMVEES."
(2) The term "Hummers" in the Loan Agreement shall be amended to add
the following clause on the end of such definition:
", excluding any HUMVEE vehicles (as each such term is defined in Amendment
No. 14)."
(3) The term "Inventory" shall be amended to add the word ", HUMVEES"
after each time that the word "Hummer" appears in such definition.
1.3 Interpretation.
--------------
(1) For purposes of this Amendment, all terms used herein, including
but not limited to, those terms used and/or defined herein or in the recitals
hereto shall have the respective meanings assigned thereto in the Loan
Agreement.
(2) Until the execution and delivery of any GM Agreement, any
reference to such GM Agreement herein shall refer to the most recent draft of
such agreement provided by Borrower to Lender prior to the date hereof;
provided, that, in each case, to the extent such agreement contains any terms
- -------- ----
which are different in any material respect (in the determination of Lender)
from such drafts (including any terms in such draft which have not been
completed as of the date of such draft), such new or different terms must be
acceptable to Lender. On and after the execution and delivery of such GM
Agreement, the delivery to Lender of a true, correct and complete copy thereof
and the appraisal by Lender of changed terms as described above, any reference
to such agreement shall be to the agreement as so executed and delivered.
1. Consents and Acknowledgment.
---------------------------
1.4 Consents. Subject to the satisfaction of each of the terms and
--------
conditions contained herein, Lender hereby consents to the following:
-8-
<PAGE>
(1) the assignment by Borrower to GM of the HUMMER Trademark pursuant
to the GM Assignment;
(2) the Indebtedness of Borrower to GM arising pursuant to the GM Loan
evidenced by the GM Note to the extent permitted under Section 6.3(r) of the
Loan Agreement;
(3) the grant of a security interest in, and lien upon, the GM
Collateral by Borrower to GM to secure the Indebtedness of Borrower to GM
arising pursuant to the GM Loan evidenced by GM Note;
(4) the amendments to the Senior Note Indenture pursuant to the
Supplemental Senior Note Indenture (as in effect on the date hereof);
(5) the issuance of additional shares of common stock of Borrower to
GM pursuant to the GM Equity Conversion Agreement;
(6) Indebtedness of Borrower to a financial institution up to
$5,500,000 to be incurred in connection with Borrower's acquisition of the
Existing Facility and the grant of a lien and security interest upon the
Existing Facility to such financial institution to secure such indebtedness;
provided, that, Borrower complies with the terms of Sections 4.7, 6.3(d) and
- -------- ----
6.5(e) of the Loan Agreement;
(7) the Capital Expenditures by Borrower in connection with the
acquisition of the Existing Facility, construction of the HUMMER Annex and
otherwise under the GM Agreements as permitted pursuant to Section 3.4 hereof;
and
(8) contract assembly work by Borrower for GM pursuant to the GM
Agreements.
1.5 Acknowledgments.
---------------
(1) The grant by Borrower to GM of the right to use the GM Collateral,
the Equipment, the Real Property and de minimus amounts of consumable supplies
-- -------
of Borrower which shall in no event constitute Eligible Inventory shall be
permitted under Section 4.7 of the Loan Agreement and the Lender acknowledges
that the requirements of Section 4.7 of the Loan Agreement have been satisfied
so long as (i) Lender shall have received true, correct and complete copies of
the GM Agreements, duly authorized, executed and delivered by GM and Borrower
and such agreement is in full force and effect and GM and Borrower have complied
with the terms thereof, and (ii) GM shall only have the right to use such
Equipment, Real Property and de minimus amounts of consumable supplies of
-- -------
Borrower to the extent that it is reasonably necessary for the production of New
Vehicles by GM after the occurrence of the events set forth in the GM Right of
Access Agreement which entitles GM to the right to use such assets.
(2) Subject to the terms of this Amendment No. 14, the performance by
Borrower of the GM Agreements shall be permitted under Section 6.11 of the Loan
Agreement.
2. Amendments.
----------
1.6 Loans.
-----
(1) Section 2.1 (a) of the Loan Agreement is hereby amended and
restated as follows:
"(a) Subject to, and upon the terms and conditions contained herein,
at Borrower's request, Lender shall, in its discretion, make Loans to Borrower,
in such amounts from time to time as Lender shall determine, in its discretion,
of up to:
-9-
<PAGE>
(1) ninety (90%) percent of the Net Amount of Eligible Accounts
(or such greater or lesser percentage thereof as Lender
may determine from time to time); plus
(2) fifty (50%) percent of the value of Eligible HUMVEE Finished
Goods Inventory (or such greater or lesser percentage
thereof as Lender may determine from time to time);
plus
(3) fifty (50%) percent of the value of Eligible HUMVEE Service
Parts Inventory (or such greater or lesser percentage
thereof as Lender may determine from time to time);
plus
(4) twenty (20%) percent of the value of Eligible HUMVEE Work-in-
Process Inventory (or such greater or lesser percentage
thereof as Lender may determine from time to time);
plus
(5) thirty-five (35%) percent of the value of Eligible Non-Hummer
Parts Inventory (or such greater or lesser percentage
thereof as Lender may determine from time to time)."
(2) Section 2.1(d) of the Loan Agreement is hereby amended to delete
the reference to Sections 2.1(a)(ii), (iii), (iv), (v) and (vii) therein and
replace it with the following reference: "Sections 2.1 (ii), (iii), (iv) and
(v)".
1.7 Indebtedness.
------------
(1) Section 6.3 of the Loan Agreement is hereby amended to add the
following to the end of Section 6.3(d) of the Loan Agreement:
", except, that, Borrower may also incur Indebtedness to a financial
institution in an amount not to exceed $5,500,000 in connection with the
acquisition of the Existing Facility so long as Borrower complies with
Sections 4.7 and 6.5 (e) of the Loan Agreement;"
(a) Section 6.3 of the Loan Agreement is hereby amended to add a new
Section 6.3(r) to the Loan Agreement:
"(r) Indebtedness of Borrower to GM arising after the date hereof pursuant
to loans in cash or immediately available funds by GM to Borrower as
evidenced by the GM Note, provided, that, (i) such Indebtedness shall not
-------- ----
bear any interest, (ii) such Indebtedness is, and shall only be secured by,
the security interests and liens upon the GM Collateral as permitted under
Section 6.5(k) hereof, (iii) the rights and remedies of GM arising in
connection with or pursuant to the GM Loan are limited to recourse against
the GM Collateral and Borrower does not have any personal liability to GM
in respect of the obligations of Borrower to GM arising pursuant to the GM
Loan (such that Borrower does not have any liability in the event of any
deficiency for amounts owing to GM after GM has exercised its rights and
remedies with respect to the GM Collateral), (iv) the terms and conditions
of such Indebtedness shall be acceptable in all respects to Lender, (v) the
proceeds of the loan giving rise to such Indebtedness shall be used for:
(A) the engineering and construction of the HUMMER Annex, (B) the purchase
of certain machinery and equipment for use in the production of the New
Vehicle; and (C) costs required for Borrower to prepare to assemble the New
Vehicles (except for the cost of the time of Borrower's management and
employees dedicated to the performance of the activities contemplated by
the GM Agreements), (vi) such Indebtedness shall not exceed approximately
the amount set forth in Exhibit A hereto
-10-
<PAGE>
(less the aggregate amount of all repayments or repurchases of principal in
respect thereof), (vii) Borrower shall not, directly or indirectly, make
any payments with respect to such Indebtedness, including, but not limited
to any prepayments or any non-mandatory payments, except that (A) GM may
------ ----
obtain payments in respect of such Indebtedness by offsetting against the
assembly fee otherwise payable to Borrower pursuant to the terms of the GM
Assembly Agreement in an amount equal to the aggregate principal amount of
the GM Loan made to Borrower divided by the number of New Vehicles set
forth in Exhibit A hereto for each New Vehicle delivered by Borrower to GM
pursuant to the GM Assembly Agreement, and (B) Borrower may make
prepayments in respect of the GM Note pursuant to the terms of the GM
Equity Conversion Agreement so long as (1) as of the date of any such
prepayment and after giving effect thereto, the Excess Availability shall
not have been less than $10,000,000, and for each of the thirty (30)
consecutive days immediately prior to any such prepayment, Excess
Availability shall not be less than $10,000,000, (2) Lender shall have
received not less that seven (7) days prior written notice of the intention
of Borrower to make such prepayment, together with such information with
respect thereto as Lender may request, and (3) as of the date of any such
prepayment and after giving effect thereto, no Event of Default or act,
condition or event which with notice or passage of time or both would
constitute an Event of Default shall exist or have occurred, (viii)
Borrower shall not, directly or indirectly, (A) amend, modify, alter or
change any terms of such Indebtedness or any of the GM Agreements, or (B)
redeem, retire, defease, purchase or otherwise acquire such Indebtedness,
or set aside or otherwise deposit or invest any sums for such purpose, and
(ix) Borrower shall furnish to Lender all notices or demands in connection
with such Indebtedness either received by Borrower or on its behalf,
promptly after the receipt thereof or sent by Borrower or on its behalf
concurrently with the sending thereof, as the case may be."
1.8 Limitations on Liens. Section 6.5 of the Loan Agreement is hereby
--- --------------------
amended to add a new Section 6.5(j) as follows:
"(j) the purchase money mortgages or other purchase money liens or
security interests upon the GM Collateral in favor of GM pursuant to the GM
Security Agreement to secure the Indebtedness of Borrower to GM permitted
under Section 6.3(r) above."
1.9 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Section 6.11
--- -------------------------------------------------------
of the Loan Agreement is hereby amended to add the following clause to the end
of Section 6.11(b):
"except, that, Borrower may assign the HUMMER Trademark to GM pursuant
------ ----
to the GM Assignment (as in effect on the date of Amendment No. 14) and may
issue stock to GM pursuant to the GM Equity Conversion Agreement,"
2.1 Capital Expenditures. Section 6.14 of the Loan Agreement is hereby
--------------------
amended to add the following clause to the end of Section 6.14(b) immediately
before the period:
"provided, that, such limitation shall not apply to the Capital
-------- ----
Expenditures by Borrower (i) of up to $5,500,000 for the purpose of
acquiring the Existing Facility, and (ii) made with the proceeds of the GM
Loan utilized to construct the HUMMER Annex and for Capital Expenditures
pursuant to Borrower's arrangements with GM under the GM Agreements."
2.2 Properties in Good Condition. Section 6.17 of the Loan Agreement is
----------------------------
hereby amended to add on the following clause to the end of the third sentence
of Section 6.17(b):
"provided, that, Borrower may obtain certain parts and supplies on
-------- ----
consignment from GM needed for use in the assembly of the New Vehicles so
long as such parts and supplies shall at all times be segregated and
separately identifiable as consigned goods and in any report with respect
to the Inventory
-11-
<PAGE>
delivered to Lender under Section 6.21(a)(v) hereof, such parts and
supplies shall be separately and clearly identified."
2. Eligible Accounts. Without limiting any right of Lender to determine
-----------------
whether an Account is an Eligible Account or the amount of such Account which
may be an Eligible Account (including any Accounts which may be owing by GM to
Borrower), any Account payable by GM shall only be an Eligible Account to the
extent of the amount owing by GM to Borrower after reduction by the amount which
GM has the right to set off against such Account under the terms of the GM
Assembly Agreement in payment of amounts owing to GM under the GM Note or
otherwise, and shall constitute an Eligible Account so long as such Account
would other otherwise satisfy the requirements of the definition of Eligible
Accounts.
3. Collateral.
----------
3.1 GM Collateral. Notwithstanding anything to the contrary contained in
-------------
Section 4 of the Loan Agreement, upon the satisfaction of each of the conditions
to the effectiveness of this Amendment No. 14, Lender hereby agrees that the
Collateral shall not include the GM Collateral.
3.2 Release of HUMMER Trademark. Upon the satisfaction of each of the
---------------------------
conditions to the effectiveness of this Amendment No. 14, Lender shall at
Borrower's cost and expense release its security interest in and lien upon the
HUMMER Trademark (identified in Exhibit B hereto) to the extent such assets have
been validly transferred and assigned to GM pursuant to the GM Assignment.
3. Representations, Warranties and Covenants. In addition to the
------------------------------------------
continuing representations, warranties and covenants at any time made by
Borrower to Lender pursuant to the other Financing Agreements, Borrower hereby
represents, warrants and covenants with and to the Lender as follows (which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof and shall be incorporated into and made a part of
the Financing Agreements):
3.3 GM Agreements.
-------------
(1) The latest drafts of the GM Agreements have been delivered to
Lender and have been annexed hereto as Exhibit C and the final form of such
agreements shall be the same as such drafts or shall contain such new or
different terms as Lender may otherwise specifically agree pursuant to Section
1.3(b) of this Amendment No. 14.
(2) Borrower has received all necessary consents and approvals of third
parties, to the transactions contemplated by the GM Agreements including, the
Trustee and the holders of the Senior Notes.
(3) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the
transactions described in the GM Agreements and no governmental or other action
or proceeding has been threatened or commenced, seeking any injunction,
restraining order or other order which seeks to void or otherwise modify the
transactions described in the GM Agreements.
(4) None of the Collateral shall be located in the HUMMER Annex except,
------
that, a total of eighteen (18) Hummers, at any one time, may be located therein
- ----
while such vehicles are in the process of being painted.
(5) The only assets of Borrower which may be subject to the GM Right of
Access Agreement are the assets which constitute the GM Collateral and certain
of the Equipment, Real Property and de minimus amounts of consumable supplies of
-- -------
Borrower which shall in no event constitute Eligible Inventory; provided, that,
--------- ----
(i) GM shall only have the right to use any of such Equipment, Real Property
and de minimus amounts of consumable supplies of Borrower to the extent that it
-- -------
is reasonably necessary for the production of New Vehicles by GM after the
occurrence of the events set forth in the GM Right of Access Agreement which
entitle GM to the right to use such assets, (ii) the use thereof by GM does not
impair, hinder, delay or interfere with the ability of Borrower, Lender or its
designees to manufacture, distribute, produce, sell or otherwise deal with any
of the Collateral or of
-12-
<PAGE>
Lender to sell or otherwise realize on the Collateral, and (iii) such Equipment
or Real Property is not then being used by Borrower, Lender or on its behalf or
anticipated to be used by Borrower, Lender or on its behalf shortly thereafter
in the manufacture, distribution, production, sale of, or to otherwise deal
with, any of the Collateral.
(6) The proceeds of the GM Loan are and shall be sufficient for the
construction of the HUMMER Annex and the purchase of the machinery and equipment
required for the assembly of the New Vehicle by Borrower in accordance with the
terms of the GM Agreements. Borrower shall have good and marketable title to
all assets purchased with the proceeds of the GM Loan and otherwise relating to
the HUMMER Annex. GM shall provide Borrower with all of the parts and supplies
(except for de minimus amounts of consumable supplies) needed for the assembly
-- -------
of the New Vehicle. All of such parts and direct materials shall at all times
be segregated and separately identifiable as assets of GM. In no event shall
any report with respect to the Inventory include any such parts, supplies or de
--
minimus amounts of consumable supplies, except to the extent separately and
- -------
clearly identified.
(7) Within thirty (30) days after the end of each month, Borrower shall
deliver a report to Lender setting forth the outstanding balance of the GM Loan.
3.4 Supplemental Senior Note Indenture. Borrower has received all consents
----------------------------------
required in order for the Supplemental Senior Note Indenture to be binding and
enforceable with respect to the Trustee and each of the holders of the Senior
Notes which consents are valid and in full force and effect.
3.5 No Default. No Event of Default exists on the date of Amendment No. 14
----------
immediately after giving effect to the amendments to the Loan Agreement made by
the provisions of Amendment No. 14.
3.6 Corporate Power and Authority. This Amendment has been duly executed
-----------------------------
and delivered by Borrower, AM Sales and General Engine and is in full force and
effect as of the date of Amendment No. 14 and the agreements and obligations of
Borrower contained herein constitute legal, valid and binding obligations of
Borrower enforceable against Borrower in accordance with their respective terms.
3.7 Additional Items to be Delivered.
--------------------------------
(1) Borrower hereby agrees that, in addition to all other terms,
conditions and provisions set forth in the other Financing Agreements, Borrower
shall deliver or cause to be delivered to Lender, the following items, each in
form and substance satisfactory to Lender, as soon as possible, but in any
event, by no later than January 1, 2000:
(i) true, correct and complete copies of all of the GM Agreements,
each duly authorized, executed and delivered by GM and Borrower and evidence
that the transactions to be performed by the date of such delivery under each of
the GM Agreements have been performed in accordance with the terms thereof in
all respects, including the fulfillment (not merely the waiver, except as have
been disclosed to Lender and consented to in writing by Lender) of all
conditions precedent set forth therein; and
(ii) evidence that all actions and proceedings required to be
performed by the date of such delivery under the GM Agreements, applicable law
or regulation have been taken and the transactions contemplated thereunder have
been duly and validly consummated.
4. Conditions Precedent. The effectiveness of the consents, waivers and
--------------------
other terms and conditions contained herein shall be subject to the receipt by
Lender of each of the following, in form and substance satisfactory to Lender:
4.1 true, correct and complete copies of the Supplemental Senior Note
Indenture and all related agreements, duly authorized, executed and delivered by
Borrower, Trustee and any other party required for the effectiveness thereof;
and
-13-
<PAGE>
4.2 an original of Amendment No. 14, duly authorized, executed and
delivered by Borrower, AM Sales and General Engine.
4. Additional Events of Default. The parties hereto acknowledge, confirm
----------------------------
and agree that the failure of Borrower to comply with the covenants, conditions
and agreements contained herein shall constitute an Event of Default under the
Financing Agreements (subject to the applicable cure period, if any, with
respect thereto provided for in the Loan Agreement as in effect on the date
hereof). In addition, any default by Borrower or GM under any of the GM
Agreements (subject to any applicable cure period set forth therein) or the
termination of any of the GM Agreements, shall constitute an Event of Default
under the Financing Agreements, except as Lender may otherwise agree.
5. Effect of this Amendment. Except as modified pursuant hereto, no other
------------------------
waivers, changes or modifications to the Financing Agreements are intended or
implied, and in all other respects, the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of
effective date hereof. Any acknowledgment or consent contained herein shall not
be construed to constitute a consent to any other or further action by Borrower
or to entitle Borrower to any other consent. The Loan Agreement and this
Amendment shall be read and construed as one agreement. To the extent of
conflict between the terms of this Amendment and the other Financing Agreements,
the terms of this Amendment shall control.
6. Further Assurances. The parties hereto shall execute and deliver such
------------------
additional documents and take such additional actions as may be necessary to
effectuate the provisions and purposes of this Amendment.
7. Governing Law. The rights and obligations hereunder of each of the
-------------
parties hereto shall be governed by and interpreted and determined in accordance
with the laws of the State of New York.
8. Binding Agreement. Without limiting any other provision in this
-----------------
Agreement, this agreement shall be binding upon and inure to the benefit of each
of the parties hereto and their respective successors and assigns.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-14-
<PAGE>
9. Counterparts. This letter agreement may be executed in counterparts,
------------
but all of such counterparts shall together constitute but one and the same
agreement. In making proof of this letter agreement, it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties thereto.
Very truly yours,
AM GENERAL CORPORATION
By: /s/ Paul Cafiero
---------------------
Title: Vice President & Chief Financial Officer
----------------------------------------
ACKNOWLEDGED AND AGREED
AM GENERAL SALES CORPORATION
By: /s/ Paul Cafiero
---------------------
Title: Vice President & Chief Financial Officer
----------------------------------------
GENERAL ENGINE PRODUCTS, INC.
By: /s/ Paul Cafiero
---------------------
Title: Vice President & Chief Financial Officer
-----------------------------------------
AGREED:
CONGRESS FINANCIAL CORPORATION
By: /s/ Janet Last
----------------
Title: First Vice President
----------------------
-15-
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT, is dated effective as of June 30, 1999, by and
between AMLAND PROPERTIES, INC., a Delaware corporation ("Landlord"), and AM
GENERAL CORPORATION, a Delaware corporation ("Tenant").
W I T N E S S E T H:
Subject to the terms, provisions, and conditions of this Lease, and
each in consideration of the duties, covenants, and obligations of the other
hereunder. Landlord does hereby lease, demise, and let unto Tenant and Tenant
does hereby lease from Landlord the Premises (as hereinafter defined).
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. For purposes of this Lease, the following terms
-----------
shall have the meanings respectively indicated:
"Building" means that certain structure(s) containing approximately
415,000 (which figure the parties agree to use whether the same be more or less
in actuality) square feet of gross outside area of office, manufacturing and/or
warehouse space and the associated parking lots and infrastructure serving same,
constructed upon the Site. The Building is known as 13200 McKinley Avenue, South
Bend, Indiana.
"Premises" means the Building and the Site.
"Site" means that certain tract or parcel of real property lying and
being situated in St. Joseph County, Indiana, which land consists of
approximately 56 acres of land and is generally described in Exhibit "A"
attached hereto and incorporated herein for all purposes, and all right, title,
and interest of the Landlord, if any, in and to any land lying in the bed of any
street, road or avenue, open or proposed, in front of or adjoining the land and
in and to the easements, franchises, rights, appendages and appurtenances
including, without limitation, any side track agreements, belonging or
appertaining to the land.
ARTICLE 2
TERM
----
Subject to and upon the terms and conditions set forth herein, or in
any exhibit or addendum hereto, this Lease shall continue in force for a term
(the "Term") of sixty (60) months, commencing October 1, 1999, and expiring on
September 30, 2004.
ARTICLE 3
RENT
----
3.1 Rent. The total rental payable by Tenant for the term of this
----
Lease shall be Three Million Nine Hundred Forty-Two Thousand Five Hundred and
No/100ths Dollars ($3,942,500.00), payable in monthly installments ("Monthly
Rent") on the 1st day of each month throughout the Term, in advance, commencing
on October 1, 1999, as follows:
Dates Monthly Amount Annual Rent Amount for Period
- ----- -------------- ----------- -----------------
10/1/99 - 9/30/01 $60,520.83 $726,250.00 $1,452,500.00
9/30/01 - 10/1/04 $69,166.67 $830,000.00 $2,490,000.00
3.2 Late Charge. In the event that Tenant shall fail to pay any
-----------
installment of Monthly Rent within five (5) business days after the date on
which such installment is due, or Additional Rent within five (5) business days
after accrual thereof or billing thereof, there shall be added to such unpaid
1
<PAGE>
amount a late charge of three percent (3%) of the installment or amount due in
order to compensate Landlord for the extra administrative expenses incurred.
After thirty (30) days have elapsed from the date of accrual or billing of any
Monthly Rent or Additional Rent, the total amount then due, including any late
charge, shall bear interest at the rate of eighteen percent (18%) per annum,
until paid. Such late fees and interest shall be in addition and without
limitation to any and all other rights and remedies which may be available to
Landlord under this Lease, at law or in equity, and all such rights and remedies
shall be cumulative and may be exercised concurrently, in any order or not
exercised without waiving such rights and remedies by Landlord in its sole
discretion.
3.3 Additional Rent. All sums, liabilities, obligations, and other amounts
---------------
which Tenant is required to pay or discharge pursuant of this Lease (including,
without limitation, those set forth in Articles 7, 8 and 10, below) in addition
to Monthly Rent or as a result of Landlord's curing an event of default pursuant
to Section 18.2 of this Lease, together with any interest, penalty, or other sum
which may be added for late payment thereof, shall constitute additional rent
hereunder ("Additional Rent"). Except as specifically provided in this Lease,
Additional Rent shall be paid without abatement, deduction or set off of any
kind, it being the intention of the parties that, to the full extent permitted
by law, Tenant's covenant to pay Additional Rent shall be independent of all
other covenants contained in this Lease, including Tenant's continued occupancy
of the Premises. In the event of any failure on the part of Tenant to pay or
discharge any of the foregoing, Landlord shall have all rights, powers, and
remedies provided for herein or by law or equity or otherwise in the case of
nonpayment of rent.
ARTICLE 4
LEASEHOLD IMPROVEMENTS
----------------------
Tenant is in possession of the Premises, and Tenant (a) accepts the
Premises as suitable for the purpose for which they are leased; (b) accepts the
Building and every part and appurtenance thereof as being in a good and
satisfactory condition; (c) accepts the Premises in its present condition "as
is"; and (d) waives any defects in the Premises. Landlord has not made any
representation or warranty, express or implied, to Tenant with respect to the
Building or the Site. Tenant agrees to make all changes in the Building or Site
required by any public agency to comply with an applicable law or ordinance,
including, but not limited to, compliance with all local subdivision ordinances
applicable to the Site. This Lease does not cover any movable personal property
leased by Tenant from third persons.
ARTICLE 5
NON-TERMINATION
---------------
This Lease shall not terminate, nor shall Tenant have any right to
terminate this Lease or to be released, relieved, or discharged from any
obligations or liabilities hereunder for any of the following reasons:
(a) The inadequacy, incorrectness, or failure of the description of the
Premises or any portion thereof; and
(b) Any bankruptcy, insolvency, reorganization, composition, readjustment,
liquidation, dissolution, or other proceeding affecting Landlord or any assignee
of Landlord.
Except as expressly provided in-this Lease, Tenant waives all rights now or
hereafter conferred by law (i) to any abatement, suspension, deferment,
diminution, or reduction of rent or other amounts payable by Tenant hereunder or
(ii) to terminate this Lease.
ARTICLE 6
USE
---
6.1 Prescribed Use. Tenant shall use the Premises solely for any office,
--------------
manufacturing and/or warehouse facility or for any other use approved by
Landlord in writing.
2
<PAGE>
6.2 Nuisance. Excepting existing uses, Tenant shall not commit or suffer
--------
to be committed upon the Premises any nuisance or thing which may disturb the
quiet enjoyment of any other person or business within a reasonable distance
from the Premises.
6.3 Laws, etc. Tenant shall, at Tenant's sole cost and expense, comply
---------
in all material respects with all laws, ordinances, orders, rules, and
regulations promulgated by all federal, state, county, and municipal bodies and
agencies having jurisdiction (including, without limitation, the Americans with
Disabilities Act), which laws, ordinances, orders, rules, and regulations relate
to the business of Tenant and the effect of that business on the use, condition,
structure, or occupancy of the Premises; and Tenant shall install, remove, or
alter such of Tenant's fixtures, equipment, and facilities in the Premises and
obtain all licenses and permits as may be necessary to so comply. From time-to-
time, Tenant shall furnish to Landlord such evidence as Landlord may reasonably
require to the effect that the Site and the use thereof by Tenant is in
compliance with Ordinance No. APC 317-82 of the St. Joseph County Code, as
amended, or any applicable successor statute.
6.4 Dangerous Goods and Activities. Tenant hereby agrees not to engage in
------------------------------
any activity, or store upon the Premises any goods and equipment which would
render the fire and extended coverage insurance described in Article 10 hereof
void or which would increase the premiums of same unless Tenant reimburses
Landlord the amount of the increase in the premium.
6.5 Hazardous Materials. In addition and without limitation to the terms
-------------------
and conditions of Sections 6.1 through 6.4, above, Tenant covenants and agrees
that it shall not cause or permit any Hazardous Material (as defined below) to
be brought upon, kept, or used in or about the Premises or Building by Tenant,
its agents, employees, contractors or invitees. The foregoing covenant shall not
extend to substances typically found or used in Tenant's general office,
manufacturing and/or warehouse applications so long as (i) such substances and
any equipment which generates such substances are maintained only in such
quantities as are reasonably necessary for Tenant's operations in the Premises,
(ii) such substances are used strictly in accordance with the manufacturers'
instructions therefor, (iii) such substances are not disposed of in or about the
Building in a manner which would constitute a release or discharge thereof, and
(iv) all such substances and any equipment which generates such substances are
removed from the Building by Tenant upon the expiration or earlier termination
of this Lease. Any use, storage, generation, disposal, release or discharge by
Tenant of Hazardous Materials in or about the Building as is permitted pursuant
to this Paragraph shall be carried out in compliance in all material respects
with all applicable federal, state and local laws, ordinances, rules and
regulations. Tenant shall, annually within thirty (30) days after Tenant's
receipt of Landlord's written request therefor, provide to Landlord a written
certification by Tenant stating, in substance, that neither Tenant nor, to the
best of its knowledge, any person for whom Tenant is responsible has released or
discharged any Hazardous Materials in or about the Building other than in
compliance with all applicable federal, state and local laws, ordinances, rules
and regulations.
In the event that Tenant proposes to conduct any use or to operate any
equipment which will or may utilize or generate a Hazardous Material other than
as specified in the first paragraph of this subsection 6.5, Tenant shall first
in writing submit such use or equipment to Landlord for approval, which approval
will not be unreasonably withheld. No approval by Landlord shall relieve Tenant
of any obligation of Tenant pursuant to this subsection, including the removal,
clean-up and indemnification obligations imposed upon Tenant by this subsection.
Tenant shall, within five (5) days after receipt thereof, furnish to Landlord
copies of all notices or other communications received by Tenant with respect to
any actual or alleged release or discharge of any Hazardous Material in or about
the Premises or the Building and shall, whether or not Tenant receives any such
notice or communication, notify Landlord in writing of any reportable discharge
or release of Hazardous Material by Tenant or anyone for whom Tenant is
responsible in or about the Premises or the Building. In the event that Tenant
is required to maintain any Hazardous Materials license or permit in connection
with any use conducted by Tenant or any equipment operated by Tenant in the
Premises, copies of each such license or permit, each renewal or revocation
thereof and any communication relating to suspension, renewal or revocation
thereof shall be furnished to Landlord within five (5) days after receipt
thereof by Tenant. Compliance by Tenant with the two immediately preceding
sentences shall not relieve Tenant of any other obligation of Tenant pursuant
to this subsection.
3
<PAGE>
Upon any violation of the foregoing covenants, Tenant shall be obligated,
at Tenant's sole cost, to clean-up the subject released or discharged Hazardous
Materials introduced into the Building by Tenant or any person or entity for
whom Tenant is responsible. Such clean-up and removal shall include all testing
and investigation required by any governmental authorities having jurisdiction
and preparation and implementation of any remedial action plan required by any
governmental authorities having jurisdiction. All such clean-up and removal
activities of Tenant shall, in each instance, be conducted to the reasonable
satisfaction of Landlord and the satisfaction of all governmental authorities
having jurisdiction. Landlord's right of entry pursuant to Article 16 above
shall include the right to enter and inspect the Premises for violations of
Tenant's covenants herein.
Tenant shall indemnify, defend and hold harmless Landlord and Landlord's
Related Parties from and against any and all claims, liabilities, losses,
actions, costs and expenses (including attorney's fees and costs of defense)
incurred by such indemnified persons, or any of them, as the result of (i) the
introduction into or about the Building by Tenant or anyone for whom Tenant is
responsible of any Hazardous Materials, (ii) the usage, storage, maintenance,
generation, disposition or disposal by Tenant or anyone for whom Tenant is
responsible of Hazardous Materials in or about the Building, (iii) the discharge
or release in or about the Building by Tenant or anyone for whom Tenant is
responsible of any Hazardous Materials, (iv) any injury to or death of persons
or damage to or destruction of property resulting from the use, introduction,
maintenance, storage, generation, disposal, disposition, release or discharge by
Tenant or anyone for whom Tenant is responsible of Hazardous Materials in or
about the Building, and (v) any failure of Tenant or anyone for whom Tenant is
responsible to observe the foregoing covenants of this subsection.
Upon Tenant's failure to clean up any subject released or discharged
Hazardous Materials, Landlord shall be entitled to exercise all remedies
available to a landlord against a defaulting tenant, including but not limited
to those specifically set forth in this Lease. Without limiting the generality
of the foregoing, Tenant expressly agrees that upon any such violation Landlord
may, at its option, immediately terminate this Lease. No action by Landlord
hereunder shall impair the obligations of Tenant pursuant to this subsection.
As used in this subsection, "Hazardous Materials" is used in its broadest
sense and shall include any petroleum based products, pesticides, paints and
solvents, polychlorinated biphenyl, lead, cyanide, DDT, acids, ammonium
compounds and other chemical products and any substance or material defined or
designated as hazardous or toxic, or other similar term, by any federal, state
or local environmental statute, regulation, or ordinance affecting the Premises
or Building presently in effect or that may be promulgated during the term,
including any extended term of this Lease, as such statutes, regulations and
ordinances may be amended from time to time, including but not limited to the
following statutes: Resource Conservation and Recovery Act of 1976, 42 U.S.C.
(S) 6901 et seq.; Comprehensive Environmental Response, Compensation, and
-------
Liability Act of 1980, 42 U.S.C. (S) 9601 et seq.; Clean Air Act, 42 U.S.C.
-------
(S)(S) 7401-7626; Water Pollution Control Act (Clean Water Act of 1977), 33
U.S.C. (S) 1251 et seq.; Insecticide, Fungicide, and Rodenticide Act (Pesticide
-------
Act of 1987), 7 U.S.C. (S) 135 et seq.; Toxic Substances Control Act, 15 U.S.C.
-------
(S) 2601 et seq.; Safe Drinking Water Act, 42 U.S.C. (S) 300(f) et seq.;
------- -------
National Environmental Policy Act (NEPA) 42 U.S.C. (S) 4321 et seq.; Refuse Act
-------
of 1899, 33 U.S.C. (S) 407 et seq.; Tenant acknowledges that incorporation of
-------
any material containing asbestos into the Building is absolutely prohibited.
Tenant agrees, represents and warrants that it shall not incorporate or permit
or suffer to be incorporated, knowingly or unknowingly, any material containing
asbestos into the Premises.
ARTICLE 7
NET LEASE
---------
It is the intention of Landlord and Tenant that rental shall be absolutely
net to Landlord; that all costs, expenses, and obligations of every kind
relating directly or indirectly in any way, foreseen and unforseen, to Tenant's
use, occupancy, and possession of the Premises, which may arise or become due
during the Term hereof shall be paid by Tenant (except those costs, expenses,
and obligation expressly provided in this Lease as being the obligations of
Landlord); and that Landlord shall be indemnified by Tenant against all such
costs, expenses, and obligations. Such net rental shall be paid without
abatement, diminution, reduction, deduction, or set off. The terms and
conditions of this Article 7, along with the terms and conditions of any and all
other provisions of this Lease
4
<PAGE>
relating to the payment of money by Tenant to Landlord or the indemnification by
Tenant of Landlord, shall survive the expiration or sooner termination of this
Lease.
ARTICLE 8
IMPOSITION, UTILITIES, MAINTENANCE
----------------------------------
8.1 Impositions.
-----------
(a) Tenant shall pay all real estate taxes, assessments for local
improvements, water, and storm and sanitary sewer rates and charges, licenses
and permit fees, personal property taxes, other taxes, and governmental levies
and charges, general and special, ordinary and extraordinary, unforeseen as well
as foreseen, of any kind and nature whatsoever which are assessed, levied,
confirmed, imposed, or become a lien upon the Premises, or become payable during
the Term of this Lease or any renewal or extension thereof (the "Impositions"),
payment thereof to be made before any fine, penalty, interest, or cost may be
added thereto for the nonpayment thereof; provided, however, that if by law any
Imposition is payable, or may at the option of the taxpayer be paid, in
installments, whether or not interest shall accrue on the unpaid balance of such
Imposition, Tenant may pay the same (and any accrued interest on the unpaid
balance of such Imposition) in installments as the same respectively become due
and payable and before any fine, penalty, interest, or cost may be added thereto
for the nonpayment of any such installment and interest; and provided, further,
that any Imposition relating to a fiscal period of the taxing authority a
portion of which is included within the Term and a portion of which is included
in a period of time prior to commencement date hereof or after the expiration of
the Term or any extensions thereof (for reasons other than Tenant's default
hereunder) shall be adjusted between Landlord and Tenant as of the commencement
date hereof or such expiration date. Forty-five (45) days prior to the
expiration of the Term, Landlord shall bill Tenant for its pro rata share of the
Impositions based upon the overlap of the last year of the Lease and the fiscal
period of the taxing authorities, as reasonably estimated by Landlord, which
shall not be subject to re-adjustment. Such pro rata billing shall be based upon
the Impositions for the previous fiscal year. Tenant shall pay each such pro
rata billing to Landlord within thirty (30) days of receipt thereof; provided,
however, that if the Impositions for the last fiscal year of the taxing
authorities into which the Term extends shall vary from those of the previous
fiscal year, Tenant and Landlord shall make a final adjustment at the end of the
last such fiscal year based upon the Impositions actually paid by Landlord, and
any such liability of Landlord or Tenant for any such adjustment shall
specifically survive the termination of this Lease.
(b) Nothing hereinabove contained shall require Tenant to pay sums
owing under Landlord's mortgage or mortgages, any franchise, estate,
inheritance, succession, capital levy, stamp levy, stamp tax, or transfer of
Landlord or any income, excess profits, or revenue tax, or any other tax,
assessment, charge, or levy based on or measured by the gross income or capital
stock of Landlord or upon the net rental payable by Tenant under this Lease;
provided, however, that if at any time during the Term of this Lease an
occupation or excise tax on rents is levied or assessed against Landlord or the
net rental, as a substitution in whole or in part for taxes assessed or imposed
on the Premises, the same shall be deemed to be included within the term
"Impositions" as hereinabove defined and Tenant shall pay and discharge the same
in accordance with the provisions of this subsection in respect to the payment
of Impositions. Landlord covenants to forward promptly to Tenant any and all
notices or statements relating to taxes, assessments, fees, water, sewer, or
other rent, rate or charge, excise, levy, license fee, permit fee, inspection
fee, or other authorization fee and Landlord shall indemnify Tenant (without
hereby implying any rights of abatement, diminution, reduction, deduction, or
setoff), upon notice from Tenant, for penalty, late charge, delinquency charge,
or damages incurred by Tenant due to failure of Landlord to so forward said
notice or statement. Tenant shall furnish to Landlord, within thirty (30) days
after the date when any Imposition is due, official receipts of the appropriate
taxing authority or other evidence satisfactory to Landlord evidencing payment
thereof. The certificate, advice, or bill of nonpayment of any Imposition from
the appropriate official designated by law to make or issue the same or to
receive payment of any Imposition shall be prima facie evidence that such
Imposition is due and unpaid at the time of the making or issuance of such
certificate, advice, or bill of nonpayment.
5
<PAGE>
(a) In the event that Tenant shall contest the collection or
assessment of any tax, assessment, fee, water or sewer charge or rate, excise,
or levy by legal proceedings or other appropriate action, then Tenant shall,
prior to the prosecution or defense of any such claim, notify Landlord in
writing of its decision to contest such, and on written demand by Landlord shall
make a sufficient deposit of funds with an escrow agent designated by Landlord
in such written demand or provide a surety bond in amount sufficient to cover
the total contested amount plus penalties and interest thereon less any sum
previously paid into court or paid to the charging entity or provide such
security as may be required by the holder of the first-lien deed of trust with
respect to the Premises. Such deposit shall remain with the escrow agent until
such contest is concluded by final judgment or is otherwise satisfied;
provided, however, that in the event that Landlord reasonably deems itself in
danger of losing its interest in the Premises because of action by the taxing
authority prior to the conclusion of the contest, the funds shall be released
immediately without the necessity of further authorization from Tenant. If it be
determined that Tenant is liable for any such payment, the funds shall be paid
to the extent of such payment to the charging entity, together with interest and
penalties due thereon, if any, and the balance, if any, shall be returned to
Tenant. In the event that the amount of such deposit is insufficient to make
such payment, together with interest and penalties due thereon, after such final
judgment, the deficit shall be paid by Tenant; provided, however, that Landlord
may, at its option, pay such deficiency and the amount so paid shall be due
immediately from Tenant as Additional Rent hereunder. If, however, Tenant
prevails in its contest, such funds shall be returned to Tenant.
(d) As an inducement to Landlord to enter into this Lease, Tenant has
agreed to, and does hereby, indemnify and save harmless Landlord, it successors
and assigns from and against any and all taxes pursuant to the Indiana Gross
Income Tax Act of 1933, as amended, or similar law, arising out of or in
connection with any transactions, transfers, or assignments of the Site or any
ownership interest in any corporation, partnership, trust, or other entity that
has ever owned the Site, which transaction, transfer or assignment occurred on
or before the effective date of this Lease.
8.2 Utilities. Tenant shall be responsible for and promptly pay all charges
---------
incurred for all utility services to the Premises, including, but not limited
to, telephone service, sanitary sewer, water, natural gas, and electricity
arising out of Tenant's use, occupancy, and possession of the Premises. Tenant
shall also provide all replacement light bulbs and tubes and pay for all
maintenance upon utilities. In no event shall Landlord be liable for any
interruption or failure of utility service to the Premises. Notwithstanding
anything to the contrary above, in the event any utility service furnished to
the Premises shall be interrupted solely by reason of the grossly negligent or
willful act of Landlord or its agents; then in addition to any other rights and
remedies available to Tenant under this Lease or under law and provided further
that such service is not restored within forty-eight (48) hours following such
failure or inability (which period shall not be extended by force majeure),
Tenant shall be entitled to an abatement of rent for each day thereafter that
such service is not furnished until the date that such service is restored.
8.3 Maintenance, Repairs. Subject to the provisions of Article 21, below,
--------------------
relating to destruction of or damage to the Premises, Tenant agrees that at its
own expense it will keep and maintain the Premises, including, without limiting
the generality of the foregoing, the roof, exterior, foundation, structural, and
operational parts, paving, and landscaping, in a condition and repair similar to
its condition and repair on the commencement date hereof, reasonable wear and
tear excepted and subject to and excluding any alterations, improvements,
modifications, or additions made by Tenant pursuant to Article 11. Tenant shall
also pay all costs of maintaining railroad spur tracks, if any, serving the
Premises. Tenant shall be responsible for disposal of its trash from the
Building. Replacement and repair parts, materials, and equipment shall be of
quality equivalent to those initially installed within the Premises and repair
and maintenance work shall be done in accordance with the then existing federal,
state, and local laws, regulations, and ordinances pertaining thereto. Upon any
termination of this Lease, Tenant shall surrender the Premises in a condition
and repair similar to its condition and repair on the commencement date hereof,
reasonable wear and tear excepted and subject to and excluding any alterations,
improvements, modifications, or additions made by Tenant pursuant to Article 11,
and shall surrender all keys for the Premises to Landlord at the place then
fixed for the payment of rent.
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ARTICLE 9
RELEASE; INDEMNIFICATION; LIMITS ON LIABILITY
---------------------------------------------
9.1 Release. Tenant hereby waives any and all claims against Landlord, its
-------
beneficiaries, mortgagees, stockholders, agents (including, without limitation,
management agents), partners, officers, servants and employees, and their
respective agents, partners, officers, servants and employees ("Related
Parties") for injury to persons, damage to property or to any other interest of
Tenant sustained by Tenant or any person claiming through Tenant resulting from
any occurrence in or upon the Premises or Building, or surrounding areas,
including, but not limited to, such claims for damages resulting from: (a) any
equipment or appurtenances becoming out of repair; (b) the Premises being
out of repair; (c) injury or damage done or occasioned by wind, water, flooding,
freezing, fire, explosion, earthquake, excessive heat or cold, vandalism, riot
or disorder or other casualty; (d) any defect in or failure of plumbing, heating
or air conditioning equipment, electric wiring or installation thereof, gas,
water, steam pipes, stairs, railings or walls; (e) broken glass; (f) the backing
up of any sewer pipe or down spout; (g) the bursting, leaking or running of any
tank, tub, washstand, water closet, water pipe, drain, cooling coil or any
other pipe or tank in, upon or about the Premises; (h) the escape of steam or
hot water; (i) water, snow or ice being upon or coming through the roof,
skylight, trapdoor, stairs, walks or any other place upon or near the Premises
or otherwise; (j) the falling of any fixture, plaster or stucco; (k) any act,
omission, or negligence of co-tenants or of other persons or occupants of said
building or of adjoining or contiguous buildings or of owners of adjacent or
contiguous property and/or (i) accidents. Except as waived pursuant to Section
10.1 of this Lease, Tenant has not and does not waive any claims, actions,
losses, damages, or expenses suffered by Tenant which are (1) caused in whole or
in part by Landlord's failure to perform its covenants and obligations under
this Lease or (2) caused wholly or in a material part by the negligent act or
omission of Landlord, its agents, employees, contractors, or invitees; provided,
however, that the provisions of Section 10.1 of this Lease shall, to the extent
contrary to the provisions of this sentence, control and supersede.
9.2 Indemnification. Tenant hereby indemnifies and holds harmless Landlord
---------------
and Landlord's Related Parties from and against any and all claims, actions,
damages, liabilities, and expenses in connection with the loss of life, personal
injury, and/or damage to property arising from or out of (a) any occurrence in,
upon, or at the Premises, Building or Site, however caused, including
occurrences caused by the sole or contributory negligence of Tenant, its agents,
customers, invitees, concessionaires, contractors, servants, vendors,
materialmen, or suppliers; (b) the occupancy, use, or misuse by Tenant, or
Tenant's employees, of the Premises, Building or Site, service areas, parking
areas, pedestrian areas, pedestrian walks, or driveways; (c) any occurrence
elsewhere on the Site occasioned wholly or in part by any act or omission of
Tenant, its agents, customers, invitees, concessionaires, contractors, servants,
vendors, materialmen, or suppliers; (d) any occurrence occasioned by the
violation of any law, regulation or ordinance by Tenant or its agents,
customers, invitees, concessionaires, contractors, servants, vendors,
materialmen, or suppliers, and/or (e) from any breach or default on the part of
Tenant in the performance of any covenant or agreement on the part of Tenant to
be performed pursuant to the terms of this Lease; provided, however, that the
provisions of this indemnity shall only be applicable to the extent not caused
by the negligent act or omission of Landlord. In case Landlord shall be made a
party to any litigation commenced by or against Tenant for any of the above
reasons, then Tenant shall protect and hold Landlord harmless and pay all costs,
penalties, charges, damages, expenses, and reasonable attorneys' fees incurred
or paid by Landlord. The foregoing indemnity shall be in addition to Tenant's
obligation to supply the insurance as required by Article 10 of this Lease and
not in discharge of or substitution for same.
9.3 Tenant's Fault. In addition and without limitation to the preceding
--------------
paragraphs, if any damage to the Premises or Building or any equipment or
appurtenance therein, whether belonging to Landlord or to other tenants in the
Building, results from any act or neglect of Tenant, its agents, employees,
guests or invitees, Tenant shall be liable therefor and Landlord may, at
Landlord's option repair such damage, and Tenant shall, upon demand by Landlord,
reimburse Landlord the total cost of such repairs and damages to the Building.
If Landlord elects not to repair such damage, Tenant shall promptly repair such
damages at its own cost and in accordance with the provisions of this Lease. If
Tenant occupies space in which there is exterior glass, then Tenant shall be
responsible for the damage, breakage or repair of such glass, except to the
extent such loss or damage is recoverable under Landlord's insurance, if any.
7
<PAGE>
9.4 Limitation on Liability. Tenant agrees that in the event Tenant shall
-----------------------
have any claim against Landlord or Landlord's Related Parties under this Lease
arising out of the subject matter of this Lease, Tenant's sole recourse shall be
against Landlord's interest in the Building, for the satisfaction of any claim,
judgment or decree requiring the payment of money by Landlord or Landlord's
Related Parties as a result of a breach hereof or otherwise in connection with
this Lease, and no other property or assets of Landlord, Landlord's Related
Parties or their successors or assigns, shall be subject to the levy, execution
or other enforcement procedure for the satisfaction of any such claim, judgment,
injunction or decree.
9.5 Landlord's Indemnification. Subject only to Sections 9.1 and 9.4
--------------------------
above, Landlord agrees to indemnify, defend and hold Tenant and its officers,
directors, partners and employees harmless from and against all liabilities,
losses, demands, actions, expenses or claims, including attorneys' fees and
court costs but excluding consequential damages, for injury to or death of any
person or for damage to any property to the extent such are determined to be
caused by the negligence or willful misconduct of Landlord, its agents,
employees, or contractors in or about the Premises or Building. None of the
events or conditions set forth in this paragraph shall be deemed a constructive
or actual eviction or entitle Tenant to any abatement or reduction of Rent.
ARTICLE 10
INSURANCE
---------
10.1 Waiver of Subrogation. Notwithstanding any other provision of this
---------------------
Lease to the contrary, Landlord and Tenant each hereby waive all rights of
action against the other for loss of damage to the Premises, or the Building and
property of Landlord and Tenant in the Building, which loss or damage is insured
or is required pursuant to this Lease to be insured by valid and collectible
insurance policies to the extent of the proceeds collected or collectible under
such insurance policies, subject to the condition that this waiver shall be
effective only when the waiver is permitted by such insurance policies or when,
by the use of good faith effort, such waiver could have been permitted in the
applicable insurance policies. The policies of insurance required to be
maintained by Tenant under the terms of this Lease shall contain waiver of
subrogation clauses in form and content satisfactory to Landlord.
10.2 Public Liability and Property Damage. Bodily injury and property
------------------------------------
damage liability insurance will be carried and maintained by Tenant, at Tenant's
sole cost and expense, providing a single limit of liability of Six Million
Dollars ($6,000,000) per occurrence from and after the date hereof. All such
bodily injury insurance and property damage liability insurance shall
specifically make reference to the indemnity agreement contained in Article 9
hereof and shall name Landlord and its real estate investment manager as
additional insureds.
10.3 Worker's Compensation Coverage. Worker's compensation coverage
------------------------------
insurance shall be procured by Tenant in whatever amounts are necessary to
comply with the requirements of the State of Indiana for Tenant's employees.
10.4 Fire and Extended Coverage. Tenant agrees at its expense to procure
--------------------------
and maintain during the term of this Lease and any extensions thereof, fire and
extended coverage insurance on the Building in the full amount of the
replacement value of the Building, which value shall be redetermined by Landlord
at the beginning of each calendar year of the term of this Lease. It shall be
the responsibility of Landlord to give Tenant written notice of such
redetermined value, the obligations of Tenant hereunder being limited to the
amount stated in the written notice last received by Tenant. The policy of
insurance shall specifically provide that landlord and the beneficiary of any
deed of trust encumbering the Premises are additional insureds and that all
payments shall be made as their interests appear. Such coverage shall have a
deductible not to exceed $100,000 per occurrence.
10.5 Policy Form. All policies of insurance provided for herein to be
-----------
carried by Tenant shall be issued by insurance companies reasonably acceptable
to Landlord, shall be issued in the names of both Landlord and Tenant as co-
insureds (without any liability on the part of Landlord for premiums). Executed
copies of such policies of insurance or certificates thereof shall be delivered
to Landlord within ten (10) days after delivery of possession of the Premises
and thereafter within
8
<PAGE>
thirty (30) days prior to the expiration of such policy. As often as any such
policy shall expire or terminate, renewal or additional policies shall be
procured and maintained by Tenant in like manner and to like extent. All
policies of insurance delivered to Landlord must contain a provision that the
company writing said policy will give to Landlord twenty (20) days' notice in
writing in advance of any cancellation or lapse of the effective date of any
reduction in the amounts of insurance. The requirements of Section 10.2 shall
not preclude Tenant from carrying additional bodily injury liability insurance
and/or property damage liability insurance in its name and at its cost. All
public liability and property damage policies shall be written as primary
policies, not contributing with, and not in excess of, coverage which Landlord
may carry, if any.
ARTICLE II
ALTERATIONS AND FIXTURES
------------------------
11.1 Prior Consent. Tenant shall not make any alterations, improvements,
-------------
modifications, or additions to the Premises at a total cost and expense in
excess of $250,000 per alteration, improvement, modification, or addition,
without first having obtained in each instance the written consent of Landlord
which consent will not be unreasonably withheld or delayed by Landlord.
Landlord shall have the right to reasonably approve or disapprove the proposed
plans and specifications for such alterations, improvements, modifications, or
additions costing in excess of $250,000. Tenant shall submit to Landlord any
proposed plans and specifications for its approval or disapproval. If Landlord
shall fail to notify Tenant within ten (10) business days after receipt of such
plans and specifications that it disapproves such plans and specifications, then
Landlord shall be deemed to have approved such proposed plans and
specifications. Any alteration, improvement, modification, or fixture which is
installed by either Landlord or Tenant on the Premises and which is permanently
attached to the floors, walls, or ceilings shall remain upon the Premises when
the Premises are surrendered by Tenant unless the removal by Tenant of any
alterations, improvements, modifications, or fixtures made by Tenant will not
result in irreparable damage to the Premises.
11.2 Trade Fixtures. Notwithstanding any language in this Article 11 to the
--------------
contrary, all normal trade fixtures, equipment, shelves, racks, machinery, and
furniture installed in the Premises at the cost of Tenant other than
replacements for fixtures, equipment, shelves, machinery, and furniture
constituting fixtures may be removed by Tenant on or before the termination date
of this Lease; provided (a) Tenant is not in default under this Lease; (b)
removal shall be done in a workmanlike manner so as not to damage the
fundamental structural integrity of the Building; and (c) Tenant, at Tenant's
sole expense, shall repair all damage to the Premises, Building and Site
resulting from the removal of such trade fixtures, equipment, shelves, machinery
and furniture.
ARTICLE 12
MECHANICS' AND MATERIALMEN'S LIENS
----------------------------------
Tenant shall not create or permit to be created or to remain, and will
discharge by payment, bond, or escrow in the manner provided in Section 8.1(c)
hereof, any lien (including, but not limited to, the liens of mechanics,
laborers, artisans, or materialmen for work or materials alleged to be done
or furnished in connection with the Premises), encumbrance, or other charge
upon the Premises or any part thereof, upon Landlord's interest therein, or upon
Tenant's leasehold interest; provided, that Tenant shall not be required to
discharge any such liens, encumbrances, or charges as may be placed upon the
Premises by the act of Landlord.
ARTICLE 13
SIGNS
-----
Landlord shall have the right to approve or disapprove the number and
location of, and changes in any and all exterior signs which are in excess of
twenty-four (24) square feet in size and which are installed, erected, attached,
and/or maintained on the exterior of the Premises. Upon the expiration or
sooner termination of this Lease, Tenant shall remove such signage and repair
any and all damage caused by such signage or the removal thereof. In the event
Tenant fails to promptly perform under this Article 13. Tenant hereby appoints
Landlord as its attorney-in-fact to perform all work necessary to remove such
signage and make applicable repairs at Tenant's sole cost and expense.
9
<PAGE>
ARTICLE 14
ASSIGNMENT AND SUBLETTING
-------------------------
14.1 Prior Written Consent. Except as otherwise set forth in this Section
---------------------
14.1, Tenant shall not, without-the prior written consent of Landlord, (a)
assign or in any manner transfer this Lease or any part thereof or estate or
interest therein; (b) permit any assignment of this Lease or any interest or
estate therein by operation of law, including the sale or transfer of a
controlling interest in Tenant; (c) sublet the Building or any part thereof; or
(d) mortgage, pledge or hypothecate its leasehold interest. Landlord shall not
unreasonably withhold its consent to any transaction contemplated by (a) through
(d) immediately above, but nothing in this sentence shall be deemed to affect
Landlord's rights under Section 14.2 below.
Consent by Landlord to one or more assignments or sublettings shall not
operate as a waiver of Landlord's rights as to any subsequent assignments or
sublettings. Notwithstanding the giving of any such consent, the undersigned
Tenant and any guarantor of Tenant's obligations under this Lease shall remain
jointly and severally liable (along with each approved assignee or subtenant who
shall automatically become liable for all obligations of Tenant hereunder) and
Landlord shall be permitted to enforce the provisions of this instrument
directly against the undersigned Tenant and/or any guarantor of Tenant's
obligations hereunder and/or any assignee or subtenant without proceeding in any
way against any other person. If an event of default, as hereinafter defined,
should occur while the Building or any part thereof is then assigned or sublet,
Landlord, in addition to any other remedies herein provided or provided by law,
may at its option collect directly from such assignee or sublessee all rents
becoming due to Tenant under such assignment or sublease, and apply such rent
against any sums due to Landlord by Tenant hereunder, and Tenant hereby
authorizes and directs any such assignee or sublessee to make such payments of
rent direct to Landlord upon receipt of notice from Landlord. No direct
collection by Landlord from any such assignee or sublessee shall be construed to
constitute a novation or a release of Tenant or any guarantor of Tenant's
obligations hereunder from the further performance of its obligations hereunder.
Receipt by Landlord of rent from any assignee, sublessee, or occupant of the
Building shall not be deemed a waiver of the covenant contained in this Lease
against assignment and subletting or a release of Tenant under this Lease. The
receipt by Landlord from any such assignee or sublessee obligated to make
payments of rent shall be a full and complete release, discharge, and
acquittance to such assignee or sublessee to the extent of any such amount of
rent so paid to Landlord. Landlord is authorized and empowered, on behalf of
Tenant, to endorse the name of Tenant upon any check, draft, or other instrument
payable to Tenant evidencing payment of rent, or any part thereof, and to
receive and apply the proceeds therefrom in accordance with the terms hereof.
14.2 Landlord's Options. If Tenant requests Landlord's consent to an
------------------
assignment of the Lease or subletting of all or a part of the Building, it shall
submit to Landlord in writing at least sixty (60) days in advance of the date on
which Tenant desires to make such assignment or sublease, the name of the
proposed assignee or subtenant. Landlord shall have the option (to be exercised
within thirty (30) days from submission of Tenant's written request), (a) to
permit Tenant's to assign or sublet such space, provided, however, that if the
rental rate agreed upon by and between Tenant and the proposed subtenant under
any proposed sublease of the Premises (or any part thereof) is greater than the
rental rate being currently paid by Tenant to Landlord, Tenant must pay Landlord
hereunder for that portion of the Premises that is subject to such proposed
sublease, or if any consideration shall be received by Tenant in connection with
such proposed assignment or sublease (in addition to rental as provided in such
proposed sublease), then fifty percent (50%) of such excess rental or such
consideration, as the case may be (or both), shall be considered additional rent
owed by Tenant to Landlord, and shall be paid by Tenant to Landlord, in the case
of excess rentals, in the same manner that Tenant pays Monthly Rent and, in the
case of any other consideration, immediately upon receipt thereof by Tenant; or
(b) to refuse to consent to Tenant's assignment or subleasing of such space and
to continue this Lease in full force and effect as to the entire Leased
Premises. If Landlord should fail to notify Tenant in writing of such election
within such thirty (30) day period, Landlord shall be deemed to have elected
option (b) above. Notwithstanding the foregoing, Landlord shall not unreasonably
withhold its consent to an assignment of lease or a subletting by Tenant of all
or a portion of the Building.
10
<PAGE>
In the event of the transfer and assignment by Landlord of its' interest in
this Lease and the Premises, Landlord shall be released from any further (but
not then accrued) obligation hereunder and Tenant agrees to look solely to such
successor in interest of the Landlord for performance of such further
obligations that may arise after the date of such transfer and assignment.
ARTICLE 15
QUIET ENJOYMENT
---------------
Tenant, upon its payment of all rents and sums herein provided and upon its
compliance with the performance of all those provisions, terms, and conditions
applicable to and performable by Tenant, shall peaceably and quietly hold
occupy, and enjoy the Premises for the Term of this Lease without hindrance,
ejection, or interruption by Landlord, or persons lawfully or equitably claiming
under or through Landlord; provided that this covenant shall be binding upon
Landlord and its successors and assigns only with respect to breaches occurring
during its or their respective ownership of Landlord's interest hereunder.
ARTICLE 16
RIGHT OF ACCESS
---------------
Subject to all applicable Federal, State and local security laws governing
Tenant's operations at the Site, Landlord shall have the right, but not the
obligation, to enter the Premises upon twenty-four (24) hours advance oral
notice to Tenant (except in an emergency) to examine the same and to make such
repairs, alterations, improvements, or additions as Tenant has failed to make in
accordance with the terms of this Lease, and Landlord shall be allowed to take
all materials into and upon the Premises that may be required therefor without
the same constituting an eviction of Tenant, actual or constructive, and the
rent shall in no way abate while such repairs, alterations, improvements, or
additions are being made, by reason of loss or interruption of business of
Tenant; provided, however, that Landlord shall not unreasonably interfere with
the normal business operations of Tenant. During the six (6) months prior to the
expiration of the term of this Lease and upon no less than forty-eight (48)
hours' notice, Landlord may exhibit the Premises to prospective tenants or
purchasers during normal business hours and place upon the Premises the usual
notices "For Sale" or "For Rent" and Tenant shall permit the same to remain.
Notwithstanding anything to the contrary contained herein, if Landlord enters
the Premises for the purpose of performing work permitted under the terms of
this Lease, including the rights reserved to Landlord elsewhere under this
Lease, Landlord agrees to the following:
(a) To indemnify Tenant in accordance with the terms and conditions of
Section 9.5, above;
(b) To schedule the work at a time which is mutually convenient for
Landlord and Tenant and to pay the cost of Tenant's ordinary security practices,
if such work is to be performed after hours; and
(c) To use commercially reasonable efforts to minimize interference with
Tenant's conduct of business.
Any time Landlord shall enter upon the Premises to perform repairs or other
work, Landlord shall indemnify and hold Tenant harmless from any damage to
person or property as a result of such activity whether during the work period
or after.
ARTICLE 17
HOLDING OVER
------------
Should Tenant remain in possession of the Premises, or any part thereof,
after termination of this Lease (whether by the expiration of the term of this
Lease or otherwise) without the execution of a new lease by Landlord and Tenant,
Tenant, at the option of Landlord, shall become a tenant from month-to-month of
the Premises, or any part thereof, at one hundred and fifty percent (150%) of
the Monthly Rent pro rated and effective in the last month of the term of this
Lease, and under all other
11
<PAGE>
terms, conditions, provisions, and obligations of this Lease insofar as the same
are applicable to a tenancy from month-to-month.
ARTICLE 18
DEFAULT AND REMEDIES
--------------------
18.1 Events of Default. The occurrence of one or more of the following
-----------------
events shall constitute an event of default pursuant to the terms of this Lease:
(a) The failure of Tenant to comply with or to observe any terms,
provisions, or conditions of this Lease performable by and obligatory upon
Tenant, excluding the rent provisions hereof within thirty (30) days after
written notice by Landlord plus such additional time as cure is continuously and
diligently (in the sole, but reasonable, opinion of Landlord) undertaken by
Tenant.
(b) The failure of Tenant to pay to Landlord any monthly installment
of Monthly Rent or any other monetary charge due from Tenant hereunder within
ten (10) business days after written notice by Landlord, provided that, with
respect to Monthly Rent, if Landlord is required to give such notice more than
once in any twelve (12) consecutive-month period, it shall not be obligated
thereafter to give any such notice during the remainder of such twelve (12)
month period;
(c) Except as provided herein, the assignment of this Lease or
subletting of the Premises, or any part thereof, by Tenant without the prior
written approval of Landlord;
(d) The taking of Tenant's leasehold estate by execution or other
process of law;
(e) The entry of an order for relief against Tenant as a bankrupt or
insolvent according to law;
(f) The assignment of a substantial part of Tenant's property for the
benefit of creditors;
(g) The appointment of a receiver, guardian, conservator, trustee in
involuntary bankruptcy, or similar officer by a court of competent jurisdiction
to take charge of a substantial part of Tenant's property;
(h) The filing of a petition for involuntary bankruptcy or
reorganization of Tenant pursuant to any provision of the federal Bankruptcy
Code now or hereafter enacted, without subsequent dismissal thereof within
thirty (30) days;
(i) The filing by Tenant of a petition for bankruptcy, voluntary
reorganization, or for an arrangement under any provision of the federal
Bankruptcy Code now or hereinafter enacted, which petition provides for a plan
by which Tenant will settle, satisfy, or extend the time for the payment of
Tenant's debts; or
(j) The abandonment of the Premises, or a substantial portion
thereof, by Tenant, unless such abandonment is the result of a casualty event
covered by Article 21 hereof or a condemnation covered by Article 22 hereof.
18.2 Remedies. Upon the occurrence of any event of default enumerated in
--------
Section 18.1 hereof, Landlord shall have the following rights and remedies,
which shall be distinct, separate and cumulative, and which may be exercised by
Landlord concurrently or consecutively in any combination and which shall not
operate to exclude or deprive Landlord of any other right or remedy which
Landlord may have in law or equity: (i) terminating this Lease by written notice
thereof to Tenant, (ii) continuing this Lease in full force and effect, or (iii)
curing the default on behalf of Tenant.
12
<PAGE>
(a) In the event that Landlord shall elect to terminate this Lease,
upon written notice to Tenant, this Lease shall be ended as to Tenant and all
persons holding under Tenant, and all of Tenant's rights shall be forfeited and
lapsed, as fully as if this Lease had expired by lapse of time. In such event,
Tenant shall be required immediately to vacate the Premises and there shall
immediately become due and payable the amount by which (i) the present value
(discounted at a rate equal to one percent (1%) in excess of the discount rate,
including any surcharge thereon, on ninety (90) day commercial paper in effect
at the Federal Reserve Bank in Dallas, Texas, on the date of termination) of the
total rent and other benefits which would have accrued to Landlord under this
Lease for the remainder of the Term of this Lease if the terms and provisions of
this Lease had been fully complied with by Tenant exceeds (ii) the present value
(discounted at a rate equal to one percent (1%) in excess of the discount rate,
including any surcharge thereon, on ninety (90) day commercial paper in effect
at the Federal Reserve Bank in Dallas, Texas, on the date of termination) of the
total fair market rental value of the Premises for the balance of the Term of
this Lease as determined by Landlord in good faith (it being the intention of
both parties hereto that Landlord shall receive the benefit of its bargain); and
Landlord shall at once have all of the rights of re-entry upon the Premises,
without becoming liable for damages or guilty of a trespass. In addition to the
sum immediately due from Tenant under the foregoing provision, there shall be
recoverable from Tenant; (i) the reasonable cost of restoring the Premises to
good condition, normal wear and tear excepted; (ii) all accrued unpaid sums,
plus interest at the rate of eighteen percent (18%) per annum and late charges,
if in arrears, under the terms of this Lease up to the date of termination;
(iii) Landlord's reasonable cost of recovering possession of the Premises; and
(iv) rent and sums accruing subsequent to the date of termination pursuant to
the holdover provisions of Article 27.
(b) In the event that Landlord shall elect to continue this Lease in
full force and effect, Tenant shall continue to be liable for all rents and
other amounts due and payable hereunder. Landlord shall nevertheless have all
the rights of re-entry upon said Premises without becoming liable for damages or
guilty of a trespass and Landlord after re-entry may relet the Premises or any
part thereof, to a substitute tenant or tenants for a period of time equal to or
lesser or greater than the remainder of the term on whatever terms and
conditions Landlord, at Landlord's sole discretion, deems advisable. Against the
rents and sums due from Tenant to Landlord during the remainder of the term,
credit shall be given Tenant in the net amount of rent received from the new
tenant after reduction by Landlord for: (i) the costs incurred by Landlord in
reletting the Premises (including, without limitation, restoration of the
Premises to the condition specified in Section 8.3, brokerage fees, legal fees,
and the like); (ii) the accrued sums, plus interest and late charges if in
arrears, under the terms of this Lease; (iii) Landlord's cost of recovering
possession of the Premises; and (iv) the cost of storing any of Tenant's
property left on the Premises after re-entry. Notwithstanding any provision in
this Section 18.2(b) to the contrary, upon the default of any substitute tenant
or upon the expiration of the lease term of such substitute tenant before the
expiration of the Term of this Lease, Landlord may, at Landlord's election,
either relet to still another substitute tenant or terminate this Lease and
exercise its rights under Section 18.2(a) hereof.
(c) In the event that Landlord shall elect to cure the default of
Tenant, all sums expended by Landlord in effecting such cure, plus interest
thereon at the lesser of (i) eighteen percent (18%) per annum or (ii) the
highest lawful rate per annum, shall be due and payable immediately. Such sum
shall constitute Additional Rent hereunder pursuant to Section 3.3 hereof, and
failure to pay such sum when due shall enable Landlord to exercise all of its
remedies under this Lease.
18.3 Attorneys' Fees and Collection Costs. In the event that Tenant
------------------------------------
defaults in the performance of any of the terms, covenants, agreements, or
conditions contained in this Lease and Landlord places the enforcement of this
Lease, or any part thereof, or the collection of any rent or charge due, or to
become due, or the recovery of the possession of the Premises, in the hands of
attorneys, or files suit upon the same, Tenant agrees to pay Landlord's
reasonable attorneys' fees and other costs associated with such collection.
18.4 Waiver. Failure on the part of Landlord to complain of any action or
------
non-action on the part of Tenant, no matter how long the same may continue,
shall never be deemed to be a waiver by Landlord of any of its rights hereunder.
Further, it is covenanted and agreed that no waiver at any time of any of the
provisions hereof by Landlord shall be construed as a waiver of any of the other
provisions hereof and that a waiver at any time of any of the provisions hereof
shall not be construed
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as a waiver at any subsequent time of the same provisions. The consent or
approval by Landlord to or of any action by Tenant requiring Landlord's consent
or approval shall not be deemed to waive or render unnecessary Landlord's
consent or approval to or of any subsequent similar act by Tenant.
18.5 Removal of Tenant's Property. All property removed from the Premises
----------------------------
by Landlord pursuant to any provisions of this Lease or of law shall be handled,
removed or stored by Landlord at the cost, expense and risk of Tenant, and
Landlord, shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay Landlord upon demand for all expenses
incurred by Landlord in such removal and storage.
ARTICLE 19
PROTECTION OF LANDLORD'S MORTGAGEES
-----------------------------------
19.1 Subordination. This Lease shall be subject and subordinate to any
-------------
mortgages or deeds of trust that may have been placed or may be hereafter placed
upon the Premises by Landlord, and to any advances to be made thereunder, and to
any interest thereon, and to all renewals, replacements, and extensions thereof;
provided, however, that any mortgagee or trustee may elect by written
notification to Tenant to give the rights and interests of Tenant under this
Lease priority over the lien of its mortgage or deed of trust. Regardless of
whether this Lease is declared by Landlord or its successor to be superior or
subordinate to any such mortgages or deeds of trust, upon a foreclosure or
trustee's sale thereunder, the purchaser of Landlord's interest shall become
Landlord hereunder and shall recognize the rights and interest of Tenant under
this Lease, if Tenant is not then in default hereunder. Whether or not this
Lease is declared superior or subordinate to any such mortgages or deeds of
trust, Tenant shall, in the event that any proceedings are brought for
foreclosure of the Premises or the power of sale under any mortgage made by
Landlord covering the Premises is exercised, attorn to the purchaser upon any
such foreclosure or sale if so requested, and recognized such purchaser as
Landlord under this Lease providing such purchaser agrees to a commercially
reasonable non-disturbance agreement.
19.2 Necessary Instruments. Although Section 19.1 hereof is self-
---------------------
executing, Tenant shall execute and deliver whatever instruments may be required
by Landlord's mortgagees for the purposes of evidencing the subordination of
this Lease or making this Lease superior within ten (10) days of written notice
by such mortgagee or its trustee.
19.3 Notice to Landlord's Mortgagee. In the event of any default by
------------------------------
Landlord hereunder, Tenant shall notify Landlord's mortgagee, or its trustee, by
registered or certified mail, provided that such mortgagee, or its trustee,
shall have furnished Tenant with its mailing address. Such mortgagee, or its
trustee, shall thereafter have a reasonable opportunity to cure Landlord's
default, including time to obtain possession of the Premises by power of sale or
judicial foreclosure, if same should prove necessary to effect a cure.
19.4 Notice of Landlord's default. Landlord will use its best efforts to
----------------------------
cause to be included in any mortgages or deeds of trust hereafter placed upon
the Premises by Landlord to include a provision requiring the holder of such
mortgage or deed of trust to give to Tenant notice of, and a reasonable
opportunity to cure any default by Landlord under such mortgage or deeds of
trust prior to the institution of foreclosure proceedings thereunder.
ARTICLE 20
LANDLORD'S ASSIGNEE
-------------------
20.1 Right to Assign. Subject to Tenant's purchase options under the terms
---------------
and conditions of Article 25, Landlord shall have the right to sell, transfer,
or assign its interest hereunder, or any part thereof, without the prior consent
of Tenant. After such sale, transfer, or assignment, Tenant shall attorn to such
purchaser, transferee, or assignee, and provided that such purchaser,
transferee, or assignee assumes Landlord's obligations hereunder and agrees to a
commercially reasonable non-disturbance agreement, Landlord shall be released of
all obligations hereunder after the effective date of such sale, transfer, or
assignment.
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20.2 Estoppel Certificate. Tenant agrees promptly following any
--------------------
request by Landlord (a) to execute and deliver to Landlord any documents
(including an estoppel certificate (i) certifying that this Lease is unmodified
and in full force and effect, or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect and the date to which the rent and other charges are paid in advance,
if any, (ii) acknowledging that there are not, to Tenant's knowledge, any
uncured defaults on the part of Landlord hereunder, or so specifying such
defaults, if any, as are claimed, and (iii) such other matters as Landlord may
reasonably request) evidencing the status of the Lease as may be required,
either by a lender making a loan to Landlord to be secured by a deed of trust or
mortgage covering the Premises, or a purchaser of the Premises, from Landlord
and (b) to deliver to Landlord current financial statements of Tenant (with an
opinion by a certified public accountant, if available), including a balance
sheet and a profit and loss statement for at least two (2) years, all prepared
in accordance with generally accepted accounting principles consistently
applied. Tenant's failure to deliver an estoppel certificate within such time
shall be conclusive upon Tenant that (c) this Lease is in full force and effect,
without modification except as may be represented by Landlord; (d) to Tenant's
knowledge there are no uncured defaults in Landlord's performance; and (c) no
rent has been pain in advance except as set forth in this Lease.
ARTICLE 21
DESTRUCTION
-----------
21.1 Landlords's Obligations.
-----------------------
(a) In the event that the Building shall be damaged by fire
or other casualty, and such damage does not materially affect Tenant's ability
to carry on its business operations or render the Building partially
untenantable in Landlord's reasonable and good faith determination, regardless
of the time remaining in the Term of this Lease, Landlord shall, at its own
expense, cause such damage to be repaired, and the rent shall not be abated.
(b) If the Building shall be damaged by fire or other casualty and
the Building shall be rendered partially untenantable, unless the damage occurs
within the last two (2) years of the Term of this Lease, then Landlord shall, at
its own expense, cause the damage to be repaired, and the Monthly Rent shall be
abated proportionately as to the portion of the Building rendered untenantable.
If, however, the Building shall be damaged by fire or other casualty and the
Building shall be rendered partially untenantable during the last two (2) years
of the term of this Lease, then Landlord may, at its option, elect to (i) repair
such damage at its own expense and the Monthly Rent shall be abated
proportionately as to the portion of the Building rendered untenantable, or (ii)
terminate this Lease by giving Tenant written notice of termination within
thirty (30) days from the date of such occurrence, and the Monthly Rent shall be
abated as to the untenantable portion until the date of termination, when a
final adjustment of rent shall occur; provided, however, that in the event that
Tenant shall notify Landlord within ten (10) days after the occurrence of such
damage that it intends to elect to extend the term of this Lease pursuant to
Article 26 hereof the rights of Landlord under clause (ii) of this sentence to
terminate this Lease in the last two (2) years of the Term shall be temporarily
suspended for a period of twenty (20) days. During such twenty (20) day period,
Landlord and Tenant shall endeavor to mutually determine the Prevailing Rate for
Comparable Space (as defined in Article 26) for the next extended term. In the
event Landlord and Tenant mutually agree on the Prevailing Rate for Comparable
Space, which will be applicable to the next extended term, then Tenant shall
have the option for a period of ten (10) days after such determination to
unconditionally extend the term of this Lease pursuant to Article 26; and upon
the exercise of such option by Tenant in writing, Landlord's rights under this
paragraph (b) of Section 21.1 to terminate the Lease in the last two (2) years
of the term of this Lease shall be suspended, and Landlord shall be obligated to
make the repairs as contemplated by clause (i) above. If, on the other hand,
Landlord and Tenant for any reason cannot mutually agree upon the Prevailing
Rate for Comparable Space which will be applicable to the next extended term (or
if determined, but Tenant fails to unconditionally extend the term of this Lease
as provided above), then Landlord may elect to repair such damage or terminate
this Lease as provided in clauses (i) and (ii) of this paragraph (b) of Section
21.1.
15
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(c) If the Building shall be damaged by fire or other casualty and
the Building shall be rendered wholly untenantable by reason of such occurrence,
regardless of the time remaining in the Term of this Lease, then either Landlord
or Tenant may at its election terminate this Lease by giving written notice of
termination to the other within thirty (30) days from the date of such
occurrence, and in the event of such termination, the monthly rent shall be
adjusted as of the date of such occurrence. If neither Landlord nor Tenant shall
terminate this Lease within such thirty (30) day period, then Landlord shall, at
its own cost and expense, cause such damage to be repaired, and the Monthly Rent
shall be abated until the Building has been restored and rendered tenantable.
21.2 Time for Repairs. If Landlord is obligated to repair or to restore
----------------
the Building damaged by fire or other casualty not rendering the Building wholly
untenantable as hereinabove provided, then Landlord shall commence to repair any
such damage or to restore the Building within sixty (60) days after the date of
such occurrence and shall complete such repairs or restoration within one
hundred eighty (180) days after commencement. If Landlord elects to restore the
Building rendered wholly untenantable by reason of fire or other casualty as
hereinabove provided, then Landlord shall commence such repairs and/or
restoration within ninety (90) days following the date of such occurrence and
shall complete such repairs or restoration within two hundred ten (210) days
after date of commencement. If Landlord has not completed any repairs or
restoration within three hundred sixty five (365) days after the occurrence of
such damage (including days of force majeure under Article 23) the Tenant may
terminate this Lease by giving Landlord written notice of termination within
three hundred seventy five (375) days after the occurrence of such damage, and
in the event of such termination, the Monthly Rent shall be adjusted as of the
date of such occurrence.
21.3 Scope of Landlord's Repairs. In the event that Landlord elects or
---------------------------
shall be obligated to repair or restore any damage or destruction aforesaid, the
scope of work shall be limited to the original basic building and leasehold
improvements, if any, existing on the date of occurrence at its expense; time of
completion shall be subject to the provisions of Article 23 hereof; and Tenant
shall forthwith replace and/or fully repair and restore all of Tenant's signs,
trade fixtures, equipment, display cases, inventory, and other property
originally provided by Tenant. In no event shall Landlord's monetary
obligations hereunder exceed insurance proceeds actually received by Landlord
from insurance carried by Tenant pursuant to Section 10.4 hereof nor shall
Landlord be obligated because of the provisions hereof to repair or restore any
part of the industrial park or project of which the Building is a part outside
of the Building.
21.4 Extension of Term. The Term of this Lease shall be extended for a
-----------------
length of time equal to that during which rent shall be totally abated for
repairs under the provisions of this Article 21.
ARTICLE 22
CONDEMNATION
------------
22.1 Definitions. For purposes of this Article 22, the following terms
-----------
shall have the respective meanings set forth below:
(a) "Taking" means a taking of the Premises or any damage related to
the exercise of the power of eminent domain and including a voluntary conveyance
to any agency, authority, public utility, person, or corporate entity empowered
to take or condemn property in lieu of court proceedings;
(b) "Total Permanent Taking" means the Taking of the entire Premises
or so much of the Premises as to prevent or substantially impair the use thereof
by Tenant; a Taking of over fifty percent (50%) or more of the gross square feet
in the Building shall be deemed to be total for purposes hereof;
(c) "Partial Permanent Taking" means the Taking of only a portion of
the Premises which does not constitute a Total Permanent Taking;
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(d) "Date of Taking" means the date upon which title to the Premises,
or a portion thereof, passes to and vests in the condemnor or the effective date
of any order for possession if issued prior to the date title vests in the
condemnor;
(e) "Award" means the amount of any award made, consideration paid,
or damages ordered as a result of a Taking;
(f) "Total Temporary Taking" means the Taking of all of the Premises
for a temporary term; and
(g) "Partial Temporary Taking" means the Taking of any part of the
Premises for a temporary term.
22.2 Total Permanent Taking. In the event of a Total Permanent Taking
----------------------
during the Term of this Lease (or Total Temporary Taking for a period ending on
or subsequent to the end of the Term of this Lease) the following shall occur:
(a) the rights of Tenant under the Lease and the leasehold estate of Tenant in
and to the Premises shall cease and terminate as of the Date of Taking; (b)
Landlord shall refund to Tenant any prepaid rent; (c) Tenant shall pay to
Landlord any rent or charges due Landlord under the Lease, each prorated as of
the Date of Taking; (d) Tenant shall receive from the Award those portions of
the Award attributable to improvements to the Premises made and paid for by
Tenant and trade fixtures, equipment, and furniture of Tenant; and (e) the
remainder of the Award shall be paid to and be the property of Landlord.
22.3 Partial Permanent Taking. In the event of a Partial Permanent Taking
------------------------
of the Premises during the Term of this Lease (or Partial Temporary Taking for a
period ending on or subsequent to the end of the term of this Lease) the
following shall occur: (a) the rights of Tenant under the Lease and the
leasehold estate of Tenant in and to the portion of the Premises taken shall
cease and terminate as of the Date of Taking; (b) from and after the Date of
Taking the Monthly Rent shall be adjusted so that Tenant shall be required to
pay for the remainder of the Term the same portion of the Monthly Rent as the
number of gross square feet in the Premises remaining after the condemnation
bears to the number of gross square feet in the Premises at the date of
condemnation; (c) Tenant shall receive from the Award that portion of the Award
attributable to improvements to the Premises made and paid for by Tenant and
trade fixtures, equipment, and furniture of Tenant; and (d) the remainder of the
Award shall be paid to and be the property of Landlord. Landlord, from its
portion of the Award shall restore the remainder of the Premises, as nearly as
possible, to one (1) architectural unit.
22.4 Temporary Taking - Period Ending Before Expiration of Lease. In the
-----------------------------------------------------------
event of a Total or Partial Temporary Taking during the term of this Lease for a
period ending on or before the expiration of the Term of this Lease, the
following shall occur; (a) this Lease shall continue in full force and effect;
(b) the Award shall be paid to Landlord; (c) the Monthly Rent which becomes due
during the period of the Temporary Taking shall be reduced by the amount of the
Award; (d) any excess of the Award over the amount of the Monthly Rents which
becomes due during the period of the Temporary Taking shall be the property of
Landlord; and (e) if the Award is not sufficient to pay the Monthly Rents and
other obligations as they become due during the period of the Temporary Taking,
any deficiency shall be paid by Tenant to Landlord as the Monthly Rent becomes
due. In the case of a Partial Temporary Taking, Landlord, from its portion of
the Award, shall restore the remainder of the Premises, as nearly as possible,
to one (1) architectural unit.
ARTICLE 23
FORCE MAJEURE
-------------
Without limiting the generality and effect of the provisions of this Lease,
in the event that Landlord shall be delayed, hindered or prevented from the
performance of any act required hereunder by reason of Acts of God, fire,
unavoidable casualties, unusual weather or abnormal climatic conditions,
strikes, lockouts, labor disputes, labor troubles, inability to procure
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrection, war, or by any act, omission, delay, or neglect of Tenant,
or by any of Tenant's employees or agents, or by any separate contractor
employed by Tenant, or other reason of like nature not the fault of Landlord,
then the performance
17
<PAGE>
of such acts shall be excused for the period of the delay and the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay.
ARTICLE 24
[Intentionally Omitted]
ARTICLE 25
TENANT'S OPTION TO PURCHASE
---------------------------
Landlord hereby grants to Tenant the non-assignable right and option to
purchase the Premises in its then present "as is", "where is" and "with all
faults" condition, from Landlord at any time prior to September 30, 2001,
subject to and upon the following terms, provisions, and conditions:
(A) At any time after October 1, 1999, but prior to March 31, 2001, Tenant
may give to Landlord written notice (i) that Tenant desires to purchase the
Premises pursuant to the provisions hereof and to those provisions of a mutually
acceptable purchase agreement executed by the parties (which agreement the
parties shall promptly negotiate in good faith following the receipt by Landlord
of Tenant's notice), and (ii) of a closing date (the "Closing"), which date
shall not in any event be later than one hundred eighty (180) days after the
date of Tenant's notice under this subparagraph (A). Depending on the date
Landlord receives the applicable notice, the purchase price shall be as follows:
Date on Which
-------------
Landlord Receives Notice Purchase Price
------------------------ --------------
On or before 10/1/99 $5,000,000.00
10/2/99 - 4/1/00 $5,100,000.00
4/2/00 - 10/1/00 $5,200,000.00
10/2/00 - 4/1/01 $5,300,000.00
(B) At the Closing, Landlord will execute, have acknowledged and deliver
to Tenant a warranty deed and bill of sale conveying to Tenant indefeasible
title to the Premises free and clear of all liens and encumbrances other than
(i) liens and encumbrances which are reflected in that certain Owner's Policy of
Title Insurance dated on or about the date of the Existing Lease (as defined in
Section 27.10, below), issued by Abstract Company of St. Joseph County, Inc. on
behalf of Lawyers Title Insurance Corporation to Landlord, a copy of which has
been furnished to Tenant, (ii) any liens or encumbrances approved in writing by
Tenant after the date hereof, (iii) taxes for the year in which the Closing is
to occur and subsequent years, (iv) zoning ordinances and utility easements
which do not adversely affect the use of the Property, (v) any discrepancies,
conflicts or shortages in area or boundary lines, or any encroachments, or
overlapping of improvements which would be shown on a current survey reasonably
acceptable to Tenant, and (iv) rights of tenants in possession under valid and
existing leases.
(C) Rents, lease commissions, interests and ad valorem taxes for the then
current year shall be prorated at the Closing effective as of the Closing.
18
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ARTICLE 26
OPTION TO EXTEND
----------------
26.1 Prevailing Rate. As used in this lease, the term "Prevailing Rate
---------------
for Comparable Space" shall mean the average of the annual rates then being
charged in the county in which the Premises are located, for space and land
comparable to the Premises (taking into consideration the use, location,
leasehold improvements provided, age, rental concessions, and the time the
particular new rate under consideration shall be effective, which rate may be an
escalating rate during the new extended term of this Lease) but in no event less
than the monthly amount charged immediately prior to the applicable renewal
period. In the event Landlord and Tenant cannot agree upon the Prevailing Rate
for Comparable Space within sixty (60) days after the date Tenant has notified
Landlord that it intends to extend the initial term of this Lease, or any
extension thereof, as provided in this Article 26, Landlord shall serve a
written notice on Tenant stating that an appraisal should be conducted, in which
event twenty (20) days after such notice is given, Landlord shall nominate and
appoint one appraiser, and Tenant shall nominate and appoint one appraiser. Upon
the appointment of the two appraisers as hereinabove provided, said two
appraisers shall be sworn faithfully and fairly to determine the Prevailing Rate
for Comparable Space. The two appraisers shall afford to Landlord and Tenant a
hearing and the right to submit evidence, with the privilege of cross-
examination, on the question at issue, and shall, with all possible speed, make
their respective determinations in writing and shall give notice to Landlord and
Tenant of their respective conclusions. If there is a variance of less than 5%
in the Prevailing Rate for Comparable Space determined by the two appraisers,
the average of the values so determined shall be controlling and shall be
binding upon Landlord and Tenant. If there is a variance of more than 5% in the
Prevailing Rate for Comparable Space determined by the two appraisers, said
appraisers shall forthwith and within ten (10) days after both of said
appraisers have made their determinations appoint in writing a third appraiser
and give written notice of such appointment to Landlord and Tenant. In the event
the two appraisers shall fail to appoint or agree upon such third appraiser
within said ten (10) day period, a third appraiser shall be selected by Landlord
and Tenant, if they so agree upon such third appraiser within a further period
of ten (10) days. If any appraiser shall not be appointed or agreed upon within
the time herein provided, then either Landlord or Tenant may apply to the
appropriate Court of the State of Indiana for the appointment of such appraiser.
Said appraiser shall be sworn faithfully and fairly to determine, pursuant to
the procedures set forth above, the Prevailing Rate for Comparable Space. The
third appraiser's determination shall be controlling unless it is (i) higher
than the higher of the determinations of Prevailing Rate for Comparable Space of
the two original appraisers, in which case such previous high determination will
be controlling and binding upon Landlord and Tenant, or (ii) lower than the
lower of the determinations of the two original appraisers in which case such
previous low determination will be controlling and binding upon Landlord and
Tenant.
Landlord and Tenant shall pay the respective fees and expenses of the
appraisers they individually appoint, and the fees and expenses of the third
appraiser and any general expenses incurred by the panel of appraisers in
connection with the appraisal shall be paid by Landlord and Tenant, jointly and
equally. In the event any appraiser appointed as aforesaid shall thereafter die
or become unable or willing to act, such appraiser's successor shall be
appointed in the same manner as provided herein for the appointment of the
appraiser so dying or becoming unable or unwilling to act. Any appraiser
appointed hereunder shall have no less than five (5) years' experience in the
appraisal of investments of the type being appraised and shall be a MAI
appraiser unless otherwise jointly agreed.
In order to exercise any option to extend as provided in this Article 26,
Tenant shall notify Landlord of its intention thereof at least eighteen (18)
calendar months before the expiration of the initial Term hereof, or any
extension thereof, as the case may be. Thereafter, Landlord and Tenant shall
immediately proceed to determine the Prevailing Rate for Comparable Space as of
the commencement of such extended Term as provided in this Section 26.1. Tenant
shall have the option, exercisable at any time after the final determination of
the Prevailing Rate for Comparable Space but at least one (1) year before the
expiration of the initial Term hereof (unless such determination has not been
made through no fault of Tenant in which event Tenant may exercise its option
within ten (10) days after such determination even if such determination is not
made until after the initial or extended term of the Lease, as applicable, has
expired), or any extension thereof, as the case may be, to extend the Term
hereof as hereinafter provided in this Article 26.
19
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26.2 First Option to Extend.
----------------------
Tenant at its option may extend the Term of this Lease for an additional
five (5) years by serving written notice thereof upon Landlord at least one year
before the expiration of the initial Term hereof or as otherwise set forth in
Section 26.1 above, provided that at the time of such notice and at the
commencement of such extended Term, there shall exist no event of default as
defined in Article 18 of this Lease. Upon the service of said notice and subject
to the conditions set forth in the preceding sentence, this Lease shall be
extended without the necessity of the execution of any further instrument or
document. Such extended Term shall commence upon the expiration date of the
initial Term of this Lease, expire the annual anniversary of said date five (5)
years thereafter, and be upon the same terms, covenants and conditions as
provided in this Lease for the initial Term, except that the Annual Rent payable
during the extended Term shall be at the Prevailing Rate for Comparable Space at
the commencement of such extended Term. Payment of all additional rent and other
charges required to be made by Tenant as provided in this Lease for the initial
Term shall continue to be made during such extended Term. Any termination of
this Lease during the initial Term shall terminate all rights of extension
hereunder. Any assignment or subletting by Tenant pursuant to Article 24 of this
Lease shall terminate the option of Tenant contained herein.
26.3 Second Option to Extend.
-----------------------
Tenant at its option may extend the Term of this Lease for an additional
five (5) years by serving written notice thereof upon Landlord at least one year
before the expiration of the initial extended Term hereof or as otherwise set
forth in Section 26.1 above, provided that at the time of such notice and at the
commencement of such second extended term, there shall exist no event of default
as defined in Article 18 of this Lease. Upon the service of such notice and
subject to the conditions set forth in the preceding sentence, this Lease shall
be extended without the necessity of the execution of any further instrument or
document. Such second extended Term shall commence upon the expiration date of
the extended Term of this Lease, expire upon the annual anniversary of said date
five (5) years thereafter, and be upon the same terms, covenants and conditions
as provided in this Lease for the initial extended Term, except that the Annual
Rent payable during the second extended Term shall be at the Prevailing Rate for
Comparable Space at the commencement of such second extended Term. Payment of
all additional rent and other charges required to be made by Tenant as provided
in this Lease for the initial extended Term shall continue to be made during
such second extended Term. Any termination of this Lease during the initial Term
or the initial extended Term shall terminate all rights of extension hereunder.
Any assignment or subletting by Tenant pursuant to Article 14 of this Lease
shall terminate the option of Tenant contained herein.
ARTICLE 27
GENERAL PROVISIONS
------------------
27.1 Notice. Any notice or request (hereinafter severally and collectively
------
called "notice") in this Lease provided for or permitted to be given, made or
accepted by either party to the other must be in writing, and may, unless
otherwise in this Lease expressly provided, be given or be served by
depositing the same in the United States mail, postpaid and certified and
addressed to the party to be notified, with return receipt requested, or by
delivering the same in person to such party (or, in the case of a corporate or
partnership party, to an officer or general partner of such party, as the case
may be), or by prepaid telegram when appropriate, addressed to the party to be
notified. Notice deposited in the mail in the manner hereinabove described shall
be effective, unless otherwise stated in this Lease, from and after the date it
is so deposited. Notice given in any other manner shall be effective only if and
when received by the party to be notified. For purposes of notice, the addresses
of the parties shall, until changed as herein provided, be as follows:
For Landlord: Amland Properties, Inc.
c/o CB Richard Ellis Investors, LLC
800 Boylston Street, Suite 1475
Boston, Massachusetts 02199-8001
Attn: Director of Asset Management
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With Copy To: Amland Properties, Inc.
c/o CB Richard Ellis Investors, LLC
865 S. Figueroa Street, 35th Floor
Los Angeles, CA 90017
Attn: Portfolio Manager
For Tenant: AM General Corporation
105 North Niles Avenue
South Bend, Indiana 46634
Attn: Paul J. Cafiero
However, the parties hereto and their respective heirs, successors, legal
representatives, and assigns shall have the right from time to time and at any
time to change their respective addresses and each shall have the right to
specify as its address any other address by at least fifteen (15) days' written
notice to the other party given in conformance with this Section 27.1.
27.2 Entire Agreement-Amendments. It is expressly agreed by Tenant that
---------------------------
there are no representations, understandings or promises pertaining to the
Premises except as herein set forth. This Agreement may not be altered, changed
or amended except by an instrument in writing, signed by both parties hereto.
Paragraph captions herein are for Landlord's and Tenant's convenience only, and
neither limit nor amplify the provisions of this instrument.
27.3 Broker's Commission. Each of the parties agrees to indemnify the other
-------------------
against, and hold it harmless from, all liabilities arising from any claim for
"broker's or leasing agent's" commission, other than with respect to such
commissions agreed, in writing, to be paid by the party charged with the payment
therefor.
27.4 Rights of Successors and Assigns. Each of the provisions of this Lease
--------------------------------
shall extend to and shall, as the case may require, bind and inure to the
benefit of the parties hereto and their respective successors, heirs and legal
representatives, and in case of an assignment or sublease is consented to in
writing by Landlord, to Tenant's assigns and sublessees. Subject to the terms of
Section 20.1, Landlord shall have the right to transfer and assign, in whole or
in part, all its rights and obligations hereunder and in the Premises referred
to herein, and in such event and upon such transfer, Landlord shall be released
from any further obligations hereunder, and Tenant agrees to look solely to such
successor in interest of Landlord for the performance of such obligations.
27.5 Severability and Captions. If any clause or provision of this Lease
-------------------------
contract, or the application thereof to any person or circumstance, shall, to
any extent, be illegal, invalid or unenforceable under the present or future
laws effective during the Term of this Lease, then and in that event, it is the
intention of the parties hereto that the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to whom or which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be valid and
enforced to the fullest extent permitted by law. The caption of each
paragraph hereof is added as a matter of convenience only and shall be
considered to be of no effect in the construction of any provision or provisions
of this Lease.
27.6 No Personal Liability. The liability of Landlord to Tenant for any
---------------------
default by Landlord under the terms of this Lease shall be limited to the
interest of Landlord in the Premises, and Tenant agrees to look solely to
Landlord's interest in the Premises for the recovery of any judgment from
Landlord, it being intended that Landlord shall not be personally liable for any
judgment or deficiency.
27.7 Governing Law. This Lease and the rights and obligations of the
-------------
parties hereto shall be interpreted, construed, and enforced in accordance with
the laws of the State of Indiana.
21
<PAGE>
27.8 Short Form Lease. Tenant agrees not to record this Lease, but each
----------------
party hereto agrees, on request of the other, to execute a Memorandum of Lease
in form recordable and comply with applicable Indiana laws. In no event shall
such document set forth the rental or other charges payable by Tenant under this
Lease; and any such document shall expressly state that it is executed pursuant
to the provisions contained in this Lease, and is not intended to vary the terms
and conditions of this Lease.
27.9 WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY LAW, LANDLORD AND
--------------------
TENANT AND THERE RESPECTIVE OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES AGREE THAT
EACH SHALL, AND DO HEREBY, WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY, BETWEEN OR AGAINST THE PARTIES HERETO OR THEIR
SUCCESSORS OR ASSIGNS OR THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS AND
EMPLOYEES ON ANY MATTERS ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE,
THE RELATIONSHIP OF LANDLORD AND TENANT, AND/OR TENANT'S USE OR OCCUPANCY OF THE
PREMISES. THIS WAIVER IS MADE FREELY AND VOLUNTARILY, WITHOUT DURESS AND ONLY
AFTER EACH OF THE PARTIES HERETO HAS HAD THE BENEFIT OF ADVICE FROM LEGAL
COUNSEL ON THIS SUBJECT.
27.10 Existing Lease. Tenant is currently occupying the Premises pursuant
--------------
to an existing lease with Landlord dated September 11, 1994, as amended
("Existing Lease"). Upon the Commencement Date of this Lease, the Existing Lease
shall automatically terminate and be of no further force or effect, except that
Tenant shall continue to be obligated to pay any rent and other sums which may
be owing under the terms of the Existing Lease, to the extent that such sums
accrue through the date of termination of the Existing Lease. Any failure by
Tenant to timely pay any amounts owing under the Existing Lease, or to otherwise
comply with its obligations thereunder, shall constitute an event of default
under this Lease.
27.11 Authority. Landlord and Tenant covenant to each other that each has
---------
full right and authority to make this Lease.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE>
THIS LEASE IS DATED EFFECTIVE AS OF THE DATE AND YEAR FIRST ABOVE WRITTEN.
LANDLORD:
AMLAND PROPERTIES, INC.,
a Delaware corporation
By: CB RICHARD ELLIS INVESTORS, LLC,
a Delaware limited liability company
WITNESS 1:
By: /s/ Mark H. Luz /s/ John Matteson
---------------------------- ------------------------------------
Name: Mark H. Luz Name: John Matteson
-------------------------- ------------------------------
Title: Authorized Signatory
WITNESS 2:
/s/ Peter J. Mafera
------------------------------------
Name: Peter J. Mafera
------------------------------
By: /s/ William Harris
----------------------------
Name: William Harris
--------------------------
Title: Authorized Signatory
TENANT:
AM GENERAL CORPORATION,
a Delaware corporation
WITNESS 1:
By: /s/ Paul J. Cafiero /s/ Judith A. Ciesiolka
---------------------------- ------------------------------------
Name: Paul J. Cafiero Name: Judith A. Ciesiolka
-------------------------- ------------------------------
Title: Vice President & CFO
-------------------------
WITNESS 2:
/s/ Craig C. Macnab
------------------------------------
Name: Craig C. Macnab
------------------------------
23
<PAGE>
EXHIBIT A
A tract of land in the Southeast Quarter of Section 1 and Northeast Quarter of
Section 12 both in Township 37 North, Range 3 East; and in the Northwest Quarter
of Section 7, Township 37 North, Range 4 East all in Penn Township, St. Joseph
County, Indiana, more particularly described as follows:
Beginning at the Northwest Corner of said Section 7, Township 37 North, Range 4
Last; thence North 89 54' 49" East along the north line of said Section 7,466.94
feet; thence South 0 03' 27" East 1929.66 feet to the centerline of Jefferson
Highway; thence 152.87 feet along said centerline on a curve to the left having
a radius of 933.17 feet and subtended by a long chord 152.70 feet in length
having a bearing of South 57 40' 55" West; thence South 52 59' 20" West along
said centerline 852.27 feet, thence continuing on said centerline 429.21 feet
along a curve to the right having a radius of 696.94 feet and subtended by a
long chord 422.47 feet in length having a bearing of South 70 37' 55" West to
the South line of the Northeast Quarter of said Section 12; thence continuing on
said centerline of Jefferson Highway South 88 16' 30" West along said South line
18.04 feet to the intersection with the Easterly right of way line of the Twin
Branch Railroad; thence Northeasterly along said Easterly right of way line
909.6C feet along a curve to the left having a radius of 1246.28 feet (R.R.
definition) and subtended by a long chord 889.78 feet in length having a bearing
of North 19 02' 22" East; thence continuing on said easterly right of way line
North 01 52' 30" West 2097.97 feet to the centerline of Indiana State Highway
No, U.S. 20 thence North 69 07' 30" East along the centerline of said Highway
573.33 feet to the East line of Section 1, Township 37 North, Range 3 East;
thence South 0 00' 00" West along the east line of said Section 42.81 feet to
the Southerly right of way line of said highway; thence continuing along the
East line of Section 1, South 0 00' 00" West 405.18 feet to the Southeast corner
of Section 1 and the Northeast corner of Section 12, Township 37 North, Range! 3
East; thence continuing South along the East line of said Section 12 South 0 00'
00" West 27.00 feet to the Northwest corner of Section 7, Township 37 North,
Range 4 East and the Point of Beginning, containing 56.022 acres more or less.
24
<PAGE>
OFFICE/ WAREHOUSE LEASE AGREEMENT
The parties to this Agreement, effective January 1, 1999, between HOLLADAY
MISHAWAKA, LLC ("Landlord") and AM GENERAL CORPORATION ("Tenant"), Agree as
follows:
1. PREMISES; PREPARATION; SUBSTITUTION.
A. The Premises. The Landlord leases to the Tenant and the Tenant accepts
------------
that part of Byrkit Avenue Business Center located at 400 South Byrkit Avenue in
Mishawaka, Indiana (the "Building") as shown on the floor plan attached to this
Agreement as Exhibit A containing a total of 238,815 square feet of leasable
warehouse space (the "Warehouse") and 22,622 square feet of leasable office
space (the "Office"); and approximately 3 acres of vacant adjacent land located
east of the Building (the "Land"). The Building, Warehouse, Office and Land
are collectively referred to herein as the "Premises".
B. Substitution of Premises. The Landlord may, with at least thirty days'
------------------------
prior written notice to the Tenant, substitute other space within the Building
for the Office space subject to the same terms and conditions as though
originally leased to the Tenant at the time of execution and delivery of this
Agreement. Such substituted space shall contain at least the same useable area
as the Office space without any increase in rent. The Landlord shall pay all
reasonable moving expenses of the Tenant, including the reasonable removing and
replacement of the Tenant improvements, related to such substituted space.
2. TERM. The term of the lease (the "Term") shall be 60 months commencing
January 1, 1999 and ending December 31, 2003, unless sooner terminated as
provided in this Agreement. (See Additional Provisions).
3. USE. The premises shall be occupied and used by the Tenant for a
business office and warehousing and for any other lawful purposes.
4. RENT. The Tenant shall pay to the Landlord as rent provided below:
<TABLE>
<S> <C>
Warehouse space 238,815 sq. ft. at 2.15 psf or $42,787.69 per month (yrs. 1, 2 & 3)
2.20 psf or $43,782.75 per month (yr. 4)
2.25 psf or $44,777.81 per month (yr. 5)
Office space 22,622 sq. ft. at 4.00 psf or $ 7,540.67 per month (yrs. 1, 2 & 3)
Office space 22,622 sq. ft. at 4.50 psf or $ 8,483.25 per month (yrs. 4 & 5)
</TABLE>
Unpaid rent and other monies owing to the Landlord under this Agreement shall
bear interest at the rate of 12% per annum from the date due until paid.
5. ADDITIONAL RENT FOR OPERATING EXPENSES.
A. Monthly Operating Expense Payment. The Tenant shall pay its
---------------------------------
proportionate share of actual Operating Expenses for the Warehouse portion of
the space (defined in subsection C of this Section 5) of $.528 per square foot
or $10,507.86 ($.528 X 238,815 sf. divided by 12) per month as of January 1,
1999 ("Base Proportionate Operating Expense"). The Office lease and the Land is
a gross lease with operating expenses included. The Tenant's proportionate share
of the actual Operating Expenses shall be an amount equal to the actual
Operating Expenses divided by the leasable square feet in the warehouse portion
of the Building minus the Base Proportionate Operating Expense times the number
of square feet leased by the Tenant as set forth in Section 1. On or before
December 15 of each year during the Term, Landlord shall estimate the Operating
Expenses for the next Calendar year and shall notify the Tenant in writing of
the Tenant's proportionate share of the estimated Operating Expenses for the
next calendar year (the "Tenant's Estimated Operating Expenses"). Then, in
addition to the rent set forth in Section 4, on January 1 and on the first day
of each month during the next calendar year, with the rent the Tenant shall pay
to the Landlord an amount equal to the Tenant's Estimated Operating Expenses
divided by twelve. In no event shall Tenant's share of Operating Expenses
increase by more than five percent (5%) (exclusive of real estate taxes)
cumulative per year to the end of the Lease.
-1-
<PAGE>
B. Annual Operating Expenses Adjustments. On or before March 15 of each
--------------------------------------
year after the first calendar year of the Term, whether the first year is full
or partial, the Landlord shall determine the actual Operating Expenses for both
the Warehouse and the land on which the Warehouse is located, including on-site
and off-site parking related to the Warehouse (the "Warehouse site" for the
preceding calendar year. Therefore, on or before March 15 of each subsequent
calendar year through the year following the termination of the Term, with any
options and extensions, the total amount of the Tenant's Estimated Operating
Expenses paid during the preceding calendar year shall be corrected to reflect
the actual Operating Expenses for such preceding calendar year. On or before
April 1 of each such year the Tenant shall pay to the Landlord, or the Tenant
shall be credited with, as appropriate, an amount equal to the difference
between the Tenant's proportionate share of the actual Operating Expenses for
the preceding calendar year less the Tenant's Estimated Operating Expenses which
were paid by the Tenant during such preceding calendar year except at the end
of the Term where any credits or underpayments will be paid to the party to
which it is owed no later than April 1 following the termination date.
B. 1. Credit. If the correction for any year results in a credit to the
-------
Tenant, then that credit shall be applied against the rent and other monies
owing from the Tenant to the Landlord which are due and payable in the month(s)
after the correction adjustment.
C. Operating Expenses Defined. The term "Operating Expenses" means and
---------------------------
includes the total reasonable operating expenses related to the Warehouse and
the Warehouse Site (the Warehouse and the Warehouse Site collectively, the "Real
Estate".) which are incurred by the Landlord, and shall include, without
limitation, taxes and assessments levied, assessed or imposed at any time by any
municipal, county, state or federal government or any governmental authority,
upon or against the Real Estate ("Real Estate Taxes"), and also any tax or
assessment levied, assessed or imposed at any time by any governmental authority
in connection with the receipt of any income or rents from the Warehouse and/or
Warehouse Site to the extent that any such tax or assessment is in lieu of all
or a portion of any of the Real Estate Taxes, personal property and ad valorem
taxes, common area heat and fuel, costs of water and sewage, reasonable
management expenses, labor, including all wages, salaries, Social Security taxes
which may be levied upon such wages and salaries, supplies, repairs,
maintenance, painting, insurance, trash removal, and other items properly
constituting direct operating maintenance, and repair costs according to
standard accounting practices. The term "Operating Expenses" does not mean or
include depreciation of the Building or equipment, interest expense on borrowed
money of any form or nature, costs of maintaining the Landlord's corporate or
business existence, franchise taxes, federal or state income taxes, expenditures
required to be capitalized for federal income tax purposes, office expenses or
salaries of the Landlord's executive officers, commissions and fees paid for the
rental of the Building, or any parts thereof, or tenant improvements or costs
and expenses attributable to leasing other spaces in the Building to other
tenants including but not limited to legal fees and costs incurred in
negotiating or enforcing leases of other tenants, fines assessed against
Landlord for violation of any other tenant leases, and expenses attributable to
repairs to other tenant spaces by misuse of other tenants. Tenant or its agents
shall be permitted to audit all books and records pertaining to Operating
Expenses in the offices of the Landlord once each year during normal business
hours, upon prior written request.
D. Annual Notice. The Landlord shall notify the Tenant in writing by March
--------------
15 of each year of the actual Operating Expenses during the preceding calendar
year, together with the computation of the additional payments for Operating
Expenses due from the Tenant by April 1 of such year pursuant to subsections A
and B of this Section 5.
6. PARKING. The Landlord shall grant to the Tenant surface parking
available on the Building Site or anything controlled by the Landlord, to be
used by the Tenant and its employees and guests, at no additional cost to the
Tenant. The Landlord reserves the right to designate the parking spaces leased
to the Tenant.
-2-
<PAGE>
7. SERVICES TO BE PROVIDED BY THE LANDLORD FOR THE OFFICE SPACE. The
Landlord shall provide and pay with respect to the office area any and all
charges for the following services to the Premises:
A. Janitorial services and customary cleaning in and about the Premises.
The Tenant may not provide any janitorial service of its own without the
a prior written consent, and then only subject to such additional
conditions as the Landlord may reasonably impose.
B. Heat and air conditioning to provide comfortable occupancy within
government regulations, of the Premises under normal business operations, Monday
through Friday from 8:00 a.m. to 5:00 p.m., Saturday from 8:00 a.m. through 1:00
p.m., but Sundays and holidays excepted. When Tenant works additional hours,
heat and air conditioning will be provided as needed. Whenever heat-generated
machines or equipment are used or business operations are conducted in the
Premises which, in the judgement of the Landlord, affect the temperature
otherwise maintained by the air conditioning system, the Landlord reserves the
right to modify said system including the installation of supplementary air
conditioning units in the Premises, and the cost and expense of the modification
to said system, and any increase in the expense of operation and maintenance of
said system shall be paid by the Tenant to the Landlord.
C. Water from city mains, drawn through fixtures installed by the Landlord
for drinking, lavatory, and toilet purposes, including a reasonable amount of
hot water.
D. Electrical wiring system in the Premises for standard electrical
receptacles and lighting fixtures. The electrical system may be used only for
normal equipment and accessories including replacement lighting tubes, bulbs,
lamps and ballasts for overhead fixtures.
E. Snow removal service for the outside parking facilities, related
driveways, and sidewalks at all times.
F. Lavatories for the use of the Tenant's employees and invitees in common
with other tenants in the Building.
7.1 SERVICES TO BE PROVIDED BY THE LANDLORD FOR THE WAREHOUSE SPACE.
A. Water from city mains, drawn through fixtures installed by the Landlord
for drinking, lavatory, and toilet purposes, including a reasonable amount of
hot water. The Landlord reserves the right to provide a separate meter for the
Premises and to require the Tenant to pay for its use of water billed to such
meter but only upon Landlord paying all costs associated with the conversion to
the separate meter.
B. Electrical wiring system in the Premises for standard electrical
receptacles and lighting and fixtures. The electrical system may be used only
for normal equipment and accessories. Replacement lighting tubes, lamps, bulbs,
and ballasts required for the overhead lighting fixtures in the Premises will be
installed at the Tenant's expense.
C. Tenant shall be responsible for putting utilities in their name and
payment thereof. Space is separately metered.
D. Snow removal service for the outside parking facilities related
driveways, and sidewalks at all times.
E. Heating System(s) in all warehouse spaces to provide comfortable
occupancy.
The Landlord does not warrant that any of the services in Sections 7 and 7.1
above mentioned will be free from interruptions caused by repairs, renewals,
improvements, alterations, strikes, lockouts, accidents, inability of the
Landlord to obtain fuel or supplies, or any other cause beyond the reasonable
control of the Landlord. Notwithstanding anything in this Lease to the contrary,
if any such service is interrupted, through no fault of the Tenant, and
continues for a period of 3 days, rendering either the Office or Warehouse
space, as the case may be, untenantable for the conduct of business therein,
rent and all additional charges shall abate for the period of the interruption
until such service is restored. The Landlord will use reasonable efforts to
promptly remedy any situation which has interrupted any such services.
8. LANDLORD'S TITLE. Landlord has sole title to the property on which the
premises are located. The Landlord's title is and always shall be paramount to
the title of the Tenant, and nothing contained in this Agreement authorizes the
Tenant to do any act which may encumber the
-3-
<PAGE>
title of the Landlord. This lease is subject and subordinate to all ground and
underlying leases, and to all mortgages which may now or hereafter affect such
ground and underlying leases, or the Real Estate and to all renewals,
modifications, consolidations, replacements, and extensions thereof, and to all
advances made or hereafter to be made on the security of any such mortgage.
Notwithstanding the foregoing, any subordination of the Lease shall be
conditional upon the existing or subsequent mortgagee or subsequent purchaser
agreeing in writing with Tenant to recognize this Lease and to not disturb
Tenant's use, occupancy and possession of the Premises so long as Tenant is not
in default of the Lease. Subject to its rights under the immediately preceding
sentence, the Tenant covenants and agrees that it will, upon the written request
of the mortgagee or purchaser, attorn thereto and execute, acknowledge, and
deliver any instrument that has for its purposes and effect subordination of
this Lease to the mortgage.
9. ASSIGNMENT AND SUBLETTING.
A. Tenant. The Tenant may not assign or transfer all or any part of its
-------
right and interest under this Agreement, and may not sublet or permit the use
and occupancy of all or any part of the Premises, to or by a third party without
the prior written consent of the Landlord, and such consent will not be
unreasonably withheld. If the Landlord grants its consent then all consideration
paid or to be paid by such third party, including fifty percent (50%) of any
amounts in excess of the rent due under this Agreement, shall be paid directly
to the Landlord, and the Tenant shall be responsible to the Landlord for any
deficiency between such consideration and the rent and other monies due under
this Agreement. These provisions shall not apply (and the Landlord shall be
deemed to have consented to) an assignment or sublet to a subsidiary, affiliate
or a successor corporation of Tenant.
B. Landlord. The Landlord named in this Agreement may transfer and assign,
in whole or in part, all of its rights and obligations under this Agreement and
in the Real Estate. After such transfer or assignment the Landlord named in this
Agreement will have no further liability to the Tenant under this Agreement for
the obligations assumed by the assignee or transferee.
10. UNTENANTABILITY. If either the Office or Warehouse spaces are made
untenantable by fire or other cause, the Landlord may elect (a) to terminate
this Agreement as of the date of such casualty by notice to the Tenant within
thirty days after that date, or (b) to have the Landlord repair all damage to
Office or Warehouse space so that the same shall be restored to such condition
as existed immediately prior to such damage. If the Landlord elects to terminate
this Agreement, the rent shall be abated on a per-diem basis and be paid to the
date of the fire or casualty. If the Landlord elects to restore the Premises and
Building, such restoration shall be completed with reasonable promptness. If the
Premises are unusable during such restoration, or if the Tenant is reasonably
required to close its operation while such repairs are made, the rent shall
abate during such period of repair while such operations have ceased and the
Premises are completely closed. If the Tenant continues to operate on the
specific Premises during such repairs, but is unable to use a substantial
portion of the specific Premises, then the rent shall be prorated in the
proportion which the area of unusable leased space bears to the total specific
Premises for the period that said space is unusable. The Landlord will not be
liable for business losses to the Tenant by reason of damage to the specific
Premises. If the untenantability is caused by the fault of the Tenant, there
will be no apportionment or abatement of rent. Nothwithstanding anything
contained in this Section 10 to the contrary, if the specific Premises are not
or cannot be made tenantable within 90 days after the date of the casualty for
any reason whatsoever, the Tenant may terminate this Agreement and the lease.
11. SIGNS. The Tenant shall pay for all signs related to the Tenant's use
of the Premises. No sign, advertisement, or notice may be inscribed, painted, or
affixed on any part of the outside or inside of the Premises or the Building by
the Tenant except on the doors of the Premises and on the Building's directory
board, and then at the Tenant's expense and only of such color, size style and
material as is approved by the Landlord in writing. The Landlord reserves the
right to remove all other signs at the expense of the Tenant. At the expiration
of the Term the Tenant shall remove signs from the Premises and the Building.
-4-
<PAGE>
12. ALTERATIONS. No alterations or additions exceeding a total cost of
$5,000 may be made and no fixtures may be affixed to the Premises or the
Building by the Tenant without the prior written consent of the Landlord. All
such alterations, additions, and fixtures, except the Tenant's trade fixtures
and business machines, shall be and remain the property of the Landlord unless
otherwise agreed in writing by the Landlord. Any and all maintenance, repairs,
replacements to electrical, heating, air conditioning, water and plumbing
systems in the Premises and the Building shall be made or done only by persons
authorized by the Landlord.
13. USE OF THE PREMISES. The Tenant (a) shall occupy and use the Premises
during the Term for the purposes specified in Section 3 and none other; (b) may
not make or permit any use of the Premises which, directly or indirectly, is
forbidden by public law, ordinance, or government regulations which may be
dangerous to life, limb, or property, or which may invalidate or increase the
premium cost of any policy of insurance carried on or covering the Building and
its operations; (c) may not obstruct or use for storage or for any purpose other
than ingress and egress the common area driveways, parking areas, sidewalks,
entrances, courts, corridors, vestibules, halls, elevators, and stairways of the
Building; (d) may not make or permit any noise or odor that is objectionable to
other occupants of the Office to emanate from the Premises, may not create or
maintain a nuisance in the Premises, may not disturb, solicit, or canvass any
occupant of the Building, and may not do any act tending to interfere with the
quiet enjoyment of the leased space in the Building by other tenants or to
injure the reputation of the Building; (e) may not make major modification to
the building by installing any machinery, mechanical equipment, air conditioning
equipment or aerial wires inside or outside the Building without, in each and
every case, prior written consent of the Landlord so that other occupants of the
Building will not be disturbed or annoyed; (f) may not place, or permit to be
placed, any article of any kind on the window ledges or on the exterior walls
and may not throw, or permit to be thrown or dropped, any article from any
window of the Office; (g) may not attach additional locks or similar devices to
any door or window and, upon the termination of this Agreement or of the
Tenant's possession, shall surrender all keys to the Premises and shall explain
to the Landlord all combination locks on safes, cabinets, and vaults; (h) shall
be responsible for locking the doors and closing the transoms and windows in and
to the Premises; (i) may not install any blinds, shades, awnings, or other form
of inside or outside window covering or window ventilators or similar devices
without the prior written consent of the Landlord; (j) may not overload any
floor, shall route and locate safes and other heavy articles as the Landlord may
direct, shall bring safes, furniture, and all large articles through the Office
and onto the Premises at such times and in such manner as the Landlord directs
and at the Tenant's sole risk and responsibility; (k) may not install in the
Office any equipment which uses a substantial amount of electricity without the
advance written consent of the Landlord, shall ascertain from the Landlord the
maximum amount of electrical current which can safely be used in the Premises,
taking into account the capacity of the electrical wiring in the Building and
the Premises and the needs of other tenants in the Building, and,
notwithstanding the Landlord's consent to such installation, may not use more
electricity than such safe capacity; (l) shall be responsible for the cost of
modification, installation, maintenance, repair, and additional operating and
utility expenses related to any supplementary air conditioning required by heat
generating machines or equipment used by the Tenant; (m) may not cover or
obstruct the windows and doors that reflect or admit light or air into the
halls, corridors or other public places in the Building; (n) may not use the
water and wash closets and other plumbing fixtures for any purposes other than
those for which they were constructed; (o) may not mark, drill into, or in any
way deface any part of the Premises or the Building unless restored by Tenant
prior to vacating the Premises; (p) may not lay any type of flooring without the
prior written consent of the Landlord; (q) may not bring into the Office
bicycles, vehicles or animals of any kind; (r) may not sell merchandise, goods
or property of any kind without the prior written consent of the Landlord; (s)
may not move furniture, equipment, machinery or other property into or out of
the Office space between the hours of 8:00 a.m. and 5:30 p.m., Monday through
Friday, without the prior written consent of the Landlord.
-5-
<PAGE>
All persons entering or leaving the Office between the hours of 6:00 p.m.
and 8:00 a.m., Monday through Friday, or any time Saturday, Sunday, or Holidays,
may be required to identify themselves to a watchman, by registration or
otherwise, and to establish their right to enter or leave the Office. The
Landlord may exclude or repel any peddler, solicitor, or beggar. In addition to
all other liabilities for breach of any covenant of this Section 13, the Tenant
shall pay to the Landlord, as additional rent under this Agreement, an amount
equal to any increase in insurance premiums caused by such breach. The violation
of any covenant of this Section 13 may be restrained by injunction.
14. REPAIRS. The Landlord agrees that, at its own expense, it will keep
and maintain the Premises, including, without limiting the generality of the
foregoing, the roof, exterior, foundation, fire protection system, structural
integrity, all utility lines and connections, interior walls, windows and window
glass, flooring, ceiling, fixtures and operational parts, paving, sidewalks,
parking areas and landscaping, in a condition and repair similar to its
condition and repair on the effective date hereof, ordinary wear and tear
excepted. Except as otherwise provided in Sections 7 and 7.1 of this Lease and
as set forth herein the Tenant shall take good care of the Premises and the
fixtures in the Premises and shall keep the Premises in good order, condition,
and repair at the Tenant's expense during the Term, including the replacement of
all interior broken glass and exterior glass broken by the Tenant with glass of
the same size and quality. If the Tenant does not make necessary repairs within
a reasonable time and adequately, the Landlord may, but need not, make such
repairs and the Tenant shall promptly pay the Landlord for the cost thereof as
additional rent. On the expiration of the Term or on earlier termination or
cancellation of this Agreement, the Tenant shall surrender the Premises and the
Landlord's fixtures in as good condition as of the time of delivery to the
Tenant, subject to reasonable wear and tear. All injury to the Building or
fixtures caused by moving of the Tenant in and out of the Building caused by the
Tenant and any damage done by water, steam, electricity, fire or other
substances to the Building or fixtures, or to the property of other tenants in
the Building caused by the Tenant may be repaired by the Landlord at the expense
of the Tenant, and the cost thereof shall become immediately due and payable by
the Tenant as additional rent upon the delivery of a statement of such costs by
the Landlord to the Tenant, or mailing the same, postage prepaid, to the Tenant
at its last known address.
15. EMINENT DOMAIN. If the Premises, or any part thereof, which prevents
or substantially impairs the operation of the Tenant's business shall be taken
or condemned by a competent authority for any public use or purpose, the Term
shall end upon, and not before, the date when the possession of the part so
taken shall be required for such use or purpose with rent prorated to the day of
the taking. The Tenant may not share in the condemnation award, except for its
personal property and relocation awards, if any and other awards to the extent
such does not diminish the award to the Landlord.
16. ENVIRONMENTAL CONDITIONS.
A. Compliance with Laws. As a principal element of the consideration for
--------------------
the lease of the Premises to the Tenant by the Landlord, the Tenant acknowledges
and agrees that it is familiar and shall strictly comply with all applicable
federal, state, and local statutes, laws, rules, regulations, and ordinances
(collectively, the "Laws") relating to the use, handling and disposal of
hazardous and toxic substances and wastes, including all air, water, soil, solid
waste and other environmental requirements, as an operator of a business on the
Premises under this Agreement, including any community right-to-know rules and
regulations. The Tenant agrees to comply with all of the Laws, to obtain all
applicable permits, and to file all required notices and reports during the Term
and the Tenant's possession of the Premises.
B. Intent to Handle Hazardous Substances. The Tenant shall check this
-------------------------------------
box [X] if the Tenant intends or expects to handle or dispose of any Hazardous
Substances on the Premises or the Real Estate. The Tenant shall immediately
notify the Landlord in writing if the Tenant does not now intend or expect to
handle or dispose of any Hazardous Substances on the Premises or the Real
Estate, but does handle or dispose of any Hazardous Substances during the Term.
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<PAGE>
C. Containers; Spill Catchment. The Tenant may install or use above-ground
----------------------------
or Underground storage tanks or containers only in strict accordance with the
Laws and only with the prior written consent of the Landlord and according to
standards and restrictions imposed by the Landlord. The Tenant shall provide
secondary container or spill catchment devices to effectively prevent any spill
or overflow related to the filling of any above-ground or underground tanks from
contaminating the soil or ground water. With respect to each tank and container
located in or on the Premises or the Real Estate, the Tenant shall label each
container as to the contents in each such container. If the container holds any
Hazardous Substances, the label shall specify the Hazardous Substance or
Substances contained.
D. Site Assessment by Tenant. At such time as the Landlord has reason to
--------------------------
believe a Hazardous Substance may be present in or on the Real Estate by reason
of a spill or other discharge of a Hazardous Substance, or otherwise, the
Landlord, within fifteen days after written notice to Tenant specifying the
basis of Landlord's belief and after consultation with Tenant and its counsel
may perform an environmental site assessment or environmental audit report
prepared by an environmental engineering firm acceptable to the Landlord, to
assess the presence or absence of any Hazardous Substance and the potential
costs in connection with abatement, cleanup or removal of any hazardous
substance found on, under, at or within the Real Estate. If the assessment or
report shows the presence of any Hazardous Substance proven to have originated
from Tenant's use of the real estate, the Tenant shall pay all costs related to
the preparation of the report and assessment and to the required remediation.
E. Site Assessment by Landlord. In the event of a default, the Landlord (or
----------------------------
its representatives) may visit the Real Estate and perform or cause to be
performed environmental site investigations and assessments ("Site Assessments")
on the Real Estate for the purpose of determining whether there exists in or on
the Real Estate any environmental condition which could result in any liability,
cost or expense to any owner or occupier of the Real Estate. Such Site
Assessments may include both above and below the ground testing as may be
necessary to properly conduct the Site Assessments in the opinion of the
persons conducting the Site Assessments (the "Site Reviewers"). The Tenant shall
supply to the Site Reviewers such historical and operational information
regarding the Premises and the Real Estate as may be requested by the Site
Reviewers to facilitate the Site Assessments and will make available for
meetings with the Site Reviewers appropriate personnel having knowledge of such
matters. The cost of performing all Site Assessments shall be paid by the
Landlord unless, the assessment or report shows the presence of any Hazardous
substance, the Tenant shall pay all costs related to the preparation of the
report and assessment and to the required remediation within five days after
written demand by the Landlord, and thereafter shall bear interest at the rate
of 18% annum.
F. Environmental Indemnification. The Tenant shall indemnify, release,
------------------------------
discharge, defend and hold the Landlord harmless from and against, and shall
assume, any and all liability including, without limitation, all liability for
reporting, assessment, investigation, removal and remediation, and all costs and
expenses, arising out of, as a result of, or in connection with any failure of
the Tenant or its employees, agents or assigns, to comply with any of the Laws
and any and all contamination or the results thereof in the air, soil, and
ground water at the premises and the Real Estate, or at a disposal site to which
waste materials generated by the Tenant at the Premises or the Real Estate, or
elsewhere, were disposed, as well as any and all releases of contamination from
the Premises or the Real Estate caused by or contributed to be the Tenant during
the Term and the Tenant's possession of the Premises. The Tenant's obligations
under this paragraph shall arise on the discovery of any violation of or non-
compliance with any law by the Tenant, or the contamination of the Premises or
the Real Estate, whether or not any federal, state or local agency has taken or
threatened any action. The Landlord shall similarly indemnify the Tenant for
environmental liability caused by Landlord or presently existing at the
Premises.
G. Survival of Section. The provisions in this Section 16 shall be in
--------------------
effect from the date of this Agreement, shall apply whether or not the Tenant
subsequently subleases the Premises, or any part of the Premises, to any third
party, and shall remain in effect and shall survive the termination or
expiration of this Agreement.
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<PAGE>
17. RIGHTS RESERVED TO LANDLORD. The Landlord reserves all rights incident
to its ownership of the Building, including, but not limited to, the right (a)
to install and maintain signs on the exterior of the Building; (b) to designate
all sources furnishing sign painting and lettering used on the Premises
providing such sources are competitive and reputable and of good quality and
workmanship; (c) if, during or prior to the termination of this Agreement, the
Tenant vacates the Premises, to decorate, remodel, repair, alter, or otherwise
prepare the Premises for reoccupancy; (d) to have pass keys to the Premises; (e)
to exhibit the Premises during the last 180 days of the Term but only upon
advance notice and during normal business hours and accompanied by a
representative of Tenant if requested by Tenant; (f) to take any and all
measures, including inspections, repairs, alterations, additions, and
improvements to the Premises or to the Building as may be necessary or desirable
for the safety, protection, or preservation of the Premises or the Building or
the Landlord's interest therein, or as may be necessary or desirable in the
operation of the Building without interfering with Tenant's operations except in
the case of an emergency. (g) Except as otherwise set forth herein the Landlord
may enter upon the Premises and may exercise any or all of the foregoing rights
hereby reserved without being deemed liable of an eviction or disturbance of the
Tenant's use or possession and without being liable in any manner to the Tenant
provided the Landlord exercises reasonable care.
18. HOLDING OVER. If the Tenant retains possession of the Premises, or any
part thereof, after the termination of this Agreement by lapse of time or
otherwise, the Tenant shall pay to the Landlord rent at one and one-forth times
(125%) the rate of the then current rental specified in this Agreement for the
time that the Tenant thus remains in possession. If the Tenant remains in
possession of the Premises, or any part thereof, after the termination of the
term by lapse of time or otherwise, the Landlord may thereafter terminate the
tenancy with thirty (30) days written notice to the Tenant. The provisions of
this Section 18 do not waive the Landlord's right of re-entry or any other right
under this Agreement.
19. NOTICE AND PAYMENTS. Any notice which the Landlord may desire or be
required to give the Tenant shall be deemed sufficiently given or rendered if
delivered in writing to the Tenant personally or sent by certified or registered
mail, addressed to the Tenant at the Premises or at such other place Tenant may
designate in writing, return receipt requested. All payments to the Landlord and
any notice which the Tenant may desire or be required to give the Landlord shall
be deemed sufficiently given or rendered if delivered in writing to the Landlord
personally or sent by pre-paid first class mail, addressed to the Landlord, c/o
The Holladay Property Services, Inc., P.O. Box 1331, South Bend, IN 46624, or at
such other place as the Landlord may from time to time designate in writing.
20. DEFAULT BY TENANT. In the event of a default by the Tenant under this
Agreement, the Landlord will have the following remedies:
A. Tenant's Insolvency. If the Tenant makes an assignment for the benefit
-------------------
of creditors or if a receiver is appointed for the Tenant or for the Tenant's
assets or interest in this Agreement, or if any voluntary or involuntary
petition or similar pleading under any section of any bankruptcy law is filed by
or against the Tenant or any voluntary or involuntary proceedings in any court
or tribunal is instituted to declare the Tenant insolvent or unable to pay its
debts and, in the case of an involuntary petition or proceeding, if it is not
dismissed within thirty days from the date it is filed, then the Landlord, at
its election and without further notice or demand and either with or without
entry upon the Premises, may immediately terminate and cancel this Agreement and
this lease and shall thereafter, for the remainder of the Term, be entitled to
recover damages in an amount equal to the present value of the rental obligation
herein stated, including increases in rent as provided in this Agreement, less
the rent for the Premises which the Landlord obtains.
B. Landlord's Remedies. If the Tenant either fails to pay any rent or other
-------------------
monies owed to the Landlord on the date it is due and payable, and fails to cure
such default within ten (10) days or is otherwise in default of any of its
obligations or duties under this Lease after thirty (30) days of written notice
thereof by the Landlord plus such additional time as is necessary to correct
said default so long as the cure is continuously and diligently undertaken by
the Tenant,
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<PAGE>
then the Landlord may enter into and upon the premises, or any part thereof, and
repossess the same, with or without terminating this Lease and without prejudice
to any of its remedies for rent or breach of covenant and may, at its option,
terminate this Lease by giving written notice of its election to do so or may,
at its option, lease the Premises, or any part thereof, as the agent of the
Tenant, or otherwise. The Tenant shall, without demand or further process of
law, pay to the Landlord at the end of each month during the Term the difference
between the rent due to the Landlord from the Tenant under this Agreement,
including any increases in rent under this Agreement, and the net receipts, if
any, being received by the Landlord from the Premises (such net receipts to be
calculated by deducting from the gross receipts the expenses incurred by the
Landlord in connection with the re-letting of the Premises and performing the
Tenant's obligations under this Agreement). If the rent for re-letting the
Premises is higher than the monthly rent under this Agreement, then such excess
rent shall belong to the Landlord and the Tenant will have no claim or right
thereto. The failure or delay of the Landlord in taking any action or pursuing
any remedy in the event of a default by the Tenant may not be considered a
waiver or consent by the Landlord.
C. Landlord's Enforcement Costs. The Tenant shall pay upon demand all the
----------------------------
Landlord's costs, charges, and expenses, including reasonable fees of attorneys,
agents, and others retained by the Landlord incurred in enforcing the Tenant's
obligations under this Agreement or incurred by the Landlord in any litigation,
negotiation, or transaction in which the Tenant causes the Landlord to become
involved or concerned. The defaulting party shall pay to the non-defaulting
party all expenses in regards to enforcing the lease obligations.
21. DEFAULT BY LANDLORD. If the Premises, or any part thereof, are at
any time subject to a mortgage, a deed of trust, or a similar lien instrument,
and this Agreement or the rentals are assigned to such mortgagee, trustee, or
beneficiary, and the Tenant is given written notice thereof, including the post
office address of such assignee, then the Tenant may not terminate this
Agreement for any default on the part of the Landlord without first giving
written notice by certified or registered mail, return receipt requested, to
such assignee, to the attention of the mortgage loan department, specifying the
default in reasonable detail, and affording such assignee a reasonable
opportunity to make performance at its election for and on behalf of the
Landlord.
A. Tenant's Enforcement Costs. The Landlord shall pay upon demand all
--------------------------
the Tenant's costs, charges, and expenses, including reasonable fees of
attorneys, agents, and others retained by the Tenant incurred in enforcing the
Landlord's obligations under this Agreement or incurred by the Tenant in any
litigation, negotiation, or transaction in which the Landlord causes the Tenant
to become involved or concerned. The defaulting party shall pay to the
non-defaulting party all expenses in regards to enforcing the lease obligations.
22. LIABILITY INSURANCE AND INDEMNIFICATION.
A. Required Coverage. The Tenant shall maintain, and provide to the
-----------------
Landlord acceptable evidence of liability insurance of not less than $1,000,000
per occurrence for bodily injury and not less than $100,000 per occurrence for
property damage. The landlord shall be designated as a named insured with the
right to notice of cancellation or amendment ten days prior to the effective
date thereof. Said insurance shall be maintained during the Term.
B. Property Insurance. Landlord shall maintain at all times a policy or
------------------
policies of fire and extended coverage (all risk) insurance on the premises.
C. Indemnification-Landlord. The Tenant shall indemnify, defend, and save
------------------------
the Landlord harmless against and from all losses, liabilities, costs, damages,
and expenses, including reasonable engineers', architects' and attorneys' fees,
which may be incurred by or asserted against the Landlord by reason of or in
respect to any of the following occurring during the Term:
(i) Any work or thing done by the Tenant in, on, or about the Premises, or
any part thereof;
(ii) Any use, nonuse, possession, occupation, condition, operation,
maintenance, or management by the Tenant of the Premises, or any part thereof;
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<PAGE>
(iii) Any negligence on the part of the Tenant, Tenant's agent or Tenant's
customers occurring in the Premises and the Building, and on the Building Site.
The Tenant shall not indemnify for any damages due to Landlord's negligent acts
or omissions or Landlord's willful acts or omissions.
D. Indemnification-Tenant. The Landlord shall indemnify, defend, and save
----------------------
the tenant harmless from all losses, liabilities, costs, damages, and expenses,
including reasonable engineers', architects' and attorneys' fees, which may be
incurred by or asserted against the Tenant by reason of or in respect to any of
the following occurring during the term:
(i) Any work or thing done by the Landlord in, on, or about the
Premises, or any part thereof
(ii) Any negligence on the part of the Landlord or it's agents occurring
in the premises and the Building, and on the Building Site.
(iii) Any breach or default by Landlord in the performance of any
obligation on Landlord's part to be performed under terms of this Lease.
The Landlord shall not indemnify for any damages due to Tenant's negligent acts
or omissions or Tenant's willful acts or omissions.
E. Defense. If any action or proceeding is brought against the Landlord,
-------
or the Real Estate by reason of any losses, liabilities, costs, damages, or
expenses incurred by or asserted against the Landlord, by reason of or in
respect to any of the matters or things set forth in subsection C of this
Section 22, the Tenant shall, upon written notice from the Landlord and at the
Tenant's expense, resist or defend such action or proceeding. The Tenant agrees
to give the Landlord prompt written notice of any claim, action, or proceeding
brought or threatened against the Landlord, the Tenant, or the Real Estate.
F. Landlord's Limited Liability. To the extent permitted by law, the
----------------------------
Landlord will not be liable for any damage, either to person or property (expect
caused by Landlord's gross negligence or failure to enforce terms of a Lease
with another Tenant), sustained by the Tenant or by other persons due to the
Real Estate, or any part thereof, being out of repair (for which the Tenant has
repair obligations) or due to the happening of any accident in or about the Real
Estate or due to any act of negligence of any tenant or occupant of the Building
or of any other person. This limitation as to liability shall apply only to the
Landlord.
G. Subrogation. Each party to this Lease waives any and every claim which
-----------
arises or may arise in its favor against the other party hereto during the term
of this Lease for any and all loss or damage, including damage to any of its
property located within or upon the Premises, which loss or damage is covered by
valid and collectible policies of insurance provided for herein, to the extent
that such loss or damage is recoverable under such insurance policies. Such
mutual waiver shall be in addition to, and not in limitation or derogation of,
any other waiver or release contained in this Lease with respect to any loss or
damage suffered by the parties hereto. Inasmuch as such mutual waiver will
preclude the assignment of any aforesaid claim by way of subrogation or
otherwise to an insurance company (or any other person), each party hereby
agrees immediately to give to each insurance company which has issued to it
policies of insurance, written notice of the terms of such mutual waiver, and to
cause such insurance policies to be properly endorsed, if necessary, to prevent
the invalidation of such insurance coverages by reason of such waiver.
23. TENANT ESTOPPEL CERTIFICATE. The Tenant agrees that at any time and
from time to time, upon not less than ten days prior written request by the
Landlord, then the Tenant shall execute, acknowledge, and deliver to the
Landlord a statement in writing certifying that this Agreement is unmodified and
in full force and effect (or, if there have been modifications, stating the
modifications, and that this Agreement, as so modified, is in full force and
effect), the commencement and termination dates of this Agreement, that the
Tenant has accepted the Premises, the date to which the rental and other
charges have been paid in advance, if any, and that the Tenant has no claims
against the Landlord or offsets against rent to the extent Tenant can accurately
or truly make any of those statements. It is intended that such statement
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<PAGE>
may be relied upon by prospective purchasers of the Landlord's interest in the
Real Estate, or by the mortgagee or assignee of any mortgage on the Landlord's
interest in the Real Estate.
24. LIENS. The Tenant may not do any act which in any way encumbers the
interest or title of the Landlord in the Premises or the Real Estate, nor may
the interest or title of the Landlord in the Premises or the Real Estate be in
any way subject to any claim by way of lien or encumbrance, whether by operation
of law or by virtue of any express or implied contract by the Tenant. The Tenant
may not permit the Premises or the Real Estate to become subject to any
mechanics', laborers' or material men's liens on account of labor or material
furnished, or claimed to have been furnished, to the Tenant for or on the
Premises or the Real Estate. Upon written notice to Tenant and its failure to
clear lien within ten (10) days, at its election, the Landlord may (but is not
required to) remove or discharge such lien, or claim for lien (with the right,
in its discretion, to settle or compromise the same), and any amounts advanced
by the Landlord for such purposes shall be additional rent immediately due from
the Tenant to the Landlord.
25. MISCELLANEOUS.
A. The invalidity of any provision, clause, or phrase will not serve to
render the balance of this Agreement ineffective or void. This Agreement shall
be governed by the laws of the State of Indiana.
B. If the Landlord or the Tenant institutes legal proceedings against the
other for breach of any of the covenants or conditions in this Agreement, then
the successful party shall recover reasonable attorneys' fees and expenses from
the other.
C. This Agreement shall be binding upon and inure to the benefit of the
respective parties hereto, their heirs, executors, administrators, successors,
and assigns. Any reference to the Tenant or the Landlord shall, for the purpose
of determining liability for property damage, personal injury, and the like, be
deemed to include the Tenant, the Landlord, his or its respective agents,
employees, servants, partners, independent contractors, licensees, invitees,
guests or visitors.
D. This Agreement supersedes and cancels all prior negotiations and
agreements between the Landlord and the Tenant. This Agreement may be amended or
altered only by written agreement signed by both the Landlord and the Tenant.
E. All amounts owed by the Tenant to the Landlord under this Agreement
shall be deemed to be additional rent and shall be deemed due and payable on the
tenth working day after the date the Landlord renders a statement of account
therefore to the Tenant and shall bear interest at the rate of 12% per annum
from the date due and payable until paid by the Tenant.
F. So long as the Tenant has paid the rent and all other charges under
this Agreement and has performed all obligations under this Agreement, then the
Tenant shall have quiet possession of the Premises during the Term.
G. No consent or approval required of the Landlord in this Agreement may
be unreasonably withheld.
H. Canvassing, soliciting and peddling on the Real Estate are prohibited,
and the Tenant shall cooperate to prevent the same.
I. So long as Tenant is not in default under this Lease, Tenant shall be
entitled to peaceably possess, hold and enjoy the Premises.
J. Landlord covenants that Landlord has full right and authority to make
this Lease; that the Premises are free and clear of and from all liens,
restrictions, leases and encumbrances except as specified herein; and that there
are no laws, ordinances, governmental rules or regulations or title restrictions
or zoning or other matters which will prevent Tenant's operation of its
business. Landlord represents and warrants that when it delivers possession of
the Premises to Tenant, the Building shall be in full compliance with all laws,
ordinances and regulations relative to the use, occupation and construction
thereof. Landlord will provide more specific information regarding any
encumbrance and liens to Tenant upon request.
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<PAGE>
26. RULES AND REGULATIONS. The Landlord reserves the right to make
reasonable rules and regulations for the Premises and the Real Estate. The
Tenant shall abide by all reasonable rules and regulations adopted by the
Landlord pertaining to the operation and management of the Premises and the Real
Estate. If any rules and regulations adopted by the Landlord are contrary to the
provisions of this Agreement, the terms of this Agreement shall govern.
27. ADDITIONAL PROVISIONS. Additional Sections numbered I through IX,
attached to this Agreement, are part of this Agreement and the terms and
provisions of those additional paragraphs are binding on the Landlord and the
Tenant.
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<PAGE>
LANDLORD: HOLLADAY MISHAWAKA, LLC
By: /s/ John T. Phair
------------------------------------------
John T. Phair
TENANT: AM GENERAL CORPORATION
By: /s/ Edmond L. Peters
------------------------------------------
Edmond L. Peters, Executive Vice President
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<PAGE>
STATE OF Indiana )
) SS:
COUNTY OF St. Joseph )
Before me, a Notary Public in and for said County and State, personally
appeared John T. Phair, on behalf of Holladay Mishawaka LLC, the Landlord, and
acknowledged the execution of the foregoing Lease Agreement on 4/29, 1999.
My Commission Expires:
1/22/01
- -------
Sharon Tiechocowski, Notary Public
-------------------
Residing in Elkhart
------------------------
County, Indiana
------------------------
STATE OF Indiana )
) SS:
COUNTY OF St. Joseph )
Before me, a Notary Public in and for said County and State, personally
appeared Edward L. Peters, on behalf of AM General, the TENANT, and acknowledged
the execution of the foregoing Lease Agreement on 4-29, 1999.
My Commission Expires:
1-31-01
- -------
Christina Gray, Notary Public
--------------
Residing in St. Joseph
------------------------
County, Indiana
------------------------
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<PAGE>
ADDITIONAL PROVISIONS
I. PREMISES IDENTIFICATION:
Office Space:
Suite 100 22,622 sf.
Warehouse Space:
Suite 150 220,739 sf.
Suite 414 18,076 sf.
II. OPTION TO RENEW: Tenant is hereby granted an Option To Renew for an
additional five (5) year term at the prevailing market rental rate for
comparable facilities at the time of renewal for 238,815 sf. of Warehouse
space; 22,622 sf. of Office space with one hundred eighty (180) days
written notice.
III. FIRST RIGHT OF REFUSAL: Tenant has First Right of Refusal on any space
vacant within the facility following ten (10) days written notification
from Landlord.
IV. TERMINATION: The portion of this Lease concerning the Office space and
Tenant's obligations thereunder shall terminate upon Tenant's relocation
to Office space in a building owned by Landlord or its affiliate.
V. TERMINATION: Tenant may terminate this lease after two (2) years with buy
out of one (1) year's rent or 50% of balance of rent through term of
lease, whichever is less. Tenant must give Landlord six (6) months's
written notice of termination. Tenant must be current with rent in order
to exercise termination terms of the lease.
VI. ROOF MAINTENANCE: Roof Performance
. Holladay will improve roof performance over the next five years.
. Holladay's Property Management representative will provide quarterly
reports to AM General's Facilities Management representative
addressing roof performance issues.
. Holladay has established a 5 year budget of $250,000 for major roof
repairs and replacement at its Byrkit Avenue facility. This along with
routine expenditures for roof repairs is designed to meet AM General's
roof performance expectations.
VII. Suite 404
. Rental rate $1.60 psf plus standard building CAM
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<PAGE>
. Rent is presently being paid on 10,725 sf (actual space is 11,901) and
as long as AM General continues to pay rent on space the rent shall be
paid on 10,725 sf.
. With 90 days written notice AM General can terminate use of all of
this suite or they may terminate all of the warehouse space in this
suite and retain the use of the space that houses the document center.
VIII. AM General presently has use of 1,000 sf of office space on the second
floor. For the balance of the lease, AM General may continue to use this
space at not charge.
IX. If AM General leases the balance of the warehouse space at Byrkit - Suite
410 - (26,620 sf) and Suite 412 - (14,024 sf) the rental rate will be
changed to $2.13 psf for all warehouse space at the time that the final
suite is leased and will remain at $2.13 for the balance of the five
years remaining on the lease. Rate for Suite 404 will remain at $1.60 as
noted in VII Above.
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<PAGE>
MASTER AGREEMENT
----------------
The purpose of this agreement ("Master Agreement") is to summarize the mutual
intent and expectations of General Motors Corporation ("GM") and AM General
Corporation ("AMG") with regard to a series of contractual agreements, as listed
in Section 1 below, to be executed by the parties on or about December 21, 1999
(collectively the "Contracts") and to formalize the parties agreement that the
Contracts constitute a single contractual commitment (this Master Agreement and
all of the Contracts shall be collectively referred to as the "Agreement").
Recitals:
---------
1. GM is engaged in, among other things, the design, manufacture, marketing,
sale, and distribution of motor vehicles and motor vehicle related products.
2. AMG is in the business of designing, manufacturing, marketing and
distributing motor vehicles for both commercial and military application,
including the "HUMMER" brand vehicles currently being manufactured by AMG for
non-military application (the "Current Vehicle").
3. GM and AMG, concurrent with this agreement, wish to enter into a series of
contractual agreements through which the parties shall, among other things;
design, assemble, market and distribute a new vehicle based on a platform, and
each Contract is a condition of each of the other Contracts.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein, the execution and delivery by GM and AMG of each of the Contracts, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
Section 1 - Documents
On or before the Closing Date, GM and AMG shall execute and deliver to the other
the following agreements:
1.1 Assignment Agreement. An assignment agreement through which AMG will
---------------------
assign to GM all rights, title and interest to the HUMMER trademark (as further
defined therein), pursuant to the terms and conditions of that agreement
substantially in the Form attached as Exhibit A.
1.2 New Vehicle Assembly Agreement. An assembly agreement through which GM will
-------------------------------
provide AMG with a 7.5 to 8 year contract for the assembly of a new vehicle to
be based on a platform (the "New Vehicle"), pursuant to the terms and conditions
of that agreement substantially in the Form attached as Exhibit B.
1.3 Management Services Agreement. A services agreement through which GM will
------------------------------
provide AMG with certain management services with respect to the global
marketing and distribution of the Current Vehicle, pursuant to the terms of that
agreement substantially in the Form attached as Exhibit C.
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<PAGE>
1.4 License Agreement. A license agreement through which GM will grant AMG a
------------------
limited license to utilize the HUMMER trademark for the duration of the New
Vehicle Assembly Agreement for the purpose of branding the Current Vehicle which
AMG will continue to produce substantially in the Form attached as Exhibit D.
1.5 Promissory Note. An interest free Promissory Note (or series of Promissory
----------------
Notes) through which GM promises to provide AMG the funding required for jointly
agreed upon facility improvements and other capital investment necessary for AMG
to fulfill its assembly obligations under the New Vehicle Assembly Agreement
referenced above, pursuant to the terms and conditions set forth in the
Promissory Note substantially in the Form attached as Exhibit E.
1.6 Security Agreement. A security agreement through which AMG shall grant to
-------------------
GM a purchase money security interest in the real and personal property acquired
or otherwise produced with the proceeds of the Promissory Note referenced above,
pursuant to the terms and conditions of the Security Agreement substantially in
the Form attached as Exhibit F.
1.7 Right of Access Agreement. A right of access agreement through which AMG
--------------------------
will grant GM, in the event of certain specified events the right to enter,
occupy and utilize certain real and personal property for the production of the
New Vehicle, pursuant to the terms of that agreement substantially in the Form
attached as Exhibit G.
1.8 HUMVEE Trademark Agreement. A letter agreement through which AMG commits
---------------------------
to limit the use of the HUMVEE trademark to military related vehicles, goods,
and services for the duration of the New Vehicle Assembly Agreement referenced
above, pursuant to the terms of that letter agreement substantially in the Form
attached as Exhibit H.
1.9 Royalty Sharing Agreement. A letter agreement through which GM and AMG
--------------------------
agree to share the royalties and licensing fees resulting from the licensing of
the HUMMER and HUMVEE trademarks, pursuant to the terms and conditions of that
letter agreement substantially in the Form attached as Exhibit I.
1.10 Joint Review Board Agreement. A letter agreement through which GM and
-----------------------------
AMG establish one or more joint review boards which the parties intend to
utilize to manage the business relationship between GM and AMG relating to this
transaction and other possible collaborations between the parties substantially
in the Form attached as Exhibit J.
1.11 Equity Conversion Agreement. A letter agreement through which GM and AMG
----------------------------
agree on the terms and conditions under which GM shall be able to convert the
unamortized balance of the Promissory Note into an equity interest in AMG,
pursuant to the terms and conditions of that letter agreement substantially in
the Form attached as Exhibit K.
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<PAGE>
Section 2 - The Closing
2.1 The Closing. The Closing will take place at the offices of the General
Motors Truck Group at 2000 Centerpoint Parkway, Pontiac, Michigan, or at such
other place as GM and AMG mutually agree, at 10:00 A.M. local time, on the
Closing Date, which date shall be mutually agreed, not to occur later than
December 31, 1999.
2.2 Delivery of Documents. At the closing GM and AMG shall each execute and
deliver to the other, as applicable, the following documents:
(a) the Assignment Agreement;
(b) the New Vehicle Assembly Agreement;
(c) the Management Services Agreement;
(d) the License Agreement;
(e) the Promissory Note;
(f) the Security Agreement;
(g) the Right of Access Agreement;
(h) the HUMVEE Trademark Agreement;
(i) the Royalty Sharing Agreement;
(j) the Joint Review Board Agreement; and
(k) the Equity Conversion Agreement.
2.3 Conditions Precedent. The obligations of GM entering into each of the
---------------------
Contracts is conditioned upon the execution and delivery by AMG of all the
Contracts and the obligations of AMG entering into each of the Contracts is
conditioned upon the execution and delivery by GM of all the Contracts.
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<PAGE>
SECTION 3 - REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of AMG. AMG represents and warrants to GM
as follows:
(a) Organization, Power, Standing and Qualification. AMG is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. AMG has all requisite corporate power and authority to enter into
and perform this Master Agreement and the Contracts.
(b) Due Authorization. The execution and delivery by AMG of this Master
-----------------
Agreement and the Contracts, the performance by it of its obligations
thereunder, and the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of AMG. This Master
Agreement and the Contracts have been duly executed and delivered by AMG and are
valid and binding obligations of AMG enforceable in accordance with their
respective terms.
(c) No Conflict. Except as set forth on Schedule 3.1(c) hereof, the execution
-----------
and delivery of this Master Agreement and the Contracts does not, and the
consummation of the transactions contemplated hereby will not, (i) violate or
conflict with the provisions of the Articles of Incorporation and/or By-Laws of
AMG., (ii) result in the imposition of any lien under, cause the acceleration of
any obligation under, or violate or conflict with the terms, conditions or
provisions of, any note, indenture, mortgage, lease, guaranty or other agreement
or instrument to which AMG is a party or by which it is bound, or (iii) require
any consent or approval of, filing with or notice to any governmental authority,
except for filings under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and the expiration of any applicable waiting period thereunder.
(d) Due Consideration. This Master Agreement and the Contracts were and
------------------
will be executed and delivered by AMG for reasonable and equivalent value and
fair consideration.
(e) Title to AMG Licenses. AMG owns the entire right, title and interest in
---------------------
and to the "HUMMER" trademark (as defined in the Assignment Agreement) and the
"HUMVEE" trademark (as defined in the HUMVEE Trademark Agreement), subject to
the licenses granted by AMG to third parties as set forth in Schedule 3.1(e),
and the licenses required to be owned by AMG under the Contracts, and each such
trademark and license is in full force and effect.
(f) Financial Stability. (i) As of the date of the Closing and immediately
--------------------
following the execution of this Master Agreement and the Contracts and
consummation of the transactions contemplated therein, AMG will be able to pay
its debts as they become due and AMG will not have unreasonably small capital in
order to carry on its business; (ii) AMG is not insolvent and will not be
rendered insolvent by the execution and delivery of this Master Agreement and
the Contracts or consummation of the transactions contemplated therein, and the
capital, monies and assets remaining in AMG thereafter are not now and will not
become so unreasonably small as to preclude AMG from carrying on its business;
and (iii) All material undisputed debts AMG owes to third parties are current
and not past due.
3.2 Representations and Warranties of GM. GM represents and warrants to AMG
as follows:
(a) Organization, Power, Standing and Qualification. GM is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. GM has all requisite corporate power and authority to enter into
and perform the Agreements.
(b) Due Authorization. The execution and delivery by GM of this Master
-----------------
Agreement and the Contracts, the performance by it of its obligations
thereunder, and the transactions contemplated hereby
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<PAGE>
have been duly and validly authorized by all necessary corporate action on the
part of GM. This Master Agreement and the Contracts have been duly executed and
delivered by GM and are valid and binding obligations of GM enforceable in
accordance with their respective terms.
(c) No Conflict. Except as set forth on Schedule 3.2(c) hereof, the execution
-----------
and delivery of this Master Agreement and the Contracts does not, and the
consummation of the transactions contemplated hereby will not, (i) violate or
conflict with the provisions of the Articles of Incorporation and/or By-Laws of
GM, (ii) result in the imposition of any lien under, cause the acceleration of
any obligation under, or violate or conflict with the terms, conditions or
provisions of, any note, indenture, mortgage, lease, guaranty or other agreement
or instrument to which GM is a party or by which it is bound, or (iii) require
any consent or approval of, filing with or notice to any governmental authority,
except for filings under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and the expiration of any applicable waiting period thereunder.
(d) Due Consideration. This Master Agreement and the Contracts were and
------------------
will be executed and delivered by GM for reasonable and equivalent value and
fair consideration.
Section 4 - Events of Default and Remedies
4.1 Single Contractual Commitment. Although each of the Contracts is a
------------------------------
stand alone document, the parties acknowledge and agree that the parties
respective rights and obligations under each of the Contracts are inseparably
linked, are intended to constitute a single contractual commitment , and that
the parties would not have been induced to enter into any one of the Contracts
absent the existence of the other Contracts. Accordingly, in the event a party
materially breaches its obligations under one or more of the Contracts, the
other party shall be free to pursue appropriate remedies, legal or otherwise at
its sole discretion; provided, however, that (i) in no event shall either party
-----------------
be liable for indirect, consequential or special damages; and (ii) that prior to
the commencement of any legal action, the parties shall utilize their reasonable
best efforts to resolve the dispute in as promptly as reasonably possible under
the circumstances.
4.2 Trademark. Any other provision of this Master Agreement or the Contracts
----------
notwithstanding, under no circumstances shall AMG make any attempt, through
litigation, petition of any court, or otherwise, to set aside the assignment of
the HUMMER Trademark to GM pursuant to the Assignment Agreement or otherwise
have the HUMMER Trademark returned to AMG or in anyway relinquished by GM.
4.3 Direct Damages. The provisions of Section 4.1(i) above or any similar
---------------
provisions in any Contract notwithstanding, the parties acknowledge and agree
that AMG shall be entitled to recover the fair market value of the HUMMER
trademark assigned to GM pursuant to the Assignment Agreement (as of the time of
such assignment) as direct damages in the event that GM fails to perform its
obligations under the New Vehicle Assembly Agreement to provide funding for the
New Vehicle Facilities or to order New Vehicles from AMG.
4.4 Material Breach. The parties acknowledge and agree that breach of the
----------------
representations and warranties set forth in Sections 3.1 and 3.2 above, shall
not constitute a material breach as contemplated in Section 9.3(a) of the New
Vehicle Assembly Agreement.
Section 5 - Dispute Resolution and Confidentiality
5.1 Dispute Resolution. In the event of any dispute between the parties
-------------------
relating to this Master Agreement or the Contracts, the parties shall use their
reasonable best efforts to resolve such disputes at an
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<PAGE>
appropriate business level within their respective business organizations within
sixty (60) days. In the event such efforts fail, such dispute may be submitted
to a dispute resolution panel. On a case by case basis, the panel shall consist
of the chief financial officer of AMG and the GM Truck Group or their respective
designees, plus one person jointly selected by the parties. The panel may
establish procedures for submission of the dispute, including that reasonable
requests made by one party to the other for information shall be honored in
order that each of the parties may be fully advised of all relevant facts. A
majority decision of the panel shall control but shall not be binding on the
parties unless the parties agree otherwise in writing in advance of submission
of the dispute to the panel. Following issuance of the panel's decision in cases
of non-binding determinations, each party shall be free to pursue further
appropriate action that may be available to it, legal or otherwise, in its sole
discretion.
5.2 Confidential Information. During the course of the parties performance
-------------------------
of this Master Agreement, the Contracts and the transactions contemplated
thereunder, each party will have occasion to provide the other with information
that it deems to be proprietary in nature. In this regard, the parties mutually
agree to protect the confidentiality of any such information in the same manner
in which each party protects similar information of its own, including but not
limited to restricting the access to such information to a need to know basis,
as appropriate.
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<PAGE>
Section 6 - General Provisions
6.1 Assignment. This Agreement shall not be assigned by either party without
-----------
the prior written consent of the other party.
6.2 Governing Law. This Agreement shall be governed by the laws of the State of
--------------
Michigan, without regard to the principles of conflict of laws.
6.3 Waiver and Delay. No waiver by either party of any breach or series of
-----------------
breaches or defaults in performance by the other party, and no failure, refusal
or neglect of either party to exercise any right, power or option given to it
hereunder or to insist upon strict compliance with or performance of either
party's obligations under this Agreement, shall constitute a waiver of the
provisions of this Agreement with respect to any subsequent breach thereof or a
waiver by either party of its right at any time thereafter to require exact and
strict compliance with the provisions thereof.
6.4 Limited Liability Company. The parties acknowledge that AMG is currently
--------------------------
contemplating certain modifications to its existing corporate structure
including the possible contribution of all of its assets and liabilities to a
limited liability company. In this regard, AMG, and any successor entity agree
to indemnify and hold GM harmless from any and all material adverse financial
consequences resulting directly from any such modification in AMG's corporate
structure.
6.5 Successors and Assigns. This Agreement shall be binding upon and inure to
-----------------------
the benefit of the successors and assigns of the parties hereto, subject to the
restrictions on assignment contained herein.
6.6 Titles and Headings for Convenience. Titles and headings used in this
------------------------------------
Agreement are for convenience only and shall not be deemed to affect the meaning
or construction of any of the terms, provisions, covenants, or conditions of
this Agreement.
6.7 Severability. Nothing contained in this Agreement shall be construed as
-------------
requiring the commission of any act contrary to law. If any tribunal or court of
competent jurisdiction deems any provision hereof unenforceable, such provision
shall be modified only to the extent necessary to render it enforceable and the
remaining provisions shall remain in full force and effect.
6.8 Entire Agreement. This Agreement contains all of the terms and conditions
agreed upon by the parties hereto with reference to the subject matter hereof.
No other agreements, oral or otherwise, shall be deemed to exist or to bind
either of the parties hereto, and all prior agreements and understandings are
superseded hereby. This Agreement cannot be modified or changed except by
written instrument signed by both of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused two (2) copies this Agreement
to be duly executed and delivered by their proper and duly authorized
representatives effective as of the date first written above.
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<PAGE>
GENERAL MOTORS CORPORATION AM GENERAL CORPORATION
By: _____________________________ By: ___________________________
Title: __________________________ Title: _________________________
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<PAGE>
ASSIGNMENT
WHEREAS, AM GENERAL CORPORATION, a corporation organized and existing
under the laws of the State of Delaware, with an office at 105 North Niles
Avenue, South Bend, Indiana 46617 (hereinafter called the ASSIGNOR) is the owner
of the HUMMER Trademarks (as more fully defined below) in respect of motor
vehicles and other goods and/or services;
AND, WHEREAS, GENERAL MOTORS CORPORATION, a corporation organized and
existing under the laws of the State of Delaware, with an office at West Grand
Boulevard and Cass Avenue, City of Detroit, Michigan 48202, (hereinafter called
the ASSIGNEE) is desirous of acquiring the entire right, title and interest in
and to the HUMMER Trademarks and all registrations and applications for the
HUMMER Trademarks throughout the world.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the said ASSIGNOR by these presents does hereby
sell, assign and transfer unto the said ASSIGNEE, its successors and assigns,
its entire right, title and interest in and to the HUMMER Trademarks (which in
this Assignment includes any marks, words, names, letters, numbers, symbols,
emblems, shapes, designs, devices, and trade dress, or any combination thereof;
as well as anything which may distinguish the goods and services in the business
associated with the manufacture, sale, distribution, servicing, financing,
insuring, leasing or promotion of HUMMER motor vehicles), throughout the world,
together with that part of the goodwill of the ASSIGNOR's business connected
with the use of and symbolized by the HUMMER Trademarks. This assignment
includes the registrations and applications for the HUMMER Trademarks set forth
on the attached Schedule A, as well as all right, title and interest the
ASSIGNOR may have to the HUMMER Trademarks in all countries or jurisdictions of
the world, whether by use, registration, application or otherwise.
The said ASSIGNOR represents that it does not own any other
registration or application for the HUMMER Trademarks, in any country or
jurisdiction, other than those listed in the attached Schedule A, and should
same exist, by this assignment ASSIGNOR does hereby transfer all of its rights,
title and interest thereto to ASSIGNEE.
ASSIGNOR agrees to execute whatever additional documents are
necessary, in ASSIGNEE's opinion, to record the transfer of the HUMMER
Trademarks assigned hereunder in any country or jurisdiction of the world.
ASSIGNOR recognizes ASSIGNEE's ownership and title to the HUMMER
Trademarks throughout the world and ASSIGNOR shall not, directly or indirectly,
claim adversely to ASSIGNEE any right, title or interest in and to the HUMMER
Trademarks in any country or jurisdiction of the world nor shall ASSIGNOR
attack the validity of this Assignment. ASSIGNOR also agrees not to attempt to
register or to use or to aid any third party in attempting to register or to use
any trademark or service mark which may be, in the opinion of ASSIGNEE,
confusingly similar to the HUMMER Trademarks.
Should registrations or applications for the HUMMER Trademarks be
cited as obstacles to registration of the other party's applications, the
parties agree to reasonably cooperate in effecting the intent of this Assignment
including the granting of all necessary consents.
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<PAGE>
The provisions herein extend to successors and/or assigns of the
parties.
IN WITNESS WHEREOF, the said ASSIGNOR has hereunto executed this
Assignment this 21stday of December, 1999.
AM GENERAL CORPORATION
By: ___________________________________
Title: _________________________________
GENERAL MOTORS CORPORATION
By: ___________________________________
Title:__________________________________
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<PAGE>
New Vehicle Assembly Agreement
------------------------------
NEW VEHICLE ASSEMBLY AGREEMENT (this "Agreement"), dated as of December 21,
1999, between General Motors Corporation, a corporation organized and existing
under the laws of the State of Delaware ("GM"), and AM General Corporation, a
corporation organized and existing under the laws of the State of Delaware
("AMG").
RECITALS:
WHEREAS, GM desires to design and develop, in consultation with AMG, a new motor
vehicle based upon a platform to be mutually agreed by the parties;
WHEREAS, GM desires to engage AMG to assemble the aforementioned new motor
vehicle and AMG desires to perform such assembly on a contract basis;
WHEREAS, the parties find it mutually desirable for AMG to construct and GM to
primarily fund a new facility to be utilized by AMG for the assembly of the
aforementioned new motor vehicle.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
DEFINITIONS
"AMG Warranty" shall have the meaning set forth in Section 7.1.
"Effective Date" shall mean December 21, 1999.
"New Vehicle" shall have the meaning set forth in Section 1.1.
"New Vehicle Assembly Specifications" shall have the meaning set forth in
Section 2.1.
"New Vehicle Design Specifications" shall have the meaning set forth in Section
1.2.
"New Vehicle Facilities" shall have the meaning set forth in Section 2.4.
"Note" shall have the meaning set forth in Section 3.1.
"Quality Control Standards" shall have the meaning set forth in Section 6.2.
"Report" shall have the meaning set forth in Section 5.8.
"Sub-Contractors" shall have the meaning set forth in Section 2.3.
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<PAGE>
SECTION 1
Design and Development of New Vehicle
1.1 Design of New Vehicle. GM shall design and develop, in consultation
---------------------
with AMG, a vehicle to be based on a platform to be mutually agreed upon by the
parties (the "New Vehicle").
1.2 Lead Responsibility. GM shall have lead responsibility with regard to
--------------------
the design and development process described above and shall have final sign-off
on all New Vehicle specifications, which shall meet all safety and quality
standards required by Federal and State regulations (the "New Vehicle Design
Specifications").
1.3 Product Engineering. GM shall have responsibility for product
--------------------
engineering related to the New Vehicle, including but not limited to testing,
certification and compliance with applicable governmental regulations and shall
be considered the Original Equipment Manufacturer of the New Vehicle.
SECTION 2
ASSEMBLY SPECIFICATIONS AND FACILITIES
2.1 New Vehicle Assembly Specifications. AMG shall have responsibility
------------------------------------
for the design, manufacturing engineering and development of specifications
relating to the assembly of the New Vehicle in accordance with all applicable
governmental regulations (the "New Vehicle Assembly Specifications").
2.2 Consultation with GM. AMG will regularly consult with GM regarding
---------------------
the design and development of the New Vehicle Assembly Specifications and keep
GM informed of the progress of such design and development; provided, however,
-----------------
that the parties acknowledge and agree that the New Vehicle Assembly
Specifications are intended to be based on AMG's existing assembly processes to
the extent reasonably possible.
2.3 Use of Sub-Contractors. AMG may contract with independent design
-----------------------
and engineering enterprises for services in connection with the design,
manufacturing engineering and development of the New Vehicle Assembly
Specifications ("Sub-Contractors"). AMG shall be responsible for the conduct and
performance of all such Sub-Contractors.
2.4 Construction of New Vehicle Facilities. AMG shall be responsible for
--------------------------------------
the engineering, procurement and construction of the facilities required for the
assembly of the New Vehicle in accordance with the New Vehicle Assembly
Specifications (together with the initial complement of machinery and equipment
contemplated in Section 2.5 below, the "New Vehicle Facilities"). Subject to
approval of GM prior to any firm commitment being made by AMG, AMG shall enter
into a contract or series of contracts with a qualified project contractor for
the design, engineering and construction of the New Vehicle Facilities and shall
appoint a project engineer who shall oversee the design, engineering and
construction of the New Vehicle Facilities.
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<PAGE>
2.5 New Vehicle Assembly Equipment. AMG shall be responsible for the
------------------------------
acquisition, maintenance, repair and replacement of the initial complement of
all machinery and equipment required for the assembly and inspection of New
Vehicles. Selection of such machinery and equipment and facility items, funded
by the Note, shall be approved by GM prior to any firm commitment being made by
AMG for the purchase of such items.
SECTION 3
PROJECT FUNDING AND FINANCING
3.1 Promissory Note. Funding for the design, engineering, procurement
----------------
and construction of the New Vehicle Facilities shall be funded primarily through
proceeds of a Promissory Note by and between GM and AMG, in an amount set forth
therein and pursuant to the terms and conditions therein (the "Note"). Exhibit
A to this agreement contains the major assumptions regarding the New Vehicle,
its design and assembly, as well as, the process through which funds will be
released to AMG or its designee. Subject to the terms and conditions of the
Note and this Agreement (including Exhibit A), GM agrees and commits to make the
funding referenced above available to AMG.
3.2 Promissory Note Changes. Recognizing that the New Vehicle Design
------------------------
Specifications and the New Vehicle Assembly Specifications will be developed and
finalized almost concurrently, GM and AMG shall work together in good faith (as
further described in Section 4 below) to manage expenditures within the
parameters established by the amount of the Note. In the event, however, that
the amount of the Note needs to be increased or decreased, the parties agree to
work together in good faith to (i) review the cause or basis for any proposed
increase or decrease in the amount of the Note; (ii) jointly determine the
necessity and appropriateness of any proposed increase or decrease in the amount
of the Note; and (iii) jointly determine whether specific proposed increases
should be funded through the Note.
3.3 Payment of the Note. Unless otherwise agreed, the Note shall be
-------------------
paid by AMG by means of an offsetting credit to the assembly fee set forth in
Section 5.4 below, in the amount to be determined pursuant to the terms of the
Note.
3.4 Financial Obligations. Except as otherwise provided in Sections 3.1
---------------------
and 3.2 above (including in Exhibit A referenced therein), each party will fund
its own costs and expenses related to the performance and completion of their
respective responsibilities and obligations under this Agreement.
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SECTION 4
Facilities Development, Management and Operation
4.1 Mutual Cooperation. Each party will provide to the other the full
------------------
measure of cooperation reasonably required to fulfill the objectives of this
Agreement. Each party shall be responsible to the other to participate in
regular reviews of engineering and assembly, and reviews of any other business
issues, including distribution, marketing, field performance, customer
satisfaction, volume forecasts, and production to schedule performance, as they
may arise during the term of this Agreement. Subject to Section 5.2 of the
Master Agreement, each party shall freely exchange with the other certain
technical and business information pertinent to the New Vehicle, so that the
parties can adequately monitor and coordinate such activities as design,
development, conformance to applicable laws and regulations, manufacturing
status, service readiness, timing, and costs.
4.2 New Vehicle Program Managers. AMG and GM will each assign a
----------------------------
program manager, who will coordinate their respective efforts and assume the
following responsibilities:
(a) Conduct progress meetings and establish ongoing agenda, outlines
and procedures;
(b) Track the overall content and status of each phase of development
of the New Vehicle Facilities and report the progress to their respective
management;
(c) Track and report the following:
(i) Tool progress;
(ii) Sample approval progress;
(iii) Individual part and program timing;
(iv) Prototype building, testing and validation;
(v) Performance to budgets;
(vi) Service readiness program progress; and
(d) Carry out such other responsibilities as the parties may mutually
establish.
4.3 Systems, Personnel and Timing. In connection with the performance of
-----------------------------
their respective obligations under this Agreement, each party shall provide the
necessary systems and personnel for the performance of specified tasks in
accordance with the timing requirements to be mutually agreed to by the parties.
Each party shall be responsible to the other to report any and all events that
might affect such tasks or timing. The parties will mutually determine the
systems configuration required to implement the terms contemplated in this
Agreement, including the amount of funds required for the initial systems
hardware and software, and the expenses required to operate the final system
configuration. To the maximum extent possible, the systems should be funded from
the proceeds of the Note and the operation of
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<PAGE>
the systems should be paid by the party incurring the expense. In the event that
the funding of the systems cannot be accomplished within the parameters set
forth above, final resolution of such issues relative to the Note and the
Assembly Fee shall be governed by Exhibit C.
4.4 New Vehicle Design and Product Engineering. GM will fund the design
------------------------------------------
and product engineering for the New Vehicle and shall own all intellectual
property rights related to the New Vehicle and the related product engineering
other than as provided in Section 4.5 below.
4.5 Manufacturing Engineering. GM and AMG shall mutually agree
-------------------------
pursuant to Exhibit A herein, what costs and expenses shall be funded through
the proceeds of the Note. To the extent not funded by the Note, AMG will fund
manufacturing engineering, and AMG shall own all intellectual property rights
associated with engineering of the assembly process for the New Vehicles;
provided, however, that, in the event of the termination or expiration of this
Agreement or the need to increase production beyond AMG's capacity (40,000 units
annually plus available overtime capability as mutually determined by the
parties), GM is hereby granted the non-exclusive right to use or have used such
intellectual property for GM purposes.
4.6 Component Tooling. GM shall be responsible, at its sole expense,
-----------------
for the acquisition of all supplier component tooling necessary for the
procurement of parts required for the assembly of the New Vehicle.
4.7 Assembly Materials. (a) GM shall procure at its expense all
------------------
components and direct materials necessary to assemble New Vehicles ordered by GM
consistent with GM's standard bill of materials, an example of which is attached
as Exhibit B. ("Assembly Materials"). Such components will be consigned by GM
to AMG pursuant to the terms and conditions of the GM Purchase Order, as defined
below.
(b) GM shall replace all Assembly Materials which fail to meet the agreed
upon specifications; and GM shall reimburse AMG for all actual costs associated
with such defective Assembly Materials that are incurred by AMG, consistent with
GM's actual recovery of such costs from the original supplier of such materials.
(c) AMG shall procure at its expense all necessary consumable indirect
materials necessary for the assembly of New Vehicles ordered by GM hereunder
(e.g., masking, gloves, sandpaper, etc.) in accordance with GM's applicable
quality standards and requirements as mutually agreed by the parties.
(d) GM shall at its option replace or direct AMG to repair all Assembly
Materials produced by GM which fail to meet the agreed upon specifications. GM
shall reimburse AMG for all actual costs associated with such Assembly Materials
that are reasonably incurred by AMG, including the costs associated with making
repairs when so directed by GM.
(e) GM shall utilize its reasonable best efforts to ensure that all
Assembly Materials required for the assembly of the New Vehicle will be
available in quantities consistent with orders placed for the New Vehicle and
AMG's assembly capacity, including components and direct materials that are
shared with other GM platforms.
(f) Costs associated with the completion of assembly of New Vehicles which
arise from a shortage of components shall be borne by AMG; provided, however,
------------------
that in the event of an extraordinary shortage of components, the parties shall
promptly meet to discuss the situation and in good faith jointly develop and
implement an equitable methodology for addressing such shortage.
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4.8 GM Trademarks. AMG shall include on the New Vehicles such trademarks
--------------
owned by GM or its affiliates as may be specified by GM. Such arrangement shall
not be deemed to be a trademark license or an authorization for AMG to use such
trademarks for any other purpose.
4.9 Assembly Operations. All assembly operations will be conducted at
-------------------
AMG's facility located at Mishawka, Indiana, if the cost of production, after
all State of Indiana and local incentives, is acceptable to the parties; or such
other AMG location as may be approved by GM.
4.10 New Vehicle Specifications. AMG shall assemble all New Vehicles
--------------------------
in conformance with the New Vehicle Assembly Specifications and Quality Control
Standards (as defined below) to be jointly developed and agreed by the parties.
4.11 Assembly Standards. All assembly processes at the New Vehicle
------------------
Facilities shall meet all applicable safety and quality standards required by
applicable law.
4.12 Change Orders. Changes to the New Vehicle Design Specifications
-------------
that require changes to the New Vehicle Assembly Specifications may be adopted
in accordance with the standardized process and procedure for the initiation and
approval of changes/modifications as set forth in Exhibit C.
SECTION 5
Purchase and Sale of New Vehicles
5.1 GM Requirements Commitment. For the term of this Agreement, AMG
--------------------------
shall have production rights for the New Vehicle (including derivatives
thereof) up to 40,000 New Vehicles (plus available overtime capability as
mutually determined by the parties) per year. GM, however, reserves the right
to source production of additional New Vehicles, subject to AMG's capacity as
described above, at its sole discretion. The above provisions notwithstanding,
in the event GM sources production of additional New Vehicles other than to AMG
in any calendar year, GM must order a minimum of 40,000 New Vehicles (including
derivatives thereof) from AMG in that calendar year.
5.2 GM Exclusivity at New Vehicle Facilities. During the term of this
----------------------------------------
Agreement, the New Vehicle Facilities shall be exclusively used for the assembly
of New Vehicles for GM (with the sole exception of the painting of the Current
Vehicle) and AMG shall not supply, sell, assign or otherwise transfer any New
Vehicles or any materials, data, information or component parts related to the
New Vehicle (including any derivatives thereof) to any third party without GM's
prior written consent; provided, however, the above limitation on component
-----------------
parts shall not apply to the continued production by AMG of the Current Vehicle
or related service parts.
5.3 Assembly Capacity. For each full calendar year during the term
-----------------
of this Agreement (excluding the initial start-up and launch period to be
mutually agreed upon by the parties), AMG shall develop, maintain and reserve
for GM hereunder a minimum assembly capacity (exclusive of overtime ) of 40,000
New Vehicles; provided, however, the 40,000 New Vehicle capacity shall be
-----------------
distributed evenly throughout the calendar year in accordance with a weekly
production schedule capable of attaining this annual production capacity.
5.4 Assembly Fees. GM shall pay to AMG for each New Vehicle delivered
-------------
hereunder the assembly fee specified in Exhibit D.
5.5 Payment Terms and Freight. GM shall pay for New Vehicles delivered and
-------------------------
accepted by GM (a) between the 1/st/ and 15/th/ day of each month, by the 25/th/
day of such month, (b) after the
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15/th/ day of each month, by the 10/th/ day of the following month and (c), in
the event the 10/th/ or the 25/th/ day of any month falls on a weekend or a
holiday, on the next Business Day thereafter. All payments of assembly fees and
costs to AMG for assembly of the New Vehicles shall be made based on delivery
and acceptance F.O.B. New Vehicle Facilities. The parties mutually agree to
install or use existing equipment to allow for electronic billing and electronic
transfer of funds.
5.6 GM Purchase Orders. GM's Standard Purchase Order General Terms and
------------------
Conditions, a copy of which is attached hereto as Exhibit E (the "GM Purchase
Order"), are hereby incorporated into this Agreement by reference, with the
exception of Paragraphs 2, 9, 12, 13, 31, the phrase ",or have Seller provide
the goods from other sources in quantities and at times requested by Buyer, and
at the price set forth in the contract" at the end of the second sentence of
Paragraph 8, the phrase "Seller expressly waives any claim against Buyer that
such infringement arose out of compliance with Buyer's specification;" at the
end of sub-paragraph (a) of Paragraph 14, and the last sentence of Paragraph 18;
thereof which are expressly excluded. Additionally, the parties mutually agree
that (i) the reference to 30 day periods in the last sentence of Paragraph 8 are
increased to 180 day periods; (ii) the provisions of Paragraph 8 (as modified
herein) shall also apply to the construction of the New Vehicle Facilities and
the procurement of the initial complement of machinery and equipment as
contemplated in Sections 2.4 and 2.5 above; and (iii) the provisions of
Paragraph 23 are only applicable to amounts that are then due. Any amendment to
or revision of such Terms and Conditions shall also become a part hereof,
provided that GM and AMG mutually agree to such amendment or revision in writing
separate from the GM Purchase Order itself. In the event of a conflict between
the terms and conditions contained in this Agreement, any Exhibit, or the GM
Purchase Order, the order of precedence shall be as follows: this Agreement, the
Exhibit, and the GM Purchase Order.
5.7 Volume Estimates and Commitments. GM shall provide to AMG estimates of
--------------------------------
projected GM requirements of New Vehicles for assembly by AMG under the terms of
this Agreement and GM Purchase Orders for New Vehicles to be assembled and
delivered by AMG in a form and manner consistent with the processes utilized by
GM at its own manufacturing facilities.
5.8 Performance Bonus. In order to provide AMG a further incentive to
-----------------
perform its assembly obligations under this Agreement consistent with the
highest standards of quality and workmanship, AMG shall be paid a performance
bonus for obtaining the goals set forth in Exhibit D to this Agreement.
SECTION 6
Quality Control and Delivery
6.1 AMG Certification. AMG will be promptly certified to QS-9002 by
-----------------
an independent third party.
6.2 Quality Control Standards. AMG will maintain quality process,
-------------------------
control and testing standards in the assembly of New Vehicles in accordance with
standards to be jointly developed and agreed upon by the parties (the "Quality
Control Standards").
6.3 AMG Inspection and Testing. AMG will inspect and test each New
--------------------------
Vehicle in accordance with the inspection and testing standards set forth in the
Quality Control Standards.
6.4 GM Inspection and Testing. GM may enter AMG's premises upon
-------------------------
reasonable notice and during reasonable business hours in order to audit,
inspect and test AMG's quality control to determine compliance with the Quality
Control Standards. GM may at its option and expense station
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inspectors at the New Vehicle Facilities for such purposes, provided, however,
that all such activities shall be coordinated through the GM program manager
appointed pursuant to this Agreement or his/her designee. AMG will cooperate
fully with GM in any such audit, inspection or testing.
6.5 Delivery Inspection. GM shall be entitled to inspect each shipment of
-------------------
New Vehicles at the New Vehicles Facilities within two (2) business days after
notice from AMG that such shipment is ready for delivery. The parties will
mutually develop and agree upon appropriate procedures for the time, place and
manner of such inspections.
6.6 Acceptance and Rejection. GM shall accept delivery of each shipment
------------------------
of New Vehicles within the inspection period provided in Subsection 6.5,
provided, however, that GM may reject any New Vehicles that fail to conform with
the New Vehicle Assembly Specifications and Quality Control Standards. Any such
rejected New Vehicles by reason of defects in the assembly of such New Vehicles
shall be promptly repaired by AMG at AMG's sole cost and expense to the extent
necessary to bring the New Vehicles in conformance with the New Vehicle Assembly
Specifications and Quality Control Standards. Defects not related to the
assembly of the New Vehicles, shall be handled pursuant to Sections 4.7(b) and
4.7(d) above, as applicable. Once repaired or corrected, previously rejected New
Vehicles shall then be resubmitted for inspection in accordance with the
procedures set forth hereinabove.
6.7 Shipment. New Vehicles accepted by GM shall be promptly delivered by
--------
AMG at the New Vehicle Facilities to a carrier specified by GM. Risk of loss or
damage of the New Vehicles shall pass from AMG to GM immediately upon such
delivery. GM shall arrange and pay for all transportation and insurance relating
to the New Vehicles from the point of delivery to the carrier specified by GM.
SECTION 7
Warranty, Repair, and Recall
7.1 AMG Warranty. AMG warrants to GM that each New Vehicle assembled by
------------
AMG shall conform to the New Vehicle Assembly Specifications and Quality Control
Standards and will be free from defects in indirect materials and workmanship
provided by AMG (the "AMG Warranty"). Unless otherwise agreed by the parties in
writing, Sections 7.2, 7.4,7.7 and Section 8 below provide GM's exclusive
financial remedies for breach of the AMG Warranty.
THE EXPRESS WARRANTY PROVIDED HEREIN IS IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY EXPRESS OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7.2 Responsibility for Repair of Defects (Pre-Sale). Any New Vehicle
-----------------------------------------------
accepted by GM during the initial inspection that proves to be defective prior
to shipment may be repaired by AMG as specified in Section 6.6. In the event a
New Vehicle is shipped before such defects are discovered, the defect(s) may be
corrected as part of the normal warranty process specified in Section 7.4 prior
to delivery to the final customer.
7.3 Term of AMG Warranty. The AMG Warranty shall extend for a period of
--------------------
thirty-six (36) months or 36,000 miles, whichever comes first, from the date of
retail sale or the date the New Vehicle is placed in service, whichever comes
first, provided however, that if GM extends its New Vehicle Limited Warranty
applicable to New Vehicles for a longer time or mileage, AMG's warranty
hereunder will be extended to match that of GM consistent with the warranty
sharing arrangement contemplated in Section 7.4 below.
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<PAGE>
7.4 Warranty to GM Authorized Dealers. GM will warrant the New Vehicles to
---------------------------------
GM Authorized Dealers as provided under its GM Authorized Dealer Agreement, New
Vehicle Limited Warranty and Emissions Control Systems Warranties. AMG agrees
that, GM Authorized Dealers and GM Authorized Service Centers are authorized to
perform warranty repairs and services and AMG shall reimburse GM for 20% of the
cost of such repairs and services; provided, however, that AMG's liability for a
particular Model Year vehicle for such warranty repairs and services shall be
limited to an amount equal to $200.00 times the number of New Vehicles assembled
by AMG and delivered to GM for that Model Year. The 20% allocation and the
$200.00 per New Vehicle limitation, however, shall not apply to quality spills
or extraordinary spikes in warranty repairs and services, for which the
financial responsibility of each party shall be determined in accordance with
the root cause analysis of such incidents. AMG shall reimburse GM for AMG's
portion of the cost of warranty repairs and services, as specified above, within
30 days of their approval for payment by GM and their submission to AMG. The
above provisions notwithstanding, AMG shall not be responsible for costs
associated with policy expense.
7.5 Review of Warranty Costs. GM shall provide AMG with all existing
------------------------
warranty information on the New Vehicles as it becomes available.
7.6 Warranty to Consumers. GM will administer its warranty to consumers
---------------------
through the established GM warranty administration process as modified from time
to time in the normal course.
7.7 Recall and Reimbursement. The provisions of Section 7.4 above
------------------------
notwithstanding, in the event of a recall campaign by GM necessitated by a
defect or nonconformity for which AMG is responsible (as established by the New
Vehicle Assembly Specifications and quality control standards), in whole or in
part, AMG will reimburse GM for the direct costs, expenses, and any penalties
for which AMG is responsible which may be incurred, with the understanding that
such direct costs, expenses and penalties to be borne by AMG will be
proportional to the degree of AMG's responsibility for the defect or
nonconformity which caused the recall. Prior to GM performing any recall
campaign for which GM expects reimbursement, GM and AMG will exchange
information and will consult with each other with respect to the need and
advisability thereof; provided, however, that the final decision as to whether
or not to have a recall will in every instance rest with GM.
7.8 Representation before Governmental Agencies. GM will represent
-------------------------------------------
the interests of both GM and AMG in connection with any request for any data or
information and any allegations or inquiries from the NHTSA, the EPA or any
other federal, state or local government concerning suspected or alleged safety
defects or noncompliance with any governmental safety standard or regulation or
governmental emissions control or fuel economy standard or regulation or other
applicable law relating to any New Vehicle. To the extent any such request
could reasonably result in significant financial exposure to AMG, GM shall
consult with AMG regarding such requests and in good faith fully consider AMG's
positions, suggestions and strategies.
7.9 Governmental Authority Finding. In the event of a finding by any
------------------------------
governmental agency of any safety defect or noncompliance with any governmental
safety standard or regulation or governmental emissions control or fuel economy
standard or regulation or other applicable law relating to the New Vehicles, (a)
negotiations with that governmental agency about the amount of civil penalties,
fines or other monetary assessment, or a recall or notification campaign, and
(b) a decision on whether to challenge the findings of such, will be conducted
or made solely by GM.
7.10 GM Consultation with AMG. GM shall keep AMG fully informed of any
------------------------
representation before any governmental agency and any proceedings in that
connection as well as any findings by any governmental agency and any
negotiations and decisions by GM. If GM determines it is necessary to conduct a
recall campaign involving the New Vehicle, GM and AMG will consult in good
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faith to determine the nature of any corrective action to be taken concerning
the New Vehicle, and GM will issue whatever notification letters are required
and conduct the recall campaign.
7.11 Voluntary Recall Campaigns. If, as the result of field experience,
--------------------------
test data or otherwise, either GM or AMG finds that there may be a safety or
emissions related defect or noncompliance involving the New Vehicle, even though
not involving an inquiry from or determination of any governmental agency, it
will immediately notify the other party, whereupon GM, after consultation with
AMG, will have the right to issue notification letters or conduct a voluntary
recall campaign in connection therewith.
7.12 Reports to Governmental Authorities. GM will submit to the
-----------------------------------
applicable governmental agency all reports and data applicable to the New
Vehicles and required to be submitted under any applicable law. Any information
reasonably necessary for such reports will be furnished to GM by AMG, and AMG
will give reasonable assistance to GM in the preparation of such reports. GM
will prepare all notices, bulletins and other communications to GM Authorized
Dealers regarding any defects in the New Vehicles. GM will endeavor to keep AMG
informed of, all information and reports and data filed with any governmental
agency with respect to the New Vehicles and provide AMG with copies of all such
materials upon AMG's request.
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SECTION 8
---------
Product Liability Claims
------------------------
8.1 Indemnities. GM and AMG shall each indemnify, defend and hold
-----------
harmless the other from and against any liabilities, claims, and demands arising
out of the death of or injury to any person or damage to any property alleged to
have resulted from a defect in or malfunction of any of the New Vehicles,
consistent with the provisions of this Section 8.
8.2 Communication and Cooperation. With respect to any actual,
-----------------------------
potential or threatened product liability claim, action or proceeding relating
to any New Vehicle, GM and AMG shall (i) communicate and cooperate with each
other and, if required, with the appropriate insurance carrier, to the fullest
extent reasonably possible in investigating the facts and circumstances
surrounding the claim and in litigating the matter; (ii) refrain to the fullest
extent reasonably possible from taking positions adverse to the interests of
each other, and (iii) not, except in enforcement of any rights under this
Agreement, institute any claim, action or proceeding, whether by cross-claim,
third-party claim, interpleader or otherwise, against each other.
8.3 Product Liability Insurance. Recognizing that it would be
---------------------------
undesirable to rely upon third party practice or other legal actions to enforce
each party's rights against the other under this Section 8, AMG has become and
will continue to be, for as long as this Agreement is in effect, an additional
insured under a GM Product Liability Program. GM shall be reimbursed for the
costs associated with such insurance through a payment by AMG in the amount of
$150.00 per New Vehicle assembled by AMG; provided, however, that GM shall be
-----------------
fully responsible for any deductibles and/or self insured portion of such
insurance. Upon AMG's written request, GM will furnish AMG with certificates of
insurance verifying the relevant insurance coverages and identifying AMG as an
additional insured.
8.4 Non-Disclosure. GM and AMG agree not to disclose to any third
--------------
parties any information with respect to the arrangements set forth under this
Section, unless required as a matter of law, in any judicial proceedings, or SEC
or similar mandatory filings, without the prior written consent of the other
party which shall not be unreasonably withheld.
8.5 Management of Product Liability Lawsuits and Claims. Because AMG will
---------------------------------------------------
be an additional insured under the GM Product Liability Program, GM as between
the parties shall have the right and responsibility to manage all lawsuits and
all product liability claims relating to New Vehicles covered under this
Agreement. GM shall have the right to select counsel to defend GM and AMG in
product liability lawsuits and claims; provided, however, that GM shall consider
in good faith any objections that AMG may have with regard to such counsel,
including potential conflicts of interest between such counsel and AMG. GM shall
have the right and responsibility to make all case decisions, including whether
and when to settle and how much money to pay. The parties agree to work together
to establish and develop appropriate procedures and practices to make sure that
AMG is kept adequately informed on a current and timely basis regarding the
status of any claims and lawsuits. In the event a product liability claim or
lawsuit is brought against AMG relating to any New Vehicle, AMG shall as
promptly as practicable in the circumstances forward to GM Legal Staff every
summons and complaint and every other court document received by AMG and in no
event shall AMG take any action for defense or settlement without the consent of
the GM Legal Staff.
8.6 Costs and Expenses for Investigation and Discovery. The above
---------------------------------------------------
provisions notwithstanding, GM and AMG will bear their respective costs and
expenses incurred in connection with
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<PAGE>
cooperating during any investigation of claims and lawsuits, including those
costs incurred for (i) searching for and producing any documents that may be
called for during any discovery proceedings; (ii) answering any interrogatories
or other discovery requests, including any interpreter costs, (iii) identifying
any potential deponents or trial witnesses, (iv) producing any of their
respective employees, retirees, consultants, or experts, for any deposition or
trial testimony; and (v) producing any sample or component parts that may be
necessary for analysis of any technical issues for any claim or lawsuit defense
of any Vehicles covered under the terms of this Agreement.
8.7 Uninsured or Uninsurable Excess Payments. With respect to any
----------------------------------------
payments that may be necessary to satisfy any judgments that not covered by such
insurance, the parties agree that responsibility for those payments shall be
apportioned 100% to GM.
SECTION 9
Term and Termination
9.1 Term. Unless sooner terminated or extended in accordance with the
-----
provisions hereof, this Agreement shall commence on the Effective Date and shall
remain in effect through December 31, 2009. GM may, in its sole discretion,
extend this Agreement for one or more years from the scheduled date of
expiration by giving notice thereof to AMG not less than one year prior to the
then-scheduled expiration. Promptly following receipt of such notice, AMG and
GM shall negotiate in timely manner and in good faith any required adjustments
(up or down) to the Assembly Fee to be received by AMG during the extension
period.
9.2 Term Adjustment. The above provision regarding the specific term of
---------------
this Agreement notwithstanding, the parties mutually acknowledge the potential
for the timing of vehicle programs to be accelerated or delayed for a variety of
reasons. The parties further acknowledge that it is their mutual intent for this
Agreement to cover a expected production run of approximately 7 1/2 to 8 years
beginning on a date to be mutually agreed upon by the parties. In this regard,
the parties agree that, in the event the timing of the New Vehicle Launch is
either accelerated or delayed, as the case may be, the term of this Agreement
will be adjusted as necessary to achieve a 7 1/2 to 8 year production run.
Additionally, in the event that GM fails to order a minimum of 5,000 New
Vehicles (including derivatives thereof) during any calendar year, the parties
shall promptly meet to identify and discuss the cause or causes for such low
volume of orders and jointly develop and implement a mutually acceptable plan
for going forward with the project contemplated herein, including the possible
adjustment (up or down) of the term of this Agreement and/or an appropriate
modification of the Assembly Fee specified in Exhibit D.
9.3 Termination of this Agreement. Either party may immediately cancel
-----------------------------
this Agreement in any of the following events: (a) the other party materially
breaches this Agreement and fails to cure such breach within a commercially
reasonable period of time under the circumstances following written notice; (b)
the other party enters bankruptcy, receivership, liquidation, composition of
creditors, dissolution or similar proceeding; or (c) a significant portion of
the assets of the other party necessary for the performance of this Agreement
becomes subject to attachment (unless cured within a commercially reasonable
period of time), embargo or expropriation.
9.4 Special Termination Rights. GM may terminate this Agreement in
---------------------------
the event twenty percent (20%) or more of AMG becomes owned or controlled,
directly or indirectly, by a competitor of GM in the business of manufacturing
motor vehicles.
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9.5 No Termination for Convenience. Neither GM nor AMG shall have the
-------------------------------
right to terminate this Agreement for convenience.
9.6 Notice of Default. GM shall advise AMG immediately of the occurrence
-----------------
of any of the events set forth in the preceding subsection 9.3 and AMG shall
advise GM immediately of the occurrence of any of the events set forth in the
preceding subsections 9.3 and 9.4.
9.7 Pre-Existing Orders. Any bone fide customer order which may have been
-------------------
taken by GM prior to any notice of termination hereunder shall not be affected
by such termination, and upon GM's request, AMG shall utilize its reasonable
best efforts to assist GM in the fulfillment of such order, including but not
limited to the assembly of the New Vehicle contemplated therein.
9.8 Sums Owing. Termination of this Agreement shall not release either
----------
party from payment of any sum which may be due and owing to the other party
under the terms of this Agreement.
9.9 Rights Following Termination or Expiration. Termination or
------------------------------------------
expiration of this Agreement will not affect any liability which (a) has arisen
prior to such termination or expiration; or (b) may arise after such termination
or expiration based on transactions made prior to such termination or
expiration, or any obligations which, from the context hereof, are intended to
survive termination or expiration of this Agreement.
9.10 Other Rights and Remedies. Upon the breach by either party hereto of
-------------------------
any covenant or warranty hereunder, the party damaged by any such default or
breach may, in its sole discretion, in addition to exercising any other remedies
provided for hereunder, proceed in to protect and enforce its rights, to recover
any damages to which it may be entitled (including all costs and expenses
reasonably incurred in the exercise of its remedy), or to seek specific
performance by the other party of such other party's obligations under this
Agreement; provided, however, in no case shall either party be liable to
-----------------
the other for indirect, special or consequential damages (subject to Section 4.3
of the Master Agreement).
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SECTION 10
MISCELLANEOUS
10.1 GM and AMG as Independent Contractors. This Agreement does not
-------------------------------------
constitute GM the agent or legal representative of AMG or AMG the agent or legal
representative of GM for any purposes whatsoever. GM's personnel are not
employees or agents of AMG and AMG's personnel are not employees or agents of
GM. Except as otherwise provided herein, neither party has any authority to
negotiate or enter into any agreement or contract or to make any promise,
affirmation, description or representation or to create any obligation of any
kind, or to incur any liability whatsoever, on behalf of the other party. Each
party hereto will function as an independent contractor only and will have no
interest in common with the other as part of any joint venture or partnership.
10.2 Assignment. This Agreement shall not be assigned by either party
-----------
without the prior written consent of the other party.
10.3 Transactions After Termination. In the event either party has any
------------------------------
business relation with the other after termination of this Agreement, any such
relation shall not be construed as a renewal of this Agreement or a waiver of
such termination.
10.4 Choice of Law. All disputes concerning the validity, interpretation,
-------------
or performance of this Agreement and any of its terms or provisions, or of any
rights or obligations of the parties hereto, shall be governed by and resolved
in accordance with the laws of the State of Michigan, without regard to the
principle of conflicts of law.
10.5 Notices. All notices under this Agreement shall be in writing
-------
(letter, telex, facsimile, or telegram) and shall be effective when received by
the addressee at its address indicated below.
Notices to AMG: Paul J. Cafiero, Chief Financial Officer
AM General Corporation
105 North Niles Avenue
South Bend, IN 46617
with a copy to: Dennis A. Sadlowski, Vice President
- Law
The Renco Group, Inc.
30 Rockefeller Plaza
New York, New York 10112
Notices to GM: Ken Lindensmith
GM Truck Group
MC: 483-621-175
1919 Technology Drive
Troy, Michigan 48083-4247
or to such other addresses as the parties may from time to time designate in
writing.
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<PAGE>
10.6 Waiver and Delay. No waiver by either party of any breach or series
----------------
of breaches or defaults in performance by the other party, and no failure,
refusal or neglect of either party to exercise any right, power or option given
to it hereunder or to insist upon strict compliance with or performance of
either party's obligations under this Agreement, shall constitute a waiver of
the provisions of this Agreement with respect to any subsequent breach thereof
or a waiver by either party of its right at any time thereafter to require exact
and strict compliance with the provisions thereof.
10.7 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the successors and assigns of the parties hereto,
subject to the restrictions on assignment contained herein.
10.8 Entire Agreement. This Agreement together with all schedules and
----------------
exhibits attached hereto contains all of the terms and conditions agreed upon by
the parties hereto with reference to the subject matter hereof. No other
agreements, oral or otherwise, shall be deemed to exist or to bind either of the
parties hereto, and all prior agreements and understandings are superseded
hereby. This Agreement cannot be modified or changed except by written
instrument signed by both of the parties hereto.
10.9 Titles and Headings for Convenience. Titles and headings used in
-----------------------------------
this Agreement are for convenience only and shall not be deemed to affect the
meaning or construction of any of the terms, provisions, covenants, or
conditions of this Agreement.
10.10 Severability. Nothing contained in this Agreement shall be construed
------------
as requiring the commission of any act contrary to law. If any tribunal or court
of competent jurisdiction deems any provision hereof unenforceable, such
provision shall be modified only to the extent necessary to render it
enforceable and the remaining provisions shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused two (2) copies this
Agreement to be duly executed and delivered by their proper and duly authorized
representatives effective as of the date first written above.
GENERAL MOTORS CORPORATION AM GENERAL CORPORATION
By: ___________________________ By: __________________________
Title: ________________________ Title: _______________________
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MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement ("Agreement") is entered into this 21st day
of December, 1999, by and between AM General Corporation and AM General Sales
Corporation (collectively "AMG"); and General Motors Corporation ("GM") and
shall be effective as of January 1, 2000.
RECITALS
A. GM and AM General have entered into a series of contractual commitments
through which the parties shall, among other things; design, assemble, market
and distribute products bearing the "HUMMER" brand.
B. AMG currently manufactures and distributes one vehicle and derivatives
thereof (as listed on Exhibit A) for non-military application (the "Current
Vehicle"), which is distributed through a network of independently owned and
operated dealerships pursuant to Hummer Dealer Agreements between AMG and each
of the dealers listed on Exhibit B (Existing Dealers).
C. The parties intend to assess the capabilities of the Existing Dealers to
adequately support both a) the future distribution, sale and servicing of the
number of additional Current Vehicles expected to be distributed by AMG and b)
the additional vehicles which the parties expect to be distributed by GM and
sold as "HUMMER" branded vehicles, beginning in or about the 2002 calendar year
("Future Product").
D. AMG wishes to retain the services of GM to manage and administer AMG's
Existing Dealers pursuant to the terms of the Hummer Dealer Agreement, and to
otherwise provide the sales and marketing support services described in this
Agreement, until the time when Future Products are ready for distribution.
E. GM is willing to provide such services in accordance with the terms set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1
MANAGEMENT SERVICES TO BE PROVIDED BY GM
1.1 Engagement. In reliance upon GM's skill and experience in establishing,
----------
maintaining and administering dealer distribution networks for motor vehicles
and related field operations, AMG hereby engages GM as the exclusive provider of
the services described in this Agreement related to the sales and distribution
of the Current Vehicle.
1.2 Services. Services which GM will provide, except as otherwise noted, shall
--------
include:
(a) The following functions currently performed by AMG's Marketing and
Communications Department:
(i) Movie placement: AMG will make available additional vehicles to
GM for movie placement at a mutually agreed upon price. GM will
pay movie placement fees.
(ii) Public Relations, including media relations, press fleet
management, and media kits
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<PAGE>
(iii) Advertising, including ad planners, ad production, videos,
brochure, website management, media placements, market/customer
research, agency fees
(iv) Dealer co-op advertising program administration.
(v) Shows and Exhibits
(vi) Miscellaneous photos, printing and merchandise
(vii) Licensing, subject to the terms of the Royalty Sharing
Agreement by and between the parties dated December 21, 1999.
(viii) AMG will continue to provide vehicles as listed on Exhibit C,
at its own expense.
(b) The following functions currently performed by AMG's Fleet Department:
(i) Professional services, such as personnel and travel
(ii) Set up costs and fees for special shows
(c) AMG will continue to handle the day-to-day business handled by AMG's
Sales and Dealer Operations Department. GM will provide support and
guidance with respect to the sales service, and network planning functions.
AMG will also continue to be directly responsible for the expenses
associated with these functions.
(i) Department administration, including salaries and travel
expenses for department personnel
(ii) Training for the Current Vehicle
(iii) International sales administration
(d) The foregoing provisions notwithstanding, AMG's Warranty Department
shall remain in tact and AMG will be solely responsible for the payment of
all warranty claims. Additionally, AMG will continue to be directly
responsible for the expenses associated with these functions.
1.3 Dealer Network. Insofar as the payments GM receives under this
--------------
Agreement are contingent upon Current Vehicle sales, it is in GM's and AMG's
mutual interest to strengthen AMG's dealer network. In order to achieve this
desired result, GM and AMG mutually agree to follow the processes set forth in
Exhibit D.
1.4 Dealer Communication System. GM will assume responsibility for the
---------------------------
AMG Dealer Communication System ("System") with respect to the ordering of the
Current Vehicle on or before the introduction of Future Product. GM may change
this System, or implement a new system, subject to AMG's agreement concerning
the allocation of costs, if any are to be borne by AMG.
1.5 Standard of Performance. GM agrees to perform hereunder in accordance
-----------------------
with its customary business practices when performing similar functions with
respect to its own distribution network. Subject to the terms of this
Agreement, GM shall have reasonable discretion in carrying out its
responsibilities hereunder.
1.6 Consultation with AMG. GM will regularly consult with AMG regarding
---------------------
the services which GM will provide under this Section 1, and will keep AMG
informed of the status of those services. If AMG believes that GM is not acting
in accordance with the objectives specified herein in executing its
responsibilities hereunder, then AMG shall so advise GM, and the parties shall
utilize their reasonable best efforts consistent with the principles of good
faith and fair dealing to reach a mutually acceptable resolution, consistent
with those objectives.
-2-
<PAGE>
1.7 Transition of Responsibility. In order to provide the smooth and
----------------------------
seamless transition of the responsibility for performance of the services set
forth above from AMG (and/or the current provider of such services) to GM, the
parties will work together in good faith to establish a mutually acceptable
transition schedule consistent with Exhibit E to this Agreement that comprehends
the ramp up of GM's performance of the services contemplated above as various
contracts that AMG may already have in place with third parties for the
performance of such services either expire or are terminated.
1.8 Payments to GM. Payments to GM under this Agreement shall be made in
--------------
accordance with Exhibit E.
1.9 Additional Services. The parties periodically may agree to have GM
-------------------
perform additional services under this Agreement on mutually acceptable terms
and conditions.
SECTION 2
AMG's RESPONSIBILITIES
2.1 Products. (a) All responsibility for the development, design and
--------
manufacture of the Current Vehicle shall remain with AMG, as will terms and
conditions of sale of the Current Vehicle to dealers operating under the
existing Hummer Dealer Agreement. AMG and GM will evaluate and adopt or
reject proposed future product changes to the Current Vehicle through a
mutually agreeable process. Before making any equipment or design changes
with respect to the Current Vehicle, or any changes to the terms of sale,
AMG will notify GM and GM shall consult with AMG regarding such changes
including, as appropriate, the proposed implementation date for such
changes, and specific provisions for price protecting vehicle orders
already accepted by AMG.
(b) AMG shall retain all responsibility, financial or otherwise, with respect
to warranty claims, recall campaigns, product liability claims and
lawsuits, and all similar items related to the design, manufacture,
assembly, distribution and sale of the Current Vehicle.
2.2 Assistance to GM. AMG will not take any actions with respect to
----------------
Existing Dealers that are inconsistent with GM's responsibilities. Upon
request by GM, AMG will take such action as may reasonably be requested by
GM to facilitate GM's fulfillment of those responsibilities as set forth in
Section 1.
2.3 Advertising and Promotional Materials. In fulfilling the
-------------------------------------
responsibilities set forth in Section 1.2, GM will provide AMG with copies
of all marketing, advertising and promotional materials to be used for the
Current Vehicle. AMG shall have final approval of all such materials and be
responsible for substantiating the truth and accuracy of all advertising
claims contained in such materials. Those materials will be forwarded to
Bill Thompson, AM General Corporation, 105 North Niles Avenue, South Bend,
Indiana 46617, or to such other individual as AMG may designate in writing.
AMG will provide GM with information that GM may reasonably request to
fulfill its responsibilities, including data necessary to substantiate any
claims to be made in such marketing, advertising and promotional materials.
Unless it has direct knowledge of evidence to the contrary, which it shall
promptly communicate to AMG, GM shall to the maximum extent permitted by
law be entitled to rely, without independent verification, on the accuracy
of all statements, specifications, descriptions and advertising materials
made or furnished by AMG to GM.
-3-
<PAGE>
2.4 In General. Except as expressly provided herein, during the term of this
----------
Agreement, GM shall have no other obligations with respect to the Current
Vehicle, or with respect to the Hummer dealer network. It is the intention of
the parties that AMG shall continue to be responsible for all of its obligations
under the Dealer Agreements with Hummer Dealers.
SECTION 3
TERM OF AGREEMENT
This Agreement shall become effective on January 3, 2000, and shall remain in
effect until the Distribution Agreement, referenced below, becomes effective, or
until such other time as the parties may mutually agree to terminate this
Agreement.
SECTION 4
DISTRIBUTION AGREEMENT
4.1 It is the intent of the parties, to the degree feasible consistent with
their mutual objectives, to use the same dealers for distributing the Current
Vehicle and Future Product when such Future Product is available for
distribution. The parties anticipate that the requirements for dealers with
respect to facilities, systems, sales processes and capital investment for
Current Vehicle and for Future Product will require new Dealer Agreements and/or
distribution arrangements.
4.2 Since the specific requirements, systems and processes for the future
distribution network will not be finalized until closer to the time of Future
Product availability, the parties are not yet in a position to define the terms
under which the Current Vehicle will be distributed through that network.
However, it is anticipated that GM will assume all responsibility for marketing
and distribution of the Current Vehicle for a fee to be determined, and AMG will
remain responsible for its design and manufacture, as well as the expenses
associated with warranty, product claims and lawsuits, recalls, and similar
product related items. The parties will attempt to develop a Distribution
Agreement for the Current Vehicle consistent with this framework at the earliest
practical time.
SECTION 5
MISCELLANEOUS
5.1 No Franchise Relationship or Intended Beneficiaries. Nothing herein is
---------------------------------------------------
intended to constitute an assignment of any obligations that AMG has to its
dealers under the Hummer Dealer Agreement, and nothing herein is intended to
create any franchise relationship between GM and those dealers who become a
party to a Hummer Dealer Agreement with AMG. Nothing herein is intended to grant
to any third parties, including present or future dealers, any rights.
5.2 Mutual Cooperation. Each party will cooperate with the other to the
------------------
reasonable degree necessary to allow the objectives of this Agreement to be
realized.
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<PAGE>
5.3 Indemnification. (a) AMG shall indemnify, defend and hold harmless GM from
---------------
and against any liabilities, claims and demands arising (i) out of the death of
or injury to any person, or damage to any property, alleged to have resulted
from a defect in or malfunction of any Current Vehicle; and (ii) any costs
(including reasonable attorney's fees and expenses) associated with warranty
claims, recall campaigns, product liability claims and lawsuits, and all similar
items related to the design, manufacture, assembly, distribution and sale of the
Current Vehicle (collectively referred to hereinafter as "Claims").
(b) Because GM will be indemnified by AMG pursuant to this Agreement, AMG as
between the parties shall have the right and responsibility to manage all
lawsuits and all product liability claims relating to the Current Vehicle.
With respect to any actual, potential or threatened Claim relating to any
Current Vehicle, AMG and GM shall (i) communicate and cooperate with each
other to the fullest extent reasonably possible in investigating the facts
and circumstances surrounding the Claim and in litigating the matter to the
extent necessary; (ii) refrain to the fullest extent reasonably possible
from taking positions adverse to the interests of each other, (iii) not,
except in enforcement of any rights under this Agreement, institute any
claim, action or proceeding, whether by cross-claim, third-party claim,
interpleader or otherwise, against each other, and (iv) in the event a
Claim is brought against GM relating to any Current Vehicle, GM shall as
promptly as practicable under the circumstances forward to AMG every
summons and complaint and every other court document received by GM and in
no event shall GM take any action for defense or settlement without the
consent of the AMG.
5.4 Other Litigation. In the event a third party commences or threatens to
commence litigation or other legal action against one or more of the parties to
this Agreement with respect to activities to be performed under this Agreement,
the parties shall, to the extent such litigation or other legal action is of a
type other than that covered in Section 5.3 above:
(a) promptly meet to analyze each claim being asserted and mutually
determine to the satisfaction of the parties utilizing the principles of
good faith and fair dealing which party should take the lead with regard to
such claim and to the extent reasonably possible at the time, how the
parties shall apportion the costs, if any, of resolving the matter;
(b) communicate and cooperate with each other to the fullest extent
reasonably possible in investigating the facts and circumstances
surrounding the claims being asserted and in litigating the matter to the
extent necessary;
(c) refrain to the fullest extent reasonably possible from taking
positions adverse to the interests of each other; and
(d) not, except in enforcement of any rights under this Agreement,
institute any claim, action or proceeding, whether by cross-claim, third-
party claim, interpleader or otherwise, against each other.
5.5 Independent Contractors. This Agreement does not constitute GM as the
- ----------------------------
agent or legal representative of AMG, or AMG as the agent or legal
representative of GM for any purpose. GM's personnel are not employees or
agents of AMG, and AMG's personnel are not employees or agents of GM.
5.6 Assignment. This Agreement shall not be assigned by either party without
----------
the prior written consent of the other party.
-5-
<PAGE>
5.7 Notices. All notices hereunder shall be in writing, and communicated by
-------
U.S. mail, express mail, personal delivery or facsimile. Such notice shall be
effective when received by the addressee at the address noted below:
Notices to AMG: Paul J. Cafiero, Chief Financial Officer
AM General Corporation
105 North Niles Avenue
South Bend, IN 46617
with a copy to: Dennis A. Sadlowski, Vice President - Law
The Renco Group, Inc.
30 Rockefeller Plaza
--------------------
New York, New York 10112
Notices to GM: Mike DiGiovanni
HUMMER Marketing
100 Renaissance Center
MC: 482-A32-B98
Detroit, Michigan 48265
with a copy to: Ken Lindensmith
GM Truck Group
MC: 483-621-175
1919 Technology Drive
Troy, Michigan 48083-4247
or such other addresses as the parties may designate from time to time in
writing.
5.8 Litigation. The parties agree that in the event of any litigation by any
----------
third party involving a claim related to the services which GM is to provide
hereunder, they will cooperate with each other in the defense of such claim.
5.9 Choice of Law. All disputes concerning the validity, interpretation, or
-------------
performance of this Agreement and any of its terms or provisions, or of any
rights or obligations of the parties hereto, shall be governed by and resolved
in accordance with the laws of the State of Michigan, without regard to the
principle of conflicts of law.
5.10 Entire Agreement. This Agreement contains all of the terms and conditions
----------------
agreed upon by the parties hereto with reference to the subject matter hereof.
No other agreements, oral or otherwise, shall be deemed to exist or to bind
either of the parties hereto, and all prior agreements and understandings are
superseded hereby. This Agreement cannot be modified or changed except by
written instrument signed by both of the parties hereto.
5.11 Titles and Headings for Convenience. Titles and headings used in this
-----------------------------------
Agreement are for convenience only and shall not be deemed to affect the meaning
or construction of any of the terms, provisions, covenants, or conditions of
this Agreement.
5.12 Severability. Nothing contained in this Agreement shall be construed as
------------
requiring the commission of any act contrary to law. If any tribunal or court of
competent jurisdiction deems any provision hereof
-6-
<PAGE>
unenforceable, such provision shall be modified only to the extent necessary to
render it enforceable and the remaining provisions shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have caused two copies of this Agreement
to be duly executed and delivered by their proper and duly authorized
representatives as of December 21, 1999.
GENERAL MOTORS CORPORATION AM GENERAL CORPORATION
By: ____________________________ By: __________________________
Title: __________________________ Title: _________________________
AM GENERAL SALES CORPORATION
By: ________________________
Title: _______________________
-7-
<PAGE>
TRADEMARK LICENSE AGREEMENT
---------------------------
This license agreement ("Agreement") dated as of December 21, 1999 is made and
entered into by and between GENERAL MOTORS CORPORATION, a Delaware corporation,
having offices at 3044 West Grand Blvd., Detroit, MI 48202 ("GM") and AM
GENERAL CORPORATION, a Delaware corporation, having offices at 105 North Niles
Avenue, South Bend, IN 46617 ("AMG"), hereinafter referred to collectively as
the "parties".
R E C I T A L S
WHEREAS, pursuant to an assignment agreement entered into between the parties
contemporaneously with this Agreement (the "Assignment Agreement"), GM owns all
right, title and interest including, without limitation, all common law rights,
all merchandising rights, all marks, words, names, letters, numbers, symbols,
emblems, shapes, designs, devices and trade dress, or any combination thereof,
as well as anything that may distinguish the goods and services in the business
associated with the manufacture, sale, distribution, servicing, financing,
insuring, leasing or promotion of Hummer motor vehicles throughout the world and
all registrations and applications and all goodwill connected with the Hummer
trademarks;
WHEREAS, pursuant to a new vehicle assembly agreement entered into between the
parties contemporaneously with this Agreement (the "New Vehicle Assembly
Agreement"), GM will design a new vehicle and AMG will assemble such new vehicle
for delivery to GM, and AMG will develop and GM will provide certain financing
for new facilities for the assembly of such new vehicle;
WHEREAS, pursuant to a management services agreement entered into between the
parties contemporaneously with this Agreement (the "Management Services
Agreement"), as modified from time to time, wherein GM will be the exclusive
provider of marketing and distribution support to AMG in connection with AMG's
distribution and sale of a non-military vehicle product currently being
manufactured, distributed and sold by AMG ("Current Vehicle");
WHEREAS, AMG desires to continue to use the Hummer trademarks upon and in
connection with the manufacture, distribution and sale of the Current Vehicle
worldwide; and
WHEREAS, pursuant to two letter agreements (the "HUMVEE Trademark Agreement"
and the "Royalty Sharing Agreement ") entered into between the parties
contemporaneously with this Agreement, the parties have set forth AMG's
retention of rights in certain trademarks (the "HUMVEE Trademarks"), as set
forth in the HUMVEE Trademark Agreement, and each party's rights to royalties
derived by the other party in connection with its respective licensing
activities with respect to the HUMVEE Trademarks and Hummer trademarks;
NOW, THEREFORE, in consideration of the mutual promises herein contained and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, it is hereby agreed as follows:
I.
GRANT OF LICENSE
----------------
1.1 GM hereby grants to AMG this non-exclusive, paid-up, royalty-free,
worldwide license to use and display the Hummer trademarks as set forth in
Schedule A and all related marks, words, names, letters, numbers, symbols,
emblems, devices, trade dress and other common law rights or any
combination thereof assigned to GM pursuant to the Assignment Agreement
(collectively the "Hummer Trademarks") during the Term of this Agreement
solely and only upon and in connection with the manufacture, distribution,
promotion and sale of the Current Vehicle. Any modification in the form,
color, dimension and manner of use by AMG shall be subject to the approval
of GM, which approval shall not be unreasonably withheld.
-1-
<PAGE>
1.2 It is agreed to and understood that the grant of paragraph 1.1 above is
intended to include use of the Hummer Trademarks on related parts,
accessories and maintenance and repair services for the Current Vehicle and
ancillary business materials such as business cards, stationery and
business signs of AMG in connection with its manufacture, distribution,
promotion and sale of the Current Vehicle bearing the Hummer Trademarks.
1.3 It is agreed to and understood that this Agreement does not convey to AMG
any license to use the Hummer Trademarks in connection with any apparel,
novelty items or other merchandise and AMG is expressly prohibited from
using the Hummer Trademarks in connection therewith. GM recognizes and
acknowledges that AMG has previously licensed use of the Hummer Trademarks
to third parties in connection with apparel, novelty items and other
merchandise, such license agreements being assigned to GM pursuant to the
Royalty Sharing Agreement.
1.4 GM makes no representations or warranties with respect to the availability
of use of the Hummer Trademarks in any country. AMG agrees and understands
that upon written notification from GM that any of the Hummer Trademarks
are the subject of a trademark infringement claim or allegation brought by
a third party alleging infringement by GM or AMG, GM shall promptly confer
with AMG in good faith to develop an appropriate response including, where
reasonable under the circumstances and in GM's sole discretion,
discontinuing the use of such Hummer Trademarks pending the outcome of the
alleged trademark infringement.
1.5 Except for trademarks or service marks that currently appear on the Current
Vehicle (e.g., component parts), AMG agrees and understands that no
trademarks other than AMG-owned trademarks and the Hummer Trademarks shall
appear on any of the Current Vehicles, unless otherwise agreed to by GM in
writing wherein such agreement shall not be unreasonably withheld.
1.6 Notwithstanding anything to the contrary in this Agreement, upon the
request and at the expense of AMG, GM will pursue securing trademark and
service mark registrations for use of the Hummer Trademarks in connection
with the manufacture, distribution, promotion and sale of the Current
Vehicle in any countries reasonably requested by AMG.
1.7 (a) GM hereby grants to AMG a non-exclusive, paid-up, royalty-free,
worldwide license to use the shape and design of the Current Vehicle
including, but not limited to, the Current Vehicle grill and nose design,
(the "Current Vehicle Design") in connection with the manufacture,
distribution, servicing, financing, insuring, leasing, promotion and sale
of the Current Vehicle. During the term of the license granted pursuant to
this Section 1.7, GM agrees not to license the Current Vehicle Design to
any third party for use in the manufacture of the Current Vehicle, without
AMG's prior written consent.
(b) The parties acknowledge and agree that the license granted in Section
1.7 (a) above, also includes the use of the Current Vehicle Design on
related parts, accessories and maintenance and repair services for the
Current Vehicle and ancillary business materials such as business cards,
stationary and business signs of AMG in connection with its manufacture,
distribution, promotion and sale of the Current Vehicle.
-2-
<PAGE>
II.
TERM
----
2.1 This Agreement shall become effective upon complete execution by both
parties of: (i) this Agreement, (ii) the Assignment Agreement, (iii) the
Management Services Agreement, (iv) the New Vehicle Assembly Agreement, (v)
the HUMVEE Trademark Agreement, and (vi) the Royalty Sharing Agreement and
shall continue for an indefinite duration, unless this Agreement is
terminated pursuant to the terms and conditions hereof.
III.
ACKNOWLEDGMENT OF TRADEMARK OWNERSHIP
-------------------------------------
3.1 AMG agrees that it will not, during the term of this Agreement or
thereafter, attack the validity of the Hummer Trademarks, or this
Agreement.
3.2 AMG acknowledges GM's title to the Hummer Trademarks, and shall not at any
time do or permit to be done any act or thing which will in any way impair
the rights of GM in the Hummer Trademarks or which damages or reflects
adversely upon GM or the Hummer Trademarks.
3.3 AMG shall not attempt to register the Hummer Trademarks alone or as part of
its own trademarks, nor shall AMG use or attempt to register any marks
confusingly similar to the Hummer Trademarks, except that AMG shall retain
the right to own, use, transfer, license or register its HUMVEE trademarks
and service marks including but not limited to the registered marks listed
on the attached Schedule B, subject to the HUMVEE Trademark Agreement and
Royalty Sharing Agreement.
3.4 It is the intention of the parties that all use of the Hummer Trademarks
shall inure to the benefit of the GM.
3.5 In connection with AMG's use of the Hummer Trademarks, AMG will use the
following notice (or such other notice as otherwise specified by GM)
somewhere in its advertising and promotional materials, in all related-
owners manuals and publications, as well as on the Current Vehicle or
labels affixed to the Current Vehicle:
"[Hummer Trademarks] are trademarks of General Motors Corporation,
used under license to AM General Corporation."
IV.
GOOD WILL AND PROMOTIONAL VALUE
-------------------------------
4.1 AMG recognizes the value of the good will associated with the Hummer
Trademarks and acknowledges that the Hummer Trademarks, and all rights
therein and the good will pertaining thereto, belong exclusively to GM.
V.
TRADEMARK PROTECTION
--------------------
5.1 AMG shall fully and completely comply with the provisions of the trademark
laws of the countries in the Licensed Territory, and AMG agrees to bear any
costs which may be necessary to comply with such trademark laws, other than
the fees, taxes and maintenance charges assessed to register and maintain
the Hummer Trademarks.
-3-
<PAGE>
5.2 AMG agrees to bear any costs which may be necessary to record AMG as a
registered user of the Hummer Trademarks in countries in which AMG is
authorized under this Agreement to manufacture, distribute, promote and
sell the Current Vehicle bearing the Hummer Trademarks. Such cost shall be
limited to direct, out-of-pocket costs for outside counsel, trademark
agents and government registration fees.
5.3 AMG agrees to provide GM with such reasonable assistance as GM may require
in the procurement of any protection of GM's rights to the Hummer
Trademarks.
5.4 AMG agrees to notify GM in writing of any suspected infringing activity by
other entities which may come to AMG's attention. GM shall have the sole
right to determine whether any action shall be taken concerning such
activity. AMG shall not institute any action, make any demand, or contact
such other entity on behalf of GM concerning the suspected infringing
activity.
5.5 AMG agrees to provide to GM, at GM's request and cost and expense, copies
of all files in its possession or control related to any past or current
trademark matters pertaining to the Hummer Trademarks including, without
limitation, trademark applications, registrations, prosecutions,
oppositions, cancellations, pursuit of third party infringers, claims of
trademark infringement against AMG and litigation matters. Additionally,
AMG hereby assigns to GM, and GM accepts all rights AMG may have to pursue
and recover for any and all past, present and future trademark
infringements regarding the Hummer Trademarks, including but not limited to
any and all active litigation.
5.6 GM and AMG understand and acknowledge that with respect to each party's
pursuit of trademark protection for its respective trademarks (the Hummer
Trademarks by GM and the HUMVEE Trademarks by AMG), it may be necessary for
one of the parties to obtain a written consent for use and registration
from the other party. Therefore, the parties agree to execute all documents
necessary when requested by other party to effectuate the intent of this
understanding, provided that the requesting party shall pay all reasonable
costs associated therewith and shall prepare all such documents. This
paragraph 5.6 shall apply to all countries, worldwide, and shall survive
the termination of this Agreement.
VI.
INDEMNIFICATION
---------------
6.1 AMG shall indemnify, defend and hold harmless GM from any cause of action,
claim, action or suit, including product liability claims and claims for
civil liability, for recovery of said damages, losses or injuries, as well
as all costs and reasonable attorney's fees, if any, arising out of the
manufacture, distribution, promotion, sale or use of the Current Vehicle
including, without limitation, use of any trademark (including, but not
limited to, the Hummer Trademarks), patent, process, idea, method or device
by or on behalf of AMG.
-4-
<PAGE>
VII.
QUALITY CONTROL
---------------
7.1 AMG agrees that the Current Vehicle on which it will use the Hummer
Trademarks shall be of a standard of quality equally as high as that of the
specimen made available for GM's inspection as of the date of this
Agreement. Additional testing may be required by GM of the Current Vehicle
from time to time to verify that the Current Vehicle continues to be
substantially equal to or exceed the standard of quality of the Current
Vehicle made available for GM's inspection as of the date of this
Agreement. Such additional tests shall be called for at the discretion of
GM. GM shall have the right to inspect the manufacturing facilities of AMG
at all reasonable times.
7.2 AMG agrees that all advertising, brochures, marketing and promotional
materials, vehicle owner's manuals, documentation and technical materials,
business cards, stationery, business signs and all other written materials
used in connection with the Hummer Trademarks shall be of a standard of
quality equally as high as that of the specimens made available for GM's
inspection as of the date of this Agreement. Any material changes or
additions to the foregoing materials shall require GM's consent, which
consent shall not be unreasonably withheld or delayed. AMG agrees to make
any modifications or corrections to the materials as reasonably specified
by GM.
7.3 If at any time the Current Vehicle or the related advertising, marketing or
other materials do not substantially equal or exceed the standard of
quality as the samples submitted for GM's prior approval, GM shall have the
right to require AMG to discontinue the use of the Hummer Trademarks unless
modification reasonably satisfactory to GM is made within a time frame from
notice of disapproval that is also reasonably satisfactory to the GM.
7.4 AMG agrees that the Current Vehicle will be manufactured, promoted,
distributed and sold in accordance with all applicable federal, state and
local laws, regulations and rules in the applicable countries and AMG
agrees to bear all expenses and costs which may be necessary to comply with
such laws, regulations and rules. AMG further agrees that its conduct
shall in no manner reflect adversely upon the good name and reputation of
GM or the Hummer Trademarks.
VIII.
SUBLICENSE AND NON-ASSIGNMENT
-----------------------------
8.1 This Agreement and any rights herein granted thereby are personal to AMG
and may not be sublicensed or assigned without the prior written consent of
GM.
IX.
TERMINATION
-----------
9.1 This Agreement shall automatically terminate without any notice being
necessary upon the expiration or termination of the New Vehicle Assembly
Agreement. Upon termination of this Agreement pursuant to this paragraph
9.1, GM will consider, at AMG's request, granting AMG a license to continue
to use the Hummer Trademarks on the Current Vehicle; provided, however,
that the granting of any such license shall be at GM's sole discretion.
9.2 This Agreement shall automatically terminate without any notice being
necessary if AMG files a petition in bankruptcy or is adjudicated a
bankrupt or if a petition in bankruptcy is filed against AMG and is not
dismissed within thirty (30) days or if it becomes insolvent, or makes an
assignment for the benefit of its creditors or an arrangement pursuant to
any bankruptcy law, or if a receiver is appointed for it or its business.
In the event that this Agreement is so terminated, AMG, its receivers,
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<PAGE>
representatives, trustees, agents, administrators, successors, or assigns
shall have no right to sell, exploit or in any way deal with the Hummer
Trademarks or use the Hummer Trademarks in any way in connection with the
Current Vehicle or any carton, container, packing or wrapping material,
advertising, promotional or display material pertaining thereto.
9.3 If AMG materially breaches any of the conditions listed in this Agreement,
GM shall have the right to terminate this Agreement upon thirty (30) days
written notice, provided that AMG fails to cure such breach within such
thirty (30) day period; provided, however, that in the event a specific
-----------------
breach is of a type which can not reasonably be cured within such thirty
(30) day period, GM's rights of termination under this Section 9.4 shall be
suspended as long as AMG has begun to cure such breach within the thirty
(30) day period and in GM's sole discretion, continues to proceed
diligently and in good faith to complete such cure. The parties agree and
understand that insofar as a breach is of a type which is incapable of
cure, in whole or in part, the term "cure" in this provision shall be
interpreted to mean providing sufficient assurances and instituting
sufficient preventative procedures to ensure that breaches of that type
will not occur in the future.
9.4 Upon the termination of this Agreement, AMG shall immediately cease all use
of the Hummer Trademarks; provided, however, that AMG shall have the right
to use the Hummer Trademarks in connection with its completion of the
manufacture, distribution and sale of Current Vehicles for which bone fide
orders have been received by AMG as of the termination of this Agreement
and the use, distribution and sale of all raw materials, work-in-process,
and finished goods inventory of Current Vehicles bearing the Hummer
Trademarks existing as of the termination of this Agreement; provided,
however, that the distribution and sale of any such vehicles shall be
distributed and sold in conjunction with GM through the sales and marketing
network then utilized by GM for the distribution and sale of Hummer branded
vehicles.
9.5 Paragraphs 1.7, 3.3, 5.5, 6.1, and 9.4 shall survive the termination of
this Agreement. Therefore, upon termination of this Agreement, (i) AMG
shall have the right to continue to use the Current Vehicle Design as set
forth in paragraph 1.7 (including but not limited to the uses contemplated
in Section 1.7(b) above) in connection with its manufacture, distribution,
promotion and sale of the Current Vehicle until such time as AMG (a)
discontinues use of the Current Vehicle Design with the intent not to
resume its use, or (b) discontinues use of the Current Vehicle Design in
connection with the manufacture and sale of the Current Vehicle and has no
intention of resuming such use within twelve (12) months from the date of
such discontinuance or fails to resume use within such twelve (12) month
period, (ii) pursuant to paragraph 3.3 above, AMG shall not attempt to
register the Hummer Trademarks alone or as part of its own trademarks, nor
shall AMG use or attempt to register any marks confusingly similar to the
Hummer Trademarks, except that AMG shall retain the right to own, use,
transfer, license or register its HUMVEE Trademarks, trademarks and service
marks including but not limited to the registered markslisted on the
attached Schedule B, subject to the HUMVEE Trademark Agreement and Royalty
Sharing Agreement, and (iii) pursuant to paragraph 6.1, AMG shall continue
to be responsible for indemnifying GM in connection with AMG's continuing
use of the Current Vehicle Design. Notwithstanding anything to the contrary
herein contained, AMG shall also have the right to transfer or assign the
license grant of paragraph 1.7; provided, however, that such transfer or
assignment shall only be in connection with the sale or transfer of
substantially all of the stock or substantially all of the assets of AMG
(but in no case shall such rights be assigned in any proceeding in
bankruptcy or general assignment for the benefit of creditors or to a
competitor of GM in the manufacture and sale of motor vehicles).
9.6 Termination of this Agreement under the provisions of this Paragraph IX
shall be without prejudice to any rights which GM may otherwise have
against AMG or which AMG may otherwise have against GM.
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<PAGE>
X.
GOVERNING LAW
-------------
10.1 This Agreement shall be governed by and construed in accordance with the
laws of the State of Michigan. This Agreement cancels and supersedes all
prior written or oral agreements between the parties with respect to the
matters referred to herein. This Agreement may be amended or modified only
by a writing signed by both parties.
XI.
SEVERABILITY
------------
11.1 The provisions of this Agreement shall be severable, and if any provision
hereunder shall be held or declared illegal, invalid, or unenforceable,
such shall not effect any other provision hereof or the interpretation,
effect, or enforceability of this Agreement.
XII.
CONFIDENTIALITY
---------------
12.1 AMG and GM shall not disclose or otherwise communicate to any third party
(other than the parties' respective employees, agents, and participants
with a specific "need to know" and who shall be bound by the provisions of
this paragraph) any information regarding either the terms and provisions
of this Agreement, or any confidential materials, trade secrets, and/or
proprietary information delivered pursuant to the terms and provisions of
this Agreement to such party by the other party if in writing and clearly
marked with a "Confidential" or similar legend; or if orally, is identified
as proprietary at the time of such oral disclosure and is confirmed in
writing to the receiving party to be proprietary within thirty (30) days
after such oral disclosure, except: (a) to the extent necessary to comply
with a specific applicable law or the valid final order of a court of
competent jurisdiction, in which case the party making the disclosure or
communication shall notify the other party in writing and shall seek
confidential and proprietary treatment of the information; (b) as part of
normal, reporting or review procedure to the respective parties and of
directors, parent company, auditors and attorneys provided, however, that
such persons or entities agree to be bound by the provisions of this
paragraph; (c) to enforce its rights legally under this Agreement in a
court of competent jurisdiction; or (d) such information which is or
becomes part of the public domain through disclosure other than by AMG or
by GM.
XIII.
NOTICES
-------
13.1 Any notices or other communication required or permitted under this
Agreement shall be in writing, and be mailed to:
If to GM: Mike DiGiovanni
HUMMER Marketing
100 Renaissance Center
MC: 482-A32-B98
Detroit, Michigan 48265
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<PAGE>
with copy to: Timothy G. Gorbatoff
General Motors Legal Staff
Intellectual Property Group
New Center One Bldg, Suite 450
M/C 482-204-450
3031 West Grand Blvd.
Detroit, MI 48202
If to AMG: Paul J. Cafiero, Chief Financial Officer
AM General Corporation
105 North Niles Avenue
South Bend, IN 46617
with a copy to: Dennis A. Sadlowski, Vice President - Law
The Renco Group, Inc.
30 Rockefeller Plaza
New York, New York 10112
The parties hereto indicate their understanding of and full agreement with all
the foregoing by its duly authorized representatives' signature below.
GENERAL MOTORS CORPORATION AM GENERAL CORPORATION
By: ___________________________ By: _____________________________
Title: ________________________ Title: __________________________
-8-
<PAGE>
PROMISSORY NOTE
December 21, 1999
AM General Corporation, (the "Maker") a Delaware corporation, located at 105
North Niles Avenue, South Bend, Indiana 46617, promises to pay to the order of
General Motors Corporation, (the "Payee") at its offices located at 3044 West
Grand Boulevard, Detroit, Michigan, 48202 in lawful money of the United States
of America, and in installments as hereinafter provided, the principal amount
set forth on Attachment A hereto, together with interest, at the rate of "zero"
percent ( 0%) per annum, on the unpaid balance. In the event the parties
mutually agree in writing to utilize a repayment methodology different from the
direct off-set to the Assembly Fee as contemplated in the New Vehicle Assembly
Agreement, all past due principal on this Note shall bear interest from maturity
thereof until paid, at the maximum rate permitted by law.
Principal and interest, if any, on this Note shall be payable in accordance with
the schedule set forth in Attachment B hereto, with each payment applied first
to accrued but unpaid interest, if any, and second to principal. Unless
otherwise mutually agreed by Maker and Payee in writing, payments shall be made
as direct off sets to the assembly fee setforth in the New Vehicle Assembly
Agreement between AM General Corporation and General Motors Corporation dated
December 21, 1999.
Notwithstanding anything elsewhere to the contrary and subject to the provisions
of the Equity Conversion Agreement between General Motors Corporation and AM
General Corporation dated , December 21, 1999, Maker shall have the right and
privilege of prepaying all or any part of this Note at any time without notice,
additional interest or penalty. Partial prepayment shall not excuse the payment
of the next installment otherwise due hereunder, but shall only reduce the
number of such installments required hereby, as appropriate. The parties
acknowledge, however, that AM General Corporation shall have no obligation to
pay off this Note in cash other than through the direct off set to the assembly
fee referenced above, unless otherwise mutually agreed by the parties in
writing.
This Note is secured by a Security Agreement executed by AM General Corporation,
a Delaware corporation , in favor of General Motors Corporation, hereof, and
executed simultaneously herewith.
In the event the parties mutually agree in writing to utilize a repayment
methodology different from the direct off-set to the Assembly Fee as
contemplated in the New Vehicle Assembly Agreement, it is expressly agreed that
upon default in payment of any one or more of the said installments, which
default shall extend over a period of more than ten (10) days, then all
subsequent installments on this Note shall at once become due and payable at the
option of the Payee without demand or notice, demand and notice being hereby
expressly waived. Default shall be limited to, the failure of the Maker to pay
any installment of principal or interest, if any, when due, or a default under
the terms of the above-mentioned security agreement.
Maker and all sureties, endorsers and guarantors of this Note, if any, waive
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, and all other notice, filing of suit and diligence in collecting this
Note or enforcing any of the security herefor, and agree to any substitution,
exchange or release of any such security or the release of any party primarily
or secondarily liable hereon and further agrees that it will not be necessary
for any holder hereof, in order to enforce payment by it of this Note to first
institute suit or exhaust its remedies against any others liable herefor, or to
enforce its rights against any security herefor, and consent to any extensions
or postponements of time of payment of this Note or any other indulgences with
respect hereto, without notice thereof to any of them.
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<PAGE>
Any failure or delay on the part of Payee in exercising any such right, remedy
or power, or abandonment or discontinuance of steps to enforce the same, shall
not operate as a waiver thereof or affect Payee's right thereafter to exercise
the same, and any single or partial exercise or any such right, remedy or power
shall not preclude any other or further exercise thereof or the exercise of any
other right, remedy or power.
If this Note is collected by suit or through Bankruptcy Court or any judicial
proceeding, or if this Note is not paid at maturity, however such maturity may
arise, and it is placed in the hands of any attorney for collection, then the
Maker agrees to pay for all costs, expenses, reasonable attorneys' fees, and
legal expenses which are incurred in addition to all amounts owing hereunder.
This Note is made and delivered in and it shall be governed by the laws of the
State of Michigan.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by its
authorized representative this 21st day of December, 1999.
AM General Corporation
By:_____________________________
Title:__________________________
ATTEST:
_____________________
Secretary
STATE OF )
) SS:
COUNTY OF )
On December 21, 1999, before me _____________________________, a Notary Public
in and for said state, personally appeared ______________________________,
_______________ of AM GENERAL Corporation, known to me to be the person who
executed the within Promissory Note in behalf of said Corporation and
acknowledged to me that he/she executed the same for the purposes therein
stated.
_______________________________
Notary Public
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<PAGE>
SECURITY AGREEMENT
------------------
AM GENERAL Corporation, a Delaware corporation, for valuable considerations,
receipt of which is hereby acknowledged, grants General Motors Corporation, a
Delaware corporation, a purchase money security interest in the properties
described below in accordance with the following terms and conditions:
I. Definitions. As used in this Security Agreement, the following terms shall
-----------
have the following respective meanings:
(A) The term "AMG" shall mean AM GENERAL Corporation, a Delaware
corporation, its successors or assigns.
(B) The term "GM" shall mean General Motors Corporation, a Delaware
corporation, its successors or assigns.
(C) The term "Promissory Note" shall mean that certain Promissory Note
executed by AMG and dated December 21, 1999, payable to the order of
GM.
(D) The term "Event of Default" shall mean any of the events set forth in
Section VI below.
II. Grant of Security Interest. As collateral security for the prompt and
--------------------------
complete payment, when due, of the Promissory Note, AMG hereby grants to GM a
purchase money security interest in and to the property of AMG identified on
Exhibit A hereto (hereinafter collectively the "Collateral").
III. Obligations Secured. The security interest granted secures the payment
-------------------
of any and all indebtedness, obligations, and liabilities of AMG to GM as
evidenced by the Promissory Note (hereinafter called the "Obligations") whether
direct or indirect, joint or several, absolute or contingent, due or to become
due, whether now existing or hereafter arising and all renewals, extensions and
rearrangements of all such items of indebtedness and including costs, expenses
and attorneys' fees and legal expenses, all in accordance with the terms of the
Promissory Note and this Security Agreement.
IV. Warranties, Covenants and Agreements of AMG. AMG warrants, covenants and
-------------------------------------------
agrees that:
(A) Except for the security interest granted hereby and Permitted Liens as
defined in Schedule A, AMG is or will be the owner and holder of all the
Collateral free from any adverse claim, security interest, financing statement,
encumbrance or other right, title or interest of any person and AMG has full
power and lawful authority to sell and assign the Collateral and to grant to GM
a security interest therein as herein provided, and the execution, delivery and
performance hereof is not in contravention of any indenture, agreement or
undertaking to which AMG is a party or by which it is bound; and AMG will defend
the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein.
(B) Except for Permitted Liens as defined in Schedule A, AMG has not
signed any financing statement, and no financing statement is now on file in any
public office covering the Collateral. AMG authorizes GM to file, in
jurisdictions where this authorization will be given effect, a financing
statement signed only by GM covering the Collateral; and at the request of GM,
AMG will join GM in executing one or more financing statements, pursuant to the
Uniform Commercial Code, in form satisfactory to GM, and will pay the cost of
filing the same or filing or recording this Security Agreement
-1-
<PAGE>
in all public offices at any time and from time to time whenever filing or
recording of any such financing statement or of this Security Agreement is
deemed by GM to be necessary or desirable, it being further stipulated in this
regard that GM may also at any time or times sign any counterpart of this
Security Agreement signed by AMG and file same as a financing statement if GM
shall elect so to do.
(C) Unless otherwise agreed in writing, AMG shall at all times keep the
Collateral separate and distinct from the other property of AMG or that of any
third party and shall keep accurate and complete records of the Collateral and
its location. AMG promises that it will not, without securing the permission of
GM, move these records securing the Collateral from the below address:
Section 11. 13200 McKinley Highway
Mishawaka, Indiana 46545
(D) AMG will take all reasonable actions necessary to maintain and
preserve all security for the Collateral at all times as valid, subsisting and
perfected security as to all the property affected and covered thereby and to
maintain the priority and validity of the security interest in the Collateral as
against the rights, claims and interests of any other persons and parties
whomsoever.
(E) AMG will have and maintain insurance at all times with respect to
the Collateral against risks of fire (including so-called extended coverage),
theft, and such other risks as GM may reasonably require, and in the case of
motor vehicles, collision, containing such terms, in such form, for such
periods, and written by such companies as may be reasonably satisfactory to GM,
such insurance to be payable to GM and AMG as their interest may appear; all
policies of insurance shall provide for at least thirty (30) days' written
cancellation notice to GM; AMG shall furnish GM with certificates or other
evidence reasonably satisfactory to GM of compliance with the foregoing
insurance provisions. If at any time or times AMG shall fail to take out or
maintain insurance as required under the terms of the last preceding sentence,
GM may (but shall not be obligated to), without in anyway waiving such failure
by AMG, take out or maintain such insurance, and all premiums and other costs
paid by GM incident thereto shall be repayable by AMG to GM, upon demand by GM,
with interest thereon from the date expended by GM until repaid at the rate of
ten percent (10%) per annum, and shall be and become a part of the Obligations
secured hereby.
(F) AMG agrees that it shall give GM ninety (90) days' advance written
notice of any change in AMG's name, corporate form, or address of its principal
place of business.
(G) AMG will keep the Collateral free from any adverse lien, security
interests, or encumbrance, except for Permitted Liens as defined in Schedule A,
and in good order and repair and will not waste, destroy, misuse or abuse the
Collateral or any part thereof or allow any of same to deteriorate except for
normal wear and tear from its normal intended primary use; AMG will not use the
Collateral in violation of any statute or ordinance; and GM may examine and
inspect the Collateral at any time (during normal business hours) following
reasonable notice, wherever located, and may enter upon any premises where same
is situated for such purpose.
(H) AMG will pay promptly when due all taxes and assessments upon the
Collateral or for its use or operation.
-2-
<PAGE>
(I) At its option, following due consultation with AMG, GM may use or may
permit to be used any insurance proceeds received by GM for the reconstruction
or repair of the Collateral without in anyway impairing or affecting its rights
hereunder; provided, however, that if AMG is not in default under this Security
Agreement, GM shall pay such proceeds to AMG and AMG shall apply such proceeds
to the purchase, re-construction or repair of the Collateral.
V. Further Agreements Between AMG and GM.
-------------------------------------
(A) GM shall never be under any obligation to collect, attempt to collect,
protect or enforce the Collateral or any security therefor, which AMG agrees and
undertakes to do at AMG's expense; but upon the occurrence of an Event of
Default under the Security Agreement and for as long as such Event of Default is
continuing, GM may do so in its discretion at any time or times, and GM shall
have the right to take any steps by judicial process or otherwise it may deem
proper from time to time to effect the sale, use, removal and/or disposition of
all or any portion of the Collateral or to protect or to enforce the Collateral
or any security therefor. All expenses (including, without limitation,
attorneys' fees and legal expenses) incurred or paid by GM in connection with or
incident to any such sale, use, removal and/or disposition or attempt to collect
the Collateral or actions to protect or enforce the Collateral or any security
therefor shall be borne by AMG or reimbursed by AMG to GM upon demand. The
proceeds of sale, use, removal and/or disposition of the Collateral shall be
held by GM without liability for interest thereon and may be applied by GM as GM
may reasonably deem appropriate toward payment of any of the Obligations secured
hereby, whether or not then due, in such order or manner as GM may elect.
(B) Except for Permitted Liens as defined in Schedule A, if any taxes or
governmental assessments of any kind or character shall be levied upon or
against the Collateral or the Obligations, the same shall be promptly paid
before delinquency by AMG, and if any such taxes or governmental assessments are
not paid by AMG prior to delinquency thereof, GM may at its option pay such
taxes or assessments and any interests, costs or penalties in connection
therewith.
(C) In the event GM shall pay any such taxes, assessments, interests,
costs, penalties, or expenses incident to or in connection with the collection
of the Collateral or protection or enforcement of the Collateral or any security
therefor, AMG, upon demand of GM, shall pay to GM the full amount thereof with
interest at the rate of ten percent (10%) per annum from their respective dates
of payment by GM until repaid to GM in full; and so long as GM shall be entitled
to any such payment, this Security Agreement shall operate as security therefor
as fully and to the same extent as it operates as security for payment of the
other Obligations secured hereunder, and for the enforcement of such repayment
GM shall have every right and remedy provided for enforcement of payment of the
Obligations secured hereunder.
(D) When all of the Obligations shall have been paid in full or otherwise
satisfied in full, if this Security Agreement has not theretofore been
foreclosed, GM or other holder of the Obligations shall reassign and release to
AMG, without recourse or warranty, express or implied, the then existing rights,
titles and interest of GM in and to the Collateral, the costs of such
reassignment to be borne by AMG, and GM shall pay to AMG the surplus money, if
any, then in the hands of GM representing collections on or proceeds of the
Collateral (net of any fees or expenses associated with such collections,
including but not limited to reasonable attorney's fees) not theretofore applied
toward payment of the Obligations. GM shall promptly execute and deliver to AMG
any and all documents reasonably necessary to evidence such release.
(E) AMG shall provide GM with quarterly financial statements, the form and
content to be mutually agreed by the parties.
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<PAGE>
VI. Events of Default
-----------------
The happening of any of the following events or conditions shall be an event of
default under this Security Agreement ("Event of Default"):
(A) The offsetting credits to GM against the Assembly Fees paid or
otherwise payable to AMG per unit of New Vehicle assembled by AMG pursuant to
the New Vehicle Assembly Agreement is insufficient to fully reimburse GM for the
principal amount of the Promissory Note (without interest) during the term of
the New Vehicle Assembly Agreement and AMG shall undertake to sell or transfer
to any party other than GM without GM's consent any New Vehicle or any other
motor vehicle manufactured (excluding the painting of the Current Vehicle),
produced or assembled in the New Vehicle Facilities; or
(B) A voluntary or involuntary petition under the Bankruptcy Code is filed
by or against AMG and a final order for relief under Chapter 7 of the Bankruptcy
Code is entered, or any Chapter 11 proceedings under Chapter 11 of the
Bankruptcy Code is converted to proceedings under Chapter 7 of the Bankruptcy
Code pursuant to a final order for relief; or
(C) AMG shall make a general assignment for the benefit of creditors or a
similar transfer or shall take action involving a material portion of the
Collateral for purposes of liquidating such assets; or
(D) Any secured or lien creditor of AMG shall commence a foreclosure
action of its liens, security interest(s) and/or mortgage(s) against, and shall
obtain the right to possession or control over, a material portion of the
Collateral.
VII. Remedies
--------
(A) Upon the occurrence of an Event of Default and for so long as such
Event of Default is continuing or the non-payment of any of the Obligations,
when due, and at any time thereafter, at GM's option, GM shall have and may
exercise with reference to the Collateral any or all of the rights and remedies
of a secured party under the Uniform Commercial Code as adopted in the State of
Michigan, and as otherwise granted herein or under any other applicable law
including, without limitation, the right and power to sell, at public or private
sale or sales, or otherwise dispose of, lease or otherwise utilize the
Collateral and any part or parts thereof in any manner authorized or permitted
under said Uniform Commercial Code after default by a debtor, and to apply the
proceeds thereof toward payment of any costs and expenses and attorneys' fees
and legal expenses thereby incurred by GM and toward payment of the Obligations
in such order or manner as GM may elect. Specifically and without limiting the
foregoing, GM may require AMG to assemble the Collateral or any security
therefor and make it available to GM at the address specified in Section 4(C)
above ; and GM shall have the right to take possession of all or part of the
Collateral or any security therefor and of all books, records, papers, and
documents of AMG or in AMG's possession or control relating to the Collateral
which are not already in GM's possession, and for such purpose may enter upon
any premises upon which any of the Collateral or any security therefor or any of
said books, records, papers and documents are situated and remove the same
therefrom without any liability for trespass or damages thereby occasioned.
-4-
<PAGE>
(B) To the extent permitted by law, AMG expressly waives any notice of
sale or other disposition of the Collateral and all other rights or remedies of
AMG or formalities prescribed by law relative to sale or disposition of the
Collateral or exercise of any other right or remedy of GM existing after default
hereunder; and to the extent any such notice is required and cannot be waived,
AMG agrees that if such notice is mailed, postage prepaid, to AMG at the address
shown herein above at least twenty (20) days before the time of the sale or
disposition, such notice shall be deemed reasonable and shall fully satisfy any
requirement for giving of said notice.
(C) GM is expressly granted the right, at its option, to transfer, at any
time, following the occurrence of an Event of Default and for as long as such
Event of Default is continuing, to itself or to its nominee the Collateral, or
any part thereof, and to receive the payments, collections, monies, income,
proceeds or benefits attributable or accruing thereto and to hold the same as
security for the Obligations or to apply it on the principal and interest or
other amounts owing on any of the Obligations, whether or not then due, in such
order or manner as GM may elect.
(D) All rights to marshaling the Collateral, are hereby waived.
(E) All recitals in any instrument of assignment or any other instrument
executed by GM incident to sale, lease, transfer, assignment or other
disposition, lease or utilization of the Collateral or any part thereof
hereunder shall be full proof of the matters stated therein and no other proof
shall be requisite to establish full legal propriety of the sale or other action
taken by GM or of any fact, condition or thing incident thereto and all
prerequisites of such sale or other action or of any fact, condition or thing
incident thereto shall be presumed conclusively to have been performed or to
have occurred.
VIII. General
-------
(A) The execution and delivery of this Security Agreement in no manner
shall impair or affect any other security (by endorsement or otherwise) for the
payment of the Obligations and no security taken hereafter as security for
payment of the Obligations shall impair in any manner or affect this Security
Agreement, all such present and future additional security to be considered as
cumulative security. Any of the Collateral may be released from this Security
Agreement without altering, varying or diminishing in any way the force, effect,
lien, security interest, or charge of this Security Agreement as to the
Collateral not expressly released, and this Security Agreement shall continue as
a first and prior lien, security interest and charge on all of the Collateral
not expressly released until all the Obligations secured hereby have been paid
in full or otherwise satisfied. Any future assignment or attempted assignment of
the interest of AMG in and to any of the Collateral shall not deprive GM of the
right to sell or otherwise dispose of or utilize all of the Collateral as above
provided or necessitate the sale or disposition thereof in parcels or in
severalty.
(B) This Security Agreement shall not be construed as relieving AMG from
liability on the Obligations and any and all future and other indebtedness
secured hereby.
(C) Upon the occurrence of an Event of Default hereunder, GM is hereby
subrogated to all of AMG's interests, rights and remedies in respect to the
Collateral and all security now or hereafter existing with respect thereto and
all guaranties and endorsements thereof and with respect thereto.
(D) Any notice or demand to AMG hereunder or in connection herewith may be
given and shall conclusively be deemed and considered to have been given and
received upon the fifth day following the deposit thereof, in writing, duly
stamped and addressed to AMG at the address first shown below, in the U.S.
Mails; but actual notice, however given or received, shall always be effective.
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<PAGE>
(E) The provisions of Section VIII(B) above notwithstanding, AMG shall
have no obligation to pay off the Obligations in cash other than through the
direct offset to the Assembly Fee set forth in the New Vehicle Assembly
Agreement unless otherwise mutually agreed by the Parties in writing; provided,
however, that subject to the terms of the Equity Conversion Agreement between
the Parties, AMG may elect at anytime to pre-pay the Promissory Note without
notice, additional interest or penalty.
(F) GM shall not be obligated to take any steps necessary to preserve any
rights in the Collateral or in any security therefor against other parties,
which AMG hereby assumes to do.
(G) No delay or omission on the part of GM in exercising any right
hereunder shall operate as a waiver of any such right or any other right. A
waiver on any one or more occasions shall not be construed as a bar to or waiver
of any right or remedy on any future occasion. The remedies of GM hereunder are
cumulative, and the exercise of any one or more of the remedies provided for
herein shall not be construed as an election or as a waiver of any of the other
remedies of GM provided for herein or existing by law or otherwise.
(H) All rights of GM hereunder shall inure to the benefit of its
successors and assigns; and all obligations of AMG shall bind its successors or
assigns.
(I) As used in this Security Agreement and when required by the context,
each number (singular and plural) shall include all numbers, and each gender
shall include all genders; and unless the context otherwise requires, the word
"person" shall include "corporation, firm or association."
(J) The laws governing this secured transaction shall be that of the State
of Michigan existing as of the date hereof; provided that if any additional
rights or remedies are hereafter are granted to secured parties by the laws of
Michigan, GM shall also have and may exercise any such additional rights or
remedies.
IN WITNESS WHEREOF, the undersigned AMG has executed this Security Agreement by
its duly authorized officer this 21st the day of December, 1999.
AM GENERAL Corporation
By: _______________________
Title: ____________________
STATE OF )
)SS:
COUNTY OF )
On December 21, 1999, before me _______________________, a Notary Public in and
for said state, personally appeared ___________________________________________,
______________________________________ of AM GENERAL Corporation, known to me to
be the person who executed the within Security Agreement in behalf of said
Corporation and acknowledged to me that he/she executed the same for the
purposes therein stated.
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<PAGE>
_______________________________
Notary Public
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<PAGE>
RIGHT OF ACCESS AGREEMENT
-------------------------
RIGHT OF ACCESS AGREEMENT, dated as of December 21, 1999 (this "Agreement"),
between AM GENERAL Corporation ("AMG") and General Motors Corporation ("GM").
RECITALS:
1. GM and AMG have entered into a New Vehicle Assembly Agreement of even date
herewith (the "New Vehicle Assembly Agreement"), pursuant to which AMG has
agreed to assemble for delivery to GM motor vehicles based upon a GM platform
and conforming to mutually agreed upon specifications (the "New Vehicles");
2. For purposes of this Agreement the term "Operating Assets" shall mean all
now existing or later acquired assets of AMG, wherever located, reasonably
necessary for production of the New Vehicles.
3. For purposes of this Agreement the term "Real Estate" shall mean all now
existing or later acquired plant facilities, real property, and lease interests,
wherever located, reasonably necessary for the production of the New Vehicles.
NOW, THEREFORE, in consideration of the premises and, in order to induce GM
to issue or enter into the New Vehicle Assembly Agreement and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, AMG hereby agrees with GM as follows:
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<PAGE>
GRANT OF RIGHT OF ACCESS
(a) Grant. Upon the occurrence of an Event of Default (as hereinafter
-----
defined), GM or its designee(s) shall have the right to use and occupy
the Real Estate and utilize the Operating Assets , to assemble and
supply New Vehicles to GM, its dealers and distributors (the "Right of
Access") for a period commencing on the date the Right of Access
commences and ending on the Access Termination Date (the "Access
Period"). Upon the occurrence of an Event of Default, GM may invoke
its Right of Access by delivering written notice to AMG and AMG's
lenders indicating GM's intention to invoke its Right of Access. Upon
delivery of such notice to AMG and to AMG's lender, the Right of
Access shall commence immediately.
(b) Condition of New Vehicle Assembly Agreement. GM has conditioned the
--------------------------------------------
execution of the New Vehicle Assembly Agreement on AMG entering into
this Agreement and AMG acknowledges that the occurrence of any of the
Events of Default set forth in Section 2 below will cause GM
irreparable harm.
(c) Right to Terminate. GM shall have the right to terminate the Access
------------------
Period at any time during such period, upon ten (10) days written
notice.
EVENTS OF DEFAULT
Unless waived in writing by GM, each of the following events, except
as a direct result of a Force Majeure Event or the failure by GM to provide the
necessary materials and/or components as specified in the New Vehicle Assembly
Agreement. shall constitute an event of default ("Event of Default") hereunder:
(d) During any 4 consecutive week period, AMG fails to meet the delivery
schedule for at least 3 weeks of such 4 consecutive week period and
the cumulative shortage for such 4 week period is 10% or more of the
total vehicles ordered for delivery to GM during that 4 week period,
and AMG does not during the immediately following 4 weeks reduce the
total cumulative shortage for the entire 8 week period to less than
2.5% of the total vehicles ordered for delivery to GM during that
period; provided, however, that in no case shall this provision apply
-----------------
to: (i) orders in excess of AMG's straight time capacity, (ii) orders
which would require AMG to violate its respective labor agreements,
(iii) the mutually agreed upon launch period for the New Vehicle, or
(iv) the mutually agreed upon period for new model start-ups.
(e) The President and CEO of AMG acknowledges in writing that AMG is
unable to timely satisfy the delivery requirements set forth in the
New Vehicle Assembly Agreement and any purchase order issued
thereunder.
(f) AMG refuses for any reason to deliver or assemble the required volume
of New Vehicles ordered by GM pursuant to the terms of the New Vehicle
Assembly Agreement and has failed to cure such default (by correcting
any such refusal) within 5 days of written notice of such default by
GM.
(g) A voluntary or involuntary petition under the Bankruptcy Code is filed
by or against AMG and a final order for relief under Chapter 7 of the
Bankruptcy Code is entered, or any proceedings under Chapter 11 of the
Bankruptcy Code is converted to proceedings under Chapter 7 of the
Bankruptcy Code pursuant to a final order for relief.
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<PAGE>
(h) AMG makes a general assignment for the benefit of creditors or a
similar transfer or shall take action involving a material portion of
the Operating Assets or the Real Estate for purposes of liquidating
such assets.
(i) Any secured or lien creditor of AMG commences foreclosure action of
its liens, security interest(s) and/or mortgage(s) against, and
obtains the right to possession or control over, a material portion of
the Operating Assets or the Real Estate.
(j) If bankruptcy proceedings are filed by or against AMG, an order
authorizing the use of cash collateral or post-petition financing by
AMG is not approved by the Bankruptcy Court prior to termination or
expiration of the major portion of AMG's working capital financing
arrangements and no alternative arrangements are then in place.
(k) AMG becomes financially unable to perform its obligations under the
New Vehicle Assembly Agreement or any purchase order thereunder as
they become due or AMG can not provide GM with reasonable assurances
of its ability to perform (when requested by GM) and such inability to
perform is not cured within 10 days of notice from GM.
(l) Any of AMG's lenders terminate or fail to extend their working capital
or other financing arrangements with AMG and AMG does not secure
appropriate alternative financing within ten (10) days.
(m) Any material action or inaction by AMG which can reasonably be
expected to directly result in the imminent interruption of GM's
ability to supply New Vehicles to its dealers and/or authorized
distributors; provided, however that AMG does not cure any such
instance within 10 days of notice from GM. In no case, however, shall
the provisions of this Section J supercede any other provision of
Section 2 herein.
Obligations of GM
(n) Obligations. GM shall have the following obligations with regard to
-----------
the Right of Access:
(i) During any Access Period and with respect to any claims,
costs, expenses, losses, demands, lawsuits or liabilities
of whatsoever nature that may arise during such Access
Period or at any time thereafter as a result of events
arising or occurring during such Access Period, GM shall
indemnify, defend and save and hold AMG, its agents,
employees, officers, stockholders and directors, harmless
from any and all costs, damages, liabilities (including
reasonable attorneys fees) or injury (personal or
otherwise) of whatsoever nature caused by or arising out of
GM's or its designees' use of the Operating Assets or the
Real Estate, or relating to the New Vehicles assembled
during the Access Period.
(ii) During the Access Period, GM shall maintain the Operating
Assets and the Real Estate in the same or better condition
than such existed at the commencement of the Access Period.
(iii) In lieu of paying the Assembly Fee called for by the New
Vehicle Assembly Agreement, during the Access Period, GM
shall pay all actual costs and expenses incurred in
connection with the assembly of New Vehicles as they become
due, the occupancy of the Real Estate and the use of the
Operating Assets and the Real Estate,
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including without limitation, utilities and other overhead
expenses (other than interest and finance charges and the
RENCO Management Fee).
(iv) GM shall pay all current interest and financing changes
incurred by AMG during the Access Period, pursuant to
financing arrangements that were in place and in effect
prior to the commencement of the Access Period, relating
directly to the Operating Assets and the Real Estate;
provided, however, that in no case shall GM be responsible
for any costs, penalties, assessments or other expenses
relating to periods prior to the Access Period.
(v) During the Access Period, GM shall pay to AMG $300.00 per
each New Vehicle assembled by GM hereunder (the "Partial
Assembly Fee"). In addition, AMG shall receive a credit
from GM for each New Vehicle assembled during the Access
Period with the agreed upon amount per New Vehicle to be
applied to repayment of the Note in accordance with the
terms and conditions of the New Vehicle Assembly Agreement
and the Note.
(vi) During the Access Period, GM shall afford AMG's
representatives and the representatives of AMG's lenders
and other secured creditors reasonable access to inspect
the Operating Assets and the Real Estate; provided,
however, that such access shall not interfere with GM's
right to use and occupy the Operating Assets and the Real
Estate.
(vii) During the Access Period, GM shall observe all applicable
laws, rules, regulations and ordinances relating to the
use, operation and occupancy of the Operating Assets and
the Real Estate and the assembly of New Vehicles.
(o) Limitations on GM's Obligations. Upon the expiration or termination
-------------------------------
of the Access Period, and except for obligations and liabilities under
this Agreement arising or incurred during the Access Period, but which
remain unpaid, GM shall have no further obligations or liabilities to
AMG arising from this Agreement or the Right of Access provided
herein. Moreover, in the event that GM never exercises the Right of
Access provided by this Agreement, GM shall have no obligation or
liability by reason of this Agreement nor shall GM be required or
obligated in any way to perform or fulfill any of the obligations of
AMG.
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(p)
Obligations of AMG
AMG shall have the following obligations with regard to the Right of
Access:
(q) During the Access Period, AMG shall not increase the compensation or
benefits of the Employees (as defined in Section 6 below), for which
GM would be responsible for payment under the terms of this Agreement,
except as may be required by applicable law or pursuant to contracts
in existence prior to the commencement of the Access Period or in any
contracts that replace contracts that expire during the Access Period.
(r) AMG shall indemnify, defend and save and hold GM harmless from any and
all costs, expenses, (including reasonable attorney's fees), losses,
damages or injury arising from claims or liabilities accruing prior to
12:00 A.M. of the first day of the Access Period relating to
Employees, regardless of when such claims are asserted.
(s) During the Access Period, AMG shall not re-locate, sell or otherwise
dispose of the Operating Assets or the Real Estate or take any other
action, if such relocation, sale or other disposition of the Operating
Assets or the Real Estate would result in such property being
unavailable to GM during the Access Period, without GM's prior written
consent.
(t) During the Access Period, AMG will work with GM in good faith to
develop a plan to correct and cure any and all Events of Default as
promptly as commercially reasonable and ensure that GM will receive an
uninterrupted supply of New Vehicles, including but not limited to the
extension of this Agreement and/or the execution of a new right of
access agreement.
Joint Obligations of AMG and GM
(u) During the Access Period, AMG and GM shall, to the extent reasonably
practicable, work together in good faith to develop a plan to as
promptly as commercially reasonable, cause AMG to reestablish
independent control and operation of the New Vehicle Facilities and
otherwise enjoy the full benefits of the transactions contemplated
under the New Vehicle Assembly Agreement.
(v) AMG and GM agree to cooperate and assist one another with respect to
any actions reasonably necessary to ensure that each party is afforded
the full benefits intended by and the ability to discharge its
responsibilities under this Agreement.
(w) During the Access Period, AMG shall have the right to utilize all
properties used by AMG in the production of products not purchased by
GM (other than the New Vehicle Facilities), provided that such
utilization shall not unreasonably interfere with GM's utilization of
the Operating Assets and Real Estate.
Personnel Issues.
During the Access Period, AMG shall continue to employ such employees
for the benefit of GM or its designee as shall then be employed by AMG and shall
be requested by GM or its designee (the "Employees"), and GM shall promptly
reimburse AMG for all cash and non-cash costs and expenses relating to the
Employees which are incurred or accrued during the Access Period. Without
limiting the
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generality of the foregoing, GM shall reimburse or satisfy AMG for all amounts
incurred or accrued by AMG to meet payroll obligations to Employees, including
without limitation, salaries, wages, payroll taxes, workers' compensation,
unemployment insurance, retirement health care, life and disability insurance,
welfare, pension and other payments and contributions required to be made by AMG
with respect to the Employees, which are incurred or accrued during the Access
Period (whether or not such costs and expenses are due and payable during such
Access Period or at any time thereafter). Upon termination of the Access Period,
GM shall promptly remit to AMG a lump sum payment, to satisfy its obligation to
AMG for all payroll obligations to Employees incurred or accrued by AMG, but not
paid during the Access Period. Specifically with regards to pension, retirement
health care, life insurance and all other post-employment obligations of AMG, GM
shall pay to AMG the service cost accrued thereon during the Access Period,
which will be determined in accordance with GAAP based on the most recent year-
end audited annual actuarial assumptions used by AMG for financial reporting
purposes using a 9% discount rate. For all liabilities incurred or accrued but
not payable during the Access Period not covered by the preceding sentence, GM
shall pay to AMG an amount representing the then present value determined by a
9% discount rate. Upon receipt of the aforementioned lump sum payment, GM shall
receive a release from AMG for any further obligations with regard to all such
liabilities. In no event shall GM be liable for any costs or expenses relating
to such Employees' service prior to the Access Period, including, without
limitation, the costs of unfunded pension liabilities or accrued but unpaid
wages and/or benefits. Notwithstanding the foregoing, under no circumstances
shall GM be responsible for reimbursing AMG for costs and expenses relating to
AMG's employment of the Employees to the extent the Employees are performing
services unrelated to the assembly of New Vehicles.
Specific Performance
IN CONNECTION WITH ANY ACTION OR PROCEEDING TO ENFORCE THE RIGHT OF ACCESS, AMG
ACKNOWLEDGES THAT GM WILL NOT HAVE AN ADEQUATE REMEDY AT LAW, THAT THE OPERATING
ASSETS AND REAL ESTATE ARE UNIQUE AND GM SHALL BE ENTITLED TO SPECIFIC
PERFORMANCE OF AMG'S OBLIGATION TO AFFORD GM THE RIGHT OF ACCESS PROVIDED BY
THIS AGREEMENT.
IRREPARABLE HARM
AMG ACKNOWLEDGES THAT GM WILL SUFFER IRREPARABLE HARM IF GM INVOKES ITS RIGHT OF
ACCESS AND AMG FAILS TO COOPERATE AS REASONABLY NECESSARY IN ALLOWING GM TO
EXERCISE SUCH RIGHT OF ACCESS PROVIDED BY THIS AGREEMENT.
INJUNCTIVE RELIEF
GIVEN THAT GM WILL INCUR SIGNIFICANT DAMAGES IF AMG FAILS TO TIMELY SATISFY ITS
OBLIGATIONS TO GM AND GM'S PLANT OPERATIONS ARE NEGATIVELY IMPACTED, AND BECAUSE
GM DOES NOT HAVE AN ADEQUATE REMEDY AT LAW AND WOULD BE IRREPARABLY HARMED BY
SUCH EVENTS, AMG AGREES THAT GM SHALL BE ENTITLED TO INJUNCTIVE RELIEF (BOTH
PROHIBITIVE AND MANDATORY) IN CONNECTION WITH ANY ACTUAL VIOLATIONS OF THE TERMS
OR CONDITIONS OF THIS AGREEMENT.
COOPERATION AND DOCUMENTATION
Each party hereto agrees to cooperate and assist the other with respect to
any actions reasonably necessary to ensure that each party is afforded the full
benefits intended by this Agreement, including but
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not limited to the execution, delivery and filing of any documents reasonably
requested by any party for this purpose.
NON-GM CUSTOMERS
GM agrees to utilize or cause the Operating Assets and Real Estate to be used
for the painting of the Current Vehicle, to manufacture and process component
parts for AMG's other customers during the Access Period, or to provide AMG's
other customers access to the Operating Assets and Real Estate, to the extent
such assets were being used by AMG for such tasks immediately prior to the
commencement of the Access Period; provided such customers do not unreasonably
interfere with the production of the New Vehicles and subject to (i) such other
customers agreeing to, pay their accounts payable to AMG without setoff or
recoupment for consequential damages, (ii) such other customer's agreeing to
make payment to GM or its designee for their allocable share of overhead and
related expenses and all direct expenses related to the production of products
for such other customers, and (iii) any other property otherwise necessary for
such other customers' production is being made available for use during the
Access Period.
Termination
(x) Termination of Access Period. The Right of Access granted hereunder
----------------------------
shall terminate with respect to any Access Period upon the earlier of
(i) one year from the date the Right of Access commences, (ii)
termination by GM pursuant to Section 1(C), and (iii) 30 days
following GM's concurrence that the defects, circumstances or
conditions that gave rise to the Event of Default hereunder, have been
cured to GM's reasonable satisfaction, which concurrence shall not be
unreasonably withheld or delayed. (the "Access Termination Date").
(y) Termination of this Agreement. This Agreement shall terminate upon
-----------------------------
the occurrence of any of the following events:
1) Mutual Agreement of the parties;
2) Termination of the New Vehicle Assembly Agreement and failure by
the parties to replace it with a similar agreement within 90 days
of its termination;
3) Material breach of this Agreement by GM following notice by AMG
and a commercially reasonable period of time, under the
circumstances, to cure such breach.
MISCELLANEOUS
(z) No Third Party Rights. The provisions of this Agreement are intended
---------------------
to bind the parties to each other and are not intended and do not
create rights in any other person, and no person is intended to be a
third party beneficiary of any provision of this Agreement.
(B) Limitation of Liability. Notwithstanding any other
-----------------------
provision or agreement to the contrary, in no event shall AMG be liable for any
special, indirect or consequential damages, including without limitation, lost
profits of GM.
(C) Notices. Any notice under this Agreement shall be in
--------
writing (letter, telex, facsimile, or telegram) and shall be effective when
received by the addressee at its address indicated below.
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(a) Notices sent to AMG shall be addressed as follows:
Paul J. Cafiero, Chief Financial Officer
AM General Corporation
105 North Niles Avenue
South Bend, IN 46617
with a copy to: Dennis A. Sadlowski, Vice President - Law
The Renco Group, Inc.
30 Rockefeller Plaza
New York, New York 10112
(b) Notices sent to GM shall be addressed as follows:
Ken Lindensmith
GM Truck Group
MC: 483-621-175
1919 Technology Drive
Troy, Michigan 48083-4247
(D) Severability. Any provision of this Agreement which is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(E) Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Michigan, without regard to the principles of conflict of
laws.
(F) Definitions. Capitalized terms used in this Agreement and not
-----------
otherwise defined in this Agreement are used herein with the same meanings
assigned to such terms in the New Vehicle Assembly Agreement.
IN WITNESS WHEREOF, the undersigned AMG and GM have executed this Agreement
by its duly authorized officers this the 21st day of December, 1999.
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<PAGE>
GENERAL MOTORS CORPORATION AM GENERAL CORPORATION
By: _________________________ By: __________________________
Title: ______________________ Title: _______________________
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HUMVEE Trademark Agreement
The purpose of this letter is to formalize the agreement that has been reached
between AM General Corporation ("AMG") and General Motors Corporation ("GM"), in
connection with the New Vehicle Assembly Agreement by and between GM and AMG
dated December 21, 1999, relating to the HUMVEE trademark.
In this regard, the parties agree that for the duration of the New Vehicle
Assembly Agreement referenced above:
1. AMG will refrain from using the HUMVEE trademark, except in connection with
the manufacture and sale of military vehicles and other goods and services
related to military vehicles or with a significant military theme, without
GM's prior written consent.
2. AMG shall not assign, sell, or otherwise transfer ownership of the HUMVEE
trademark to any third party, without GM's prior written consent.
3. AMG shall not license or otherwise grant use of the HUMVEE trademark to any
third party, without GM's prior written consent; provided, however, that
-----------------
this restriction shall not apply to the license agreements set forth on
Exhibit A hereto.
4. AMG shall use its reasonable best efforts to protect its ownership of and
goodwill in the HUMVEE trademark including, but not limited to,
aggressively prosecuting infringers when necessary.
5. In the event that AMG:
(i) intends to abandon the HUMVEE trademark in connection with the
manufacture and sale of military vehicles and spare parts;
(ii) discontinues use of the HUMVEE trademark in connection with the
manufacture and sale of military vehicles and spare parts, and has no
intention of resuming such use within twelve (12) months from the
date of discontinuance;
(iii) fails to utilize the HUMVEE trademark in connection with the
manufacture and sale of military vehicles and spare parts for a
period of twelve (12) months; or
(iv) fails to protect its ownership of or goodwill in the HUMVEE
trademark;
AMG shall promptly assign all rights, title and interest in, including all
goodwill pertaining to, the HUMVEE trademark to GM for one dollar.
6. AMG shall refrain from making any public statements announcing, confirming
or implying any intention by AMG to abandon or discontinue use of the
HUMVEE trademark, prior to assignment of the HUMVEE trademark to GM.
For purposes of the above provisions, the term HUMVEE trademark shall mean any
or all of the trademarks set forth on Exhibit B hereto.
This letter agreement shall be governed by the laws of the State of Michigan
without regard to the principles of conflicts of law, shall be binding and inure
to the benefit of AMG and GM and their
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respective successors and assigns, and may only be modified or amended by a
written document duly executed by both parties.
GENERAL MOTORS CORPORATION AM GENERAL CORPORATION
By: _____________________________ By: __________________________
Title: __________________________ Title: _______________________
Date: December 21, 1999 Date: December 21, 1999
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Royalty Sharing Agreement
-------------------------
The purpose of this letter is to formalize the agreement that has been reached
between AM General Corporation ("AMG") and General Motors Corporation ("GM")
regarding the sharing of royalties and licensing fees derived from the non-
automotive licensed merchandise which utilize the HUMMER trademark during the
calendar years 2000 through 2005, pursuant to license agreements between AMG and
third parties entered into prior to December 1, 1999 listed on Exhibit A hereto
(the "Royalties").
In this regard the parties have mutually agreed to share the Royalties as
follows:
<TABLE>
<CAPTION>
Calendar Year
2000 2001 2002 2003 2004 After 2004
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
AMG % 100 80 60 40 20 0
GM% 0 20 40 60 80 100
</TABLE>
AMG shall be responsible for coordinating the collection of all Royalties and
shall distribute such funds in accordance with the above schedule on an annual
basis within 90 days of the close of the applicable calendar year. The parties
acknowledge and understand that the Royalties set forth herein shall be net of
any fees paid to or retained by third party licensing representation agents for
the management and administration of such license agreements.
Effective as of December 21, 1999, subject to the terms of this agreement, AMG
hereby assigns and transfers to GM all rights, title and interests of AMG in the
license agreements set forth in Exhibit A to this agreement.
All royalties and/or licensing fees related to the HUMMER trademark pursuant to
license agreements entered into subsequent to December 1, 1999 shall be retained
by GM.
All royalties and/or licensing fees related to the HUMVEE trademark shall be
retained by AMG.
In the event that payments for royalties and/or licensing fees related to the
HUMVEE trademark are inseparably co-mingled with Royalties, the parties shall
utilize the principles of good faith and fair dealing the mutually agree upon an
equitable apportionment of such payments.
For purposes of this agreement, the term HUMMER trademark shall mean any or all
of the items listed on Exhibit B. and the term HUMVEE trademark shall mean any
or all of the items listed on Exhibit C.
This letter agreement shall be governed by the laws of the State of Michigan
without regard to the principles of conflicts of law, shall be binding and inure
to the benefit of AMG and GM and their respective successors and assigns, and
may only be modified or amended by a written document duly executed by both
parties.
GENERAL MOTORS CORPORATION AM GENERAL CORPORATION
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By: ____________________________ By: __________________________
Title: _________________________ Title: _______________________
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Joint Review Board Agreement
----------------------------
The purpose of this letter is to formalize the agreement that has been reached
between AM General Corporation ("AMG") and General Motors Corporation ("GM"), in
connection with the New Vehicle Assembly Agreement and other agreements by and
between GM and AMG dated December 21, 1999, relating to the formation of a joint
review board to, among other things, be utilized as a tool to assist the parties
in managing their business relationship. In this regard, the parties agree as
follows:
1. On the Closing Date, GM and AMG shall create a review board for the purpose
of monitoring and administering the agreements set forth in Section 1 of
the Master Agreement by and between GM and AMG. GM and AMG shall each be
entitled, during the term of the New Vehicle Assembly Agreement to appoint
two members to the Joint Review Board ("JRB") and to replace any member
thus appointed by a new member upon written notice to the other party. All
four members must be in attendance in order to constitute a JRB meeting.
2. The JRB should meet on a regular basis (as determined by the members
recognizing that the frequency of the meetings will vary depending upon the
stage of the various agreements), but not less than twice per year. Meeting
locations and times will be mutually agreed upon by the parties.
3. Agenda items for the JRB shall be mutually determined and may include the
following topics (consisting of summary information and issues relevant to
the topic) on a regular basis (agenda items will vary depending upon the
stage of the various agreements):
(a) Monitoring and administering the Management Services Agreement
(including any successor agreement(s) thereto) for the Current
Vehicle, including but not limited to:
. Review potential impacts relative to proposed price changes;
. Review GM market, advertising and promotional plans;
. Review proposed changes to the existing dealer and distributor
network;
. Review historical and forecast volume performance;
. Review significant product change proposals;
. Resolve disputes regarding the operation of the agreement(s); and
. Other topics as may be mutually agreed upon by the parties
(b) Monitoring and administering the New Vehicle Assembly Agreement
for the New Vehicle, including but not limited to:
. Review progress of the entire program prior to start-up
(including but not limited to specific issues per Section 4.2 of
the New Vehicle Assembly Agreement);
. Review order and schedule data (including long term forecast
information);
. Review GM market, advertising and promotional plans;
. Review warranty history, quality control data and other relevant
product quality information;
. Review significant product change proposals (including New
Vehicle Design Specification, New Vehicle Assembly Specification
and New Vehicle Quality Control Standards) and upon acceptance,
progress of the product changes through start-up of the specific
changes;
. Review Product Change Proposals (PCP) rejected by the Product
Change Forum (PCF) at the discretion of the proposal originator.
After JRP discussion the originator may decide to resubmit the
PCP (or a revised PCP) to the PCF for further consideration;
. Review relevant JD Powers information, including the setting of
targets;
. Resolve disputes regarding the operation of the agreement; and
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. Other topics as may be mutually agreed upon by the parties.
(c) Identifying potential new manufacturing opportunities for AMG and
the New Vehicle Facilities, including but not limited to:
. New / additional projects to be considered concurrently with the
New Vehicle Assembly Agreement;
. Future potential use of the New Vehicle Facilities upon
expiration of the New Vehicle Assembly Agreement;
. Establishing evaluation criteria for future consideration;
. Evaluating proposed new projects to be undertaken jointly by GM
and AMG; and
. Other topics as may be mutually agreed upon by the parties.
4. The primary function of the JRB shall be consultative and advisory. The JRB
may submit recommendations to GM and / or AMG, but neither GM nor AMG shall
be obligated to follow such recommendations.
5. The JRB is not intended to replace communications and normal business
relations at the appropriate levels within each company's organization. The
JRB is intended to allow a formal review process, ensuring common
understanding and business objectives between the parties and providing an
avenue to resolve issues that cannot be resolved at the normal points of
contacts of the two companies.
This letter agreement shall be governed by the laws of the State of Michigan
without regard to the principles of conflicts of law, shall be binding and inure
to the benefit of AMG and GM and their respective successors and assigns, and
may only be modified or amended by a written document duly executed by both
parties.
GENERAL MOTORS CORPORATION AM GENERAL CORPORATION
1) By: ____________________ By: ____________________
Section 12. Title: _________________ Title: _________________
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Equity Conversion Agreement
This Equity Conversion Agreement ("Agreement") is entered into by and between
General Motors Corporation ("GM") and AM General Corporation ("AMG") with regard
to certain rights granted to GM by AMG to convert all or a portion of the
outstanding balance of the Promissory Note (or series of Promissory Notes)
between GM and AMG (the "Note") into equity in AMG.
Recitals:
1. GM and AMG , concurrent with this Agreement, wish to enter into a series of
contractual agreements through which the parties shall, among other things;
design, assemble, market and distribute a new vehicle (the "New Vehicle").
2. As part of the aforementioned series of contractual agreements, AMG will
execute the Note through which GM will provide AMG the funding required for
jointly agreed upon facility improvements and other capital investment necessary
for AMG to fulfill its assembly obligations regarding the New Vehicle
contemplated above.
3. In connection with the Note, AMG has agreed to provide GM a limited right
to convert all or part of the outstanding balance of the Note into newly issued
common stock of AMG.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1 - Grant of Conversion Right
AMG hereby grants GM an irrevocable annual option to convert some or all of the
unpaid balance of the Note and any accrued interest, into newly issued common
stock of AMG, subject to the following provisions:
(a) The right to convert shall occur once annually on November 1 of each
year; provided, however, that the conversion right does not go into effect
until 10,000 New Vehicles have been assembled by AMG and delivered to GM
(the "Annual Exercise Date").
(b) The cumulative total amount of AMG common stock issued to GM pursuant
to this Agreement shall never exceed 40% of the number of shares of AMG
common stock outstanding after the issuance of stock to GM.
(c) GM may exercise its conversion option for any percentage of the
remaining balance of the Note up to the 40% cumulative maximum, provided
the loan balance is sufficient. In the event GM converts any part of the
Note into an equity interest in AMG under this Agreement, the amount of the
40% cumulative maximum interest in AMG which remains available to GM under
this Agreement would be reduced by an amount equal to the percentage
interest in AMG resulting from such conversion.
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(d) Subject to Section 3.3 below, the right to convert the outstanding
balance of the Note granted by this Agreement shall terminate when the note
is fully satisfied.
Section 2 - Exercise of the Conversion Option
2.1 Exercise of Conversion Option. In order to exercise the conversion option,
-----------------------------
GM shall, within 10 business days following the Annual Exercise Date, send a
written notice to AMG indicating the amount of the then outstanding balance
of the Note it wishes to convert into equity.
2.2 Valuation. (a) Following notice by GM, AMG and GM shall have 30 days to
---------
agree on the number of shares of newly issued common stock of AMG to be issued
to GM in return for the stipulated amount of the Note to be converted. GM and
AMG shall be deemed to have agreed on an equity value if the higher value
presented by one of the parties is within 125% of the lower value presented by
the other party. In that instance, the agreed upon value shall be the average of
the two values.
(b) In the event GM and AMG cannot agree on the valuation within the timeframe
set forth in Section 2.2(a) above, each party will select an Independent
Financial Advisor (IFA). The two IFAs will then select a Chief Independent
Financial Advisor (CIFA). The CIFA will determine the number of shares to be
issued in return for the stipulated amount of the Note to be converted and the
corresponding valuation.
(c) The costs of the IFAs shall be borne independently by the party who selects
that IFA and the costs of the CIFA shall be shared equally between GM and AMG.
(d) Both the IFAs and the CIFA shall be independent internationally recognized
investment banks.
(e) The methodology used by the CIFA for the valuation will be in the CIFA's
sole discretion; provided, however, that the amount of the New Vehicle Assembly
-----------------
Agreement between GM and AMG to be included in the valuation shall be as set
forth on Exhibit A to this Agreement.
The above provision notwithstanding, in the event the launch of the New Vehicle
is materially delayed beyond the period contemplated in the New Vehicle Assembly
Agreement between GM and AMG or either party's performance under the New Vehicle
Assembly Agreement is materially delayed by a force majeure event, the parties
acknowledge and agree that the dates reflected in the table set forth above
shall be appropriately adjusted to the mutual satisfaction of the parties to
account for such delay.
(f) Promptly, and in any event not later than 15 days after selection of the
CIFA, each company shall provide to the CIFA their respective valuations,
worksheets and background materials used to prepare such valuations.
(h) No later than 30 days following receipt of the materials referenced above,
the CIFA shall determine the number of shares to be issued in return for the
stipulated amount of the Note to be converted and the corresponding valuation.
2.3 AMG Election. (a) Once the valuation of AMG is established pursuant to
------------
Section 2.2 above, AMG or its parent The Renco Group, Inc. ("RENCO") shall have
10 business days to notify GM in writing of its election to (i) go through with
the conversion; (ii) make a cash payment to GM equal to the dollar amount of the
Note to be converted into equity, plus a 20% premium on that amount; or (iii) a
partial combination of (i) and (ii) above.
-2-
<PAGE>
(b) In the event that either AMG or RENCO elects to satisfy GM's conversion
request, in whole or part, through cash payment as described in Section 2.3
(a)(ii) above, the 40% limitation setforth in Section 1 (b) above will be
reduced by the percentage interest in AMG that GM would have acquired had such
conversion taken place at that time under the terms of this Agreement.
(c) Payment of all amounts due pursuant to an election under Section 2.3(a)(ii)
shall be payable by wire transfer or other immediately available funds within 5
business days of any such election.
2.4 GM Election. (a) Following receipt of the notice contemplated in
-----------
Section 2.3 above, GM shall, in the event that either AMG or RENCO elects, in
whole or in part, to go through with the conversion, have 10 business days to
determine if it desires to proceed with such conversion or wishes to revoke its
initial conversion election; provided, however, that in no case shall GM have
-----------------
the ability to revoke its initial conversion election with respect to any
amounts for which either AMG or RENCO has elected to make the cash payment
described in Section 2.3(a)(ii) above.
(b) In the event GM revokes the conversion election, no penalties shall apply,
there shall be no impact on the 40% cumulative limitation (except as required by
Section 2.3 (b) above), and such election shall be deemed null and void.
Section 3 - Impact on the Note, Final Option, and Corporate Structure
3.1 Prepayment Rights. The above provisions notwithstanding, AMG will
-----------------
have the right at any time to prepay all or a portion of the Note without
penalty or additional interest; provided, however, that such right of prepayment
-----------------
shall be suspended during the time period set forth in Section 1 above for the
annual conversion election, valuation and election periods set forth in Section
2 above, and the time period provided pursuant to Section 3.3 below.
3.2 Amortization of Remaining Balance. In the event the Note has been
---------------------------------
reduced either through conversion into equity or through prepayment, the
remaining balance of the Note will, subject to future elections under this
Agreement, continue to be amortized at the rate originally contemplated under
the terms of the Note until fully satisfied.
3.3 Final Option. Notwithstanding anything in this Agreement to the
------------
contrary, following the expiration of the New Vehicle Assembly Agreement, GM
shall have 90 days to notify AMG in writing of its desire to convert the
remaining outstanding balance of the Note, if any, into newly issued common
stock of AMG, pursuant to the terms and conditions of this Agreement. The
option granted in this Agreement expires upon the expiration of the 90 day
period referenced above as to any portion of the Note remaining outstanding
which GM has not elected to convert into AMG common stock pursuant to the terms
of this Agreement.
3.4 Corporate Structure. At any time prior to issuing any shares to GM on
-------------------
the conversion of the Note, AMG may (i) at its option, contribute all of its
assets and liabilities to a limited liability company and (ii) in lieu of
issuing to GM shares of AMG in the amount determined in accordance with this
Agreement, cause such limited liability company to issue to GM membership
interests in such limited liability company equivalent to the same percentage of
ownership and voting rights in AMG that GM would have been
-3-
<PAGE>
entitled, had such contribution not occurred. The above provision
notwithstanding, the parties acknowledge and agree that AMG's rights under this
Section 3.4 are subject to Section 6.4 of the Master Agreement between AMG and
GM and that such rights under this Section 3.4 shall be suspended during the
time period set forth in Section 2 above for the annual conversion election, the
valuation and election periods set forth in Section 2 above, and the time period
provided pursuant to Section 3.3 above, unless otherwise mutually agreed by the
parties in writing.
Section 4 - General Provisions
4.1 Assignment. This Agreement shall not be assigned by either party without
-----------
the prior written consent of the other party.
4.2 Governing Law. This Agreement shall be governed by the laws of the State of
-------------
Michigan, without regard to the principles of conflict of laws.
4.3 Waiver and Delay. No waiver by either party of any breach or series of
----------------
breaches or defaults in performance by the other party, and no failure, refusal
or neglect of either party to exercise any right, power or option given to it
hereunder or to insist upon strict compliance with or performance of either
party's obligations under this Agreement, shall constitute a waiver of the
provisions of this Agreement with respect to any subsequent breach thereof or a
waiver by either party of its right at any time thereafter to require exact and
strict compliance with the provisions thereof.
4.4 Notices. All notices under this Agreement shall be in writing (letter,
-------
telex, facsimile, or telegram) and shall be effective when received by the
addressee at its address indicated below:
Notices to AMG: Paul J. Cafiero, Chief Financial Officer
AM General Corporation
105 North Niles Avenue
South Bend, IN 46617
with a copy to: Dennis A. Sadlowski, Vice President - Law
The Renco Group, Inc.
30 Rockefeller Plaza
New York, New York 10112
Notices to GM: General Motors Corporation
767 Fifth Avenue
New York, New York 10153
Attn: Treasurer
with a copy to: Ken Lindensmith
GM Truck Group
MC: 483-621-175
1919 Technology Drive
Troy, Michigan 48083-4247
-4-
<PAGE>
or to such other addresses as the parties may from time to time designate in
writing.
4.5 Successors and Assigns. This Agreement shall be binding upon and inure to
----------------------
the benefit of the successors and assigns of the parties hereto, subject to the
restrictions on assignment contained herein.
4.6 Titles and Headings for Convenience. Titles and headings used in this
-----------------------------------
Agreement are for convenience only and shall not be deemed to affect the meaning
or construction of any of the terms, provisions, covenants, or conditions of
this Agreement.
4.7 Severability. Nothing contained in this Agreement shall be construed as
------------
requiring the commission of any act contrary to law. If any tribunal or court of
competent jurisdiction deems any provision hereof unenforceable, such provision
shall be modified only to the extent necessary to render it enforceable and the
remaining provisions shall remain in full force and effect.
4.8 Entire Agreement. This Agreement contains all of the terms and conditions
----------------
agreed upon by the parties hereto with reference to the subject matter hereof.
No other agreements, oral or otherwise, shall be deemed to exist or to bind
either of the parties hereto, and all prior agreements and understandings are
superseded hereby. This Agreement cannot be modified or changed except by
written instrument signed by both of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused two (2) copies this Agreement
to be duly executed and delivered by their proper and duly authorized
representatives effective as of the date first written above.
GENERAL MOTORS CORPORATION AM GENERAL CORPORATION
By: ______________________________ By: __________________________
Title: __________________________ Title: _______________________
Date: December 21, 1999 Date: December 21, 1999
-5-
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<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> OCT-31-1999 OCT-31-1998
<PERIOD-START> NOV-01-1998 NOV-01-1997
<PERIOD-END> OCT-31-1999 OCT-31-1998
<CASH> 1,081 2,687
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<INTEREST-EXPENSE> 11,119 12,836
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<NET-INCOME> (10,249) (8,315)
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