-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TFN7JEf8rkQeTTmUn/X8T0pe/rnHfxGyrlrox93XtHtAkA8a0ddypqcSlu/zDcR8 u0w2AtMJPmCU9CKJC/b0yA== 0000950124-95-003069.txt : 19951002 0000950124-95-003069.hdr.sgml : 19951002 ACCESSION NUMBER: 0000950124-95-003069 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19950927 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALBRO CORP CENTRAL INDEX KEY: 0000104174 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 381358966 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 033-62951 FILM NUMBER: 95576289 BUSINESS ADDRESS: STREET 1: 6242 GARFIELD ST CITY: CASS CITY STATE: MI ZIP: 48726 BUSINESS PHONE: 5178722131 MAIL ADDRESS: STREET 1: 6432 GARFIELD ST CITY: CASS CITY STATE: MI ZIP: 48726 S-4 1 FORM S-4 1 As filed with the Securities and Exchange Commission on September 26, 1995 Registration No. 33- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-4 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 WALBRO CORPORATION (Exact name of registrant as specified in its charter) Delaware 3714 38-1358966 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
6242 Garfield Street, Cass City, Michigan 48726, (517) 872-2131 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) LAMBERT E. ALTHAVER Chairman, President and Chief Executive Officer Walbro Corporation 6242 Garfield Street Cass City, Michigan 48726, (517) 872-2131 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: HOWARD S. LANZNAR, ESQ. LAWRENCE D. LEVIN, ESQ. Katten Muchin & Zavis 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661 (312) 902-5200 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective date registration statement for the same offering: [ ] If any of the securities being registered on this form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box [ ].
CALCULATION OF REGISTRATION FEE ========================================================================================================================= Amount Proposed Maximum Proposed Amount of Title of Each Class of to be Offering Price Maximum Aggregate Registration Securities to be Registered Registered Per Unit(1) Offering Price Fee - ------------------------------------------------------------------------------------------------------------------------- 9 7/8% Senior Notes Due 2005, Series B . . . . . $110,000,000 100% $110,000,000 $37,931 - ------------------------------------------------------------------------------------------------------------------------- Subsidiary Guarantees(2) . . . . . . . . . . . . (3) (3) (3) (3) =========================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 of Regulation C under the Securities Act of 1933, as amended. (2) The Company's principal wholly-owned domestic subsidiaries, Walbro Automotive Corporation and Walbro Engine Management Corporation, and the wholly-owned domestic subsidiaries of Walbro Automotive Corporation, Sharon Manufacturing Company and Whitehead Engineered Products, Inc. (collectively, the "Guarantors"), have guaranteed on a senior unsecured basis, jointly and severally, the payment of the principal of, premium, if any, and interest on the 9 7/8% Senior Notes, Series B being registered hereby (the "Subsidiary Guarantees"). The Guarantors are registering the Subsidiary Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no registration fee is required with respect to the Subsidiary Guarantees. (3) Not applicable. --------------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. 2 WALBRO CORPORATION CROSS REFERENCE SHEET Pursuant to Item 501(b) of Regulation S-K
Form S-4 Item Number Heading or Subheading in Prospectus -------------------- ----------------------------------- A. INFORMATION ABOUT THE TRANSACTION 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus . . . . . . . . . . . Facing Page of Registration Statement; Cross Reference Sheet; Outside Front Cover Page of Prospectus. 2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page of Prospectus; Outside Back Prospectus . . . . . . . . . . . . . . . . . . . . . Cover Page of Prospectus. 3. Risk Factors, Ratio of Earnings to Fixed Charges, and Other Information . . . . . . . . . . . . . . . . . Prospectus Summary; Investment Considerations; The Company; Selected Historical Financial Data; Combined Pro Forma Financial Information. 4. Terms of the Transaction . . . . . . . . . . . . . . Prospectus Summary; The Exchange Offer; Description of the Old Notes; Certain Federal Income Tax Consequences of the Exchange Offer. 5. Pro Forma Financial Information . . . . . . . . . . Prospectus Summary; Selected Historical, Combined and Pro Forma Financial Information. 6. Material Contracts With the Company Being Acquired . Not Applicable. 7. Additional Information Required For Reoffering by Persons and Parties Deemed to be Underwriters . . . Not Applicable. 8. Interests of Named Experts and Counsel . . . . . . . Legal Matters; Experts. 9. Disclosure of Commission Position on Indemnification For Securities Act Liabilities . . . . . . . . . . . Not Applicable. B. INFORMATION ABOUT THE REGISTRANT 10. Information With Respect to S-3 Registrants . . . . Not Applicable. 11. Incorporation of Certain Information by Reference . Not Applicable. 12. Information With Respect to S-2 or S-3 Registrants . Prospectus Summary; Capitalization; The Company; The Dyno Acquisition; Management's Discussion and Analysis of Financial Condition and Results of Operations; Historical, Combined and Pro Forma Financial Data; Business; Description of New Notes; Financial Statements. 13. Incorporation of Certain Information by Reference . Not Applicable. 14. Information With Respect to Registrants Other Than S- 2 or S-3 Companies . . . . . . . . . . . . . . . . . Not Applicable. C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED 15. Information With Respect to S-3 Companies . . . . . Not Applicable. 16. Information With Respect to S-2 or S-3 Companies . . Not Applicable. 17. Information With Respect to Companies Other Than S-2 or S-3 Companies . . . . . . . . . . . . . . . . . . Not Applicable. D. VOTING AND MANAGEMENT INFORMATION 18. Information if Proxies, Consents or Authorizations Are to be Solicited . . . . . . . . . . . . . . . . Not Applicable. 19. Information if Proxies, Consents or Authorizations Are Not to be Solicited, or in an Exchange Offer . . Management.
3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 1995 PRELIMINARY PROSPECTUS Walbro Corporation (LOGO WALBRO) OFFER TO EXCHANGE 9 7/8% Senior Notes due 2005, Series B for all outstanding 9 7/8% Senior Notes due 2005, Series A THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER 31, 1995, UNLESS EXTENDED Walbro Corporation, a Delaware corporation (the "Company"), hereby offers, upon the terms and subject to conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"; together with the Prospectus, the "Exchange Offer"), to exchange up to an aggregate principal amount of $110,000,000 of its 9 7/8% Senior Notes Due 2005, Series B (the "New Notes") for up to an aggregate principal amount of $110,000,000 of its outstanding 9 7/8% Senior Notes Due 2005, Series A (the "Old Notes"). The terms of the New Notes are identical in all material respects to those of the Old Notes, except for certain transfer restrictions and registration rights relating to the Old Notes. The New Notes will be issued pursuant to, and entitled to the benefits of, the Indenture (as defined) governing the Old Notes. The New Notes and the Old Notes are sometimes referred to collectively as the "Notes". The New Notes will be senior unsecured obligations of the Company ranking pari passu in right of payment with all existing and future senior unsecured obligations of the Company. The New Notes will be guaranteed (the "Guarantees") on a senior unsecured basis, jointly and severally, by each of the Company's principal wholly-owned domestic operating subsidiaries (the "Guarantors"). The New Notes and Guarantees will be effectively subordinated in right of payment to all existing and future secured indebtedness of the Company and its subsidiaries. The New Notes will rank pari passu in right of payment with the Old Notes. As of June 30, 1995, after giving effect to the Initial Offering (as defined herein), the Dyno Acquisition (as defined herein), and the borrowings outstanding under the Credit Facility (as defined herein), the Company and its subsidiaries had approximately $96.9 million of secured indebtedness outstanding. In addition, the New Notes will be effectively subordinated in right of payment to all existing and future liabilities, including trade payables, of the Company's subsidiaries which are not Guarantors, which, as of June 30, 1995, after giving effect to the Transactions, totalled approximately $79 million (excluding intercompany liabilities). (Cover continued on next page) SEE "INVESTMENT CONSIDERATIONS" ON PAGE 12 FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADE- QUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1995. 4 (Continued from Cover) The New Notes will bear interest at the rate of 9 7/8% per annum, payable semiannually on January 15 and July 15, commencing January 15, 1996 to holders of record on the immediately preceding January 1 and July 1. Holders of the New Notes will receive interest on January 15, 1996 from the date of initial issuance of the New Notes, plus an amount equal to the accrued interest on the Old Notes from the most recent date to which interest has been paid to the date of exchange thereof. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the New Notes. The New Notes are subject to redemption on or after July 15, 2000, at the option of the Company, in whole or in part, at the redemption prices set forth herein, plus accrued interest to the date of redemption. In addition, prior to July 15, 1998, the Company may, at its option, redeem up to an aggregate of 30% of the combined principal amount of the Notes originally issued with the net proceeds from one or more Public Equity Offerings (as defined herein) at the redemption price set forth herein plus accrued interest to the date of redemption. In the event of a Change of Control (as defined herein), the Company will be obligated to make an offer to purchase all of the outstanding Notes at a redemption price equal to 101% of the principal amount thereof plus accrued interest to the date of repurchase. In addition, the Company will be obligated to make an offer to repurchase the Notes in the event of certain asset sales. See "Description of the New Notes." The Company will accept for exchange any and all Old Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on October 31, 1995, unless extended by the Company in its sole discretion (the "Expiration Date"). The Expiration Date will not in any event be extended to a date later than November 30, 1996. Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. In the event the Company terminates the Exchange Offer and does not accept for exchange any Old Notes with respect to the Exchange Offer, the Company will promptly return the Old Notes to the holders thereof. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange, but is otherwise subject to certain customary conditions. The Old Notes may be tendered only in integral multiples of $1,000. The New Notes are being offered hereunder in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement dated July 21, 1995 (the "Registration Rights Agreement") by and among the Company, the Guarantors and Smith Barney, Inc., A.G. Edwards & Sons, Inc., McDonald & Company Securities, Inc. and Stifel, Nicolaus & Company, Incorporated, as the initial purchasers (the "Initial Purchasers"), with respect to the initial sale of the Old Notes. Based on interpretations by the staff of the Securities and Exchange Commission (the "Commission"), the New Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered for resale, resold and otherwise transferred by respective holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, of 1933, as amended (the "Securities Act"), provided that the New Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement with any person to participate in the distribution of such New Notes and is not engaged in and does not intend to engage in a distribution of the New Notes. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of the New Notes received in exchange for Old Notes if such New Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 2 5 Prior to the Exchange Offer, there has been no public market for the New Notes. Although the Company has agreed pursuant to the Registration Rights Agreement to use its best efforts to cause the New Notes to be listed on the New York Stock Exchange, there can be no assurance as to the liquidity of any markets that may develop for the New Notes, the ability of holders to sell the New Notes, or the price at which holders would be able to sell the New Notes. Future trading prices of the New Notes will depend on many factors, including among other things, prevailing interest rates, the Company's operating results and the market for similar securities. Historically, the market for securities similar to the New Notes, including non-investment grade debt, has been subject to disruptions that have caused substantial volatility in the prices of such securities. There can be no assurance that any market for the New Notes, if such market develops, will not be subject to similar disruptions. The Initial Purchasers have advised the Company that they currently intend to make a market in the Notes offered hereby. However, the Initial Purchasers are not obligated to do so and any market marking may be discontinued at any time without notice. The Company will not receive any proceeds from the Exchange Offer. The Company has agreed to pay the expenses incident to the Exchange Offer. 3 6 AVAILABLE INFORMATION The Company and the Guarantors have filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-4 (the "Registration Statement," which term shall include all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the New Notes being offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to in the Registration Statement are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company is subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Periodic reports, proxy statements and other information filed by the Company with the Commission may be inspected at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional offices located at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10007. Copies of such material can be obtained from the Company or the Guarantors upon request. The Company has agreed to file with the Commission, to the extent permitted, and distribute to holders of the New Notes reports, information and documents specified in Sections 13 and 15(d) of the Exchange Act, so long as the New Notes are outstanding, whether or not the Company is subject to such informational requirements of the Exchange Act. While any New Notes remain outstanding, the Company will make available, upon request, to any holder of the New Notes, the information required pursuant to Rule 144A(d)(4) under the Securities Act during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act. Any such request should be directed to the Secretary of the Company at 6242 Garfield Street, Cass City, Michigan 48726 (telephone number (517) 872-2131). 4 7 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and consolidated financial statements of the Company and the notes thereto and the combined financial statements of Dyno (as defined) and the notes thereto appearing elsewhere in this Prospectus. Unless the context otherwise requires, the information contained in this Prospectus gives effect to the Dyno Acquisition (as defined) which was consummated on July 27, 1995 and all references in this Prospectus to the Company or Walbro refer to Walbro Corporation, its consolidated subsidiaries and the combined Dyno business. THE COMPANY Walbro is a global leader in the design, development and manufacture of precision fuel systems and products for automotive and small engine markets worldwide. The Company manufactures fuel pumps, fuel modules, fuel level sensors, plastic fuel tanks and fuel rails for sale to automotive original equipment manufacturers ("OEMs"). On July 27, 1995, Walbro acquired the fuel systems business of Dyno Industrier A.S ("Dyno"), which is a leading European plastic fuel-tank manufacturer. Products manufactured for the small engine market include carburetors and ignitions for chain saws, outboard marine engines, two-wheeled vehicles, industrial engines and lawn and garden equipment, such as lawn mowers and weed trimmers. From 1989 to 1994, the Company (excluding Dyno) increased net sales and the sum of operating income (minus foreign currency exchange losses and other expenses, net) and depreciation and amortization expenses ("EBITDA") at the compound rates of approximately 19% and 21% per year, respectively, despite an automotive industry downturn in 1990-1991. This growth was primarily due to the introduction of new automotive products, penetration of additional automotive platforms and a recovery in the small engine industry. The Company, including Dyno on a pro forma basis, had 1994 net sales of $472.4 million and EBITDA of $51.3 million. WALBRO AUTOMOTIVE CORPORATION Through its subsidiary, Walbro Automotive Corporation, the Company designs, develops and manufactures fuel storage and delivery products for a broad range of U.S. and foreign manufacturers of passenger automobiles and light trucks (including minivans). The Company holds a strong market position in the U.S. and, through the Dyno Acquisition (as defined) and Walbro's joint ventures in France, Brazil, Japan and South Korea, has diversified its business across a number of geographic markets. Management believes that, in the North American automotive market, the Company manufactures fuel pumps for approximately 40% of Ford Motor Company's ("Ford") automobiles and light trucks, including the Taurus, Explorer, Windstar and F-Series Pickup. The Company manufactures all fuel module requirements for Ford light trucks, and, according to management's estimates, manufactures approximately 25% of Ford's fuel rail needs. In addition, management estimates that the Company supplies Chrysler Corporation ("Chrysler") with approximately 70% of its fuel pump and fuel module requirements, including all requirements for Chrysler's passenger cars and minivans and most requirements for Chrysler's light trucks, including the Dodge Ram Truck. Other automotive customers of the Company, including Dyno and the Company's joint ventures, include Renault, Peugeot, Mercedes-Benz, Fiat, Volvo, Rover, Saab, Volkswagen, Audi, Daewoo, Hyundai and Kia. Management believes that the Company manufactures substantially all of the fuel tank systems for Volvo and Saab and the fuel tank for the Mercedes 190/C Class, Volkswagen Polo and Renault Twingo. Approximately 73% of the Company's 1994 revenues, including Dyno on a pro forma basis, were generated by its automotive operations. The Company's strategy is to grow its position as a global supplier to the automotive industry through the design, development and manufacture of technologically advanced fuel systems and components which are delivered worldwide. In anticipation of the increasing demand by OEMs for the supply of integrated automotive systems, Walbro is supplying OEMs with an increasing number of fuel storage and delivery 5 8 components with the ultimate goal of being responsible for the complete fuel storage and delivery system ("FSDS") which would integrate all of the components necessary for fuel delivery. The Company's ability to assume responsibility for the development of complete systems will allow OEMs to reduce internal engineering costs, use fewer suppliers and assemble systems rather than components. Once an OEM designates the Company to supply FSDS components for a new vehicle program, the OEM usually will continue to purchase those components from the Company for the life of the program, although not necessarily for a redesign. Through Dyno and Walbro's joint ventures in Europe, South America and East Asia, Walbro is increasing its ability to design, develop, manufacture and distribute fuel delivery components and systems worldwide and to support OEMs as they produce vehicles for the global automotive market. The Company's FSDS product development efforts focus on the regulatory and competitive challenges facing its customers worldwide. For example, Walbro has used its technical skills to develop plastic multi-layer fuel tanks and on-board running and vapor recovery ("ORVR") devices, which are designed, in part, to assist OEMs in complying with increasingly strict emission regulations. WALBRO ENGINE MANAGEMENT CORPORATION Through its subsidiary, Walbro Engine Management Corporation, the Company designs, develops and manufactures diaphragm carburetors for portable engines (such as those used in chain saws and weed trimmers), float feed carburetors for ground supported engines (such as those used in lawn mowers and generators) and ignition systems and other components for a variety of small engine products. The Company believes that it is the world's largest independent manufacturer of small engine carburetors, with an approximate 76% share of the global diaphragm carburetor market including sales to such leading chain saw and weed trimmer manufacturers as Poulan/Weedeater (a Division of Electrolux A.B.), Homelite (a Division of Deere & Company), Stihl, Incorporated, McCulloch (a Division of Shop Vac), Ryobi Ltd. and Kioritz (Echo) Corporation. Walbro believes it has an approximate 14% share of the global float feed carburetor market, including sales to Briggs & Stratton Corporation, the world's largest small engine manufacturer, Kohler Company, Tecumseh Products Co., and to Mercury Marine (a Division of Brunswick Corporation), a major manufacturer of outboard marine engines. Walbro also manufactures replacement products for both the automotive and small engine aftermarkets, sales of which are included within its small engine product business. Approximately 27% of the Company's 1994 net sales, including Dyno on a pro forma basis, were generated by its small engine operations. The Company's strategy in the small engine sector is to enhance its presence as a leading supplier of small engine carburetors, ignition systems and other small engine products through the development of technologies which assist customers in complying with new emission standards. The Company's strategy also includes increasing its global presence, particularly in developing countries such as The People's Republic of China, to profit from the growing market for carburetors for two-wheeled vehicles and other small engine applications in those countries and from infrastructure development which requires gasoline-powered portable tools. THE DYNO ACQUISITION On July 27, 1995, the Company acquired the fuel systems business of Dyno for approximately $124 million (the "Dyno Acquisition"). Dyno is a leading designer, manufacturer and marketer of plastic mono-layer fuel tank systems and components to many European vehicle manufacturers, including Renault, Mercedes-Benz, Volvo, Peugeot, Saab, Rover, Volkswagen and Audi, and has operations in France, Norway, Germany, Great Britain, Spain and Belgium. Dyno produced approximately 1.5 million plastic fuel tanks in 1994, which management estimates to be approximately 17% of the European plastic fuel tank market. 6 9 In addition to manufacturing fuel tanks, Dyno manufactures plastic fill pipes, fuel overflow containers, and other automobile blow-molded components for cooling, heating and air conditioning systems. Management expects these products, in the aggregate, to account for approximately 10% of Dyno's 1995 revenues. Concurrently with the consummation of the Dyno Acquisition, (i) the Company issued and sold the Old Notes (the "Initial Offering"), and (ii) the Company and certain of its wholly-owned domestic and foreign subsidiaries entered into a new bank revolving credit facility (the "New Credit Facility") with Comerica Bank, as agent, and the other lenders named therein, providing for borrowings of up to $135 million. The gross proceeds from the Initial Offering, along with borrowings under the New Credit Facility, were used to acquire Dyno, retire certain credit facilities and pay fees and expenses. The Initial Offering, the Dyno Acquisition and the borrowings under the New Credit Facility are referred to herein together as the "Transactions." See "Business -- Dyno Acquisition" and "Description of Other Indebtedness." The following table sets forth the sources and uses of funds in: (a) the Initial Offering, (b) the Dyno Acquisition and (c) the New Credit Facility:
Amount -------------- (in thousands) Sources: Initial Offering . . . . . . . . . . . . . . . . . . . . . $109,615 New Credit Facility(1) . . . . . . . . . . . . . . . . . . 36,385 -------- Total sources . . . . . . . . . . . . . . . . . . . . $146,000 Uses: Dyno Acquisition(2) . . . . . . . . . . . . . . . . . . . $130,000 Retire certain credit facilities(3) . . . . . . . . . . . 11,000 Fees and expenses of the Initial Offering and New Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . 5,000 -------- Total uses . . . . . . . . . . . . . . . . . . . . . . $146,000
- ------------------ (1) In connection with the Dyno Acquisition and the retirement of certain credit facilities, the Company borrowed this amount under the $135,000 New Credit Facility. (2) Based on a purchase price of $124,000, adjusted to reflect estimated closing adjustments and certain related fees and expenses of $6,000. (3) Based on the outstanding principal balances as of June 30, 1995. The Dyno Acquisition is a continuation of the Company's efforts to strengthen its position as a key supplier of integrated fuel systems to the global automotive market, and it will create the only integrated provider of plastic fuel tank and fuel pump systems in Europe. The Dyno Acquisition is expected to provide Walbro with a number of benefits, including: - Further diversification of the Company's geographic markets and the increased ability to participate in the current European automotive market recovery. Walbro's international sales, on a pro forma basis for the Dyno Acquisition, would have been 47% of the Company's net sales (excluding joint ventures) in 1994 compared to 24% without Dyno. - An increased opportunity for Walbro to sell its fuel system products to Dyno's European-based OEM customers and for Dyno to sell its products to the European operations of Chrysler, Ford and General Motors. - The ability to share blow molding process technology, especially with respect to the eventual transfer of Walbro's multi-layer blow molding technology to Dyno's European facilities. 7 10 THE EXCHANGE OFFER The New Notes . . . . . . . . . . . . . . The forms and terms of the New Notes are identical in all material respects to the terms of the Old Notes for which they may be exchanged pursuant to the Exchange Offer, except for certain transfer restrictions and registration rights relating to the Old Notes and except for certain interest provisions relating to the Old Notes described below under "-- Terms of New Notes." The Exchange Offer . . . . . . . . . . . The Company is offering to exchange up to $110,000,000 aggregate principal amount of 9 7/8% Senior Notes due 2005, Series B (the "New Notes") for up to $110,000,000 aggregate principal amount of its outstanding 9 7/8% Senior Notes due 2005, Series A (the "Old Notes"). Old Notes may be exchanged only in integral multiples of $1,000. Expiration Date; Withdrawal of Tender . . . . . . . . . . . . . . . . The Exchange Offer will expire at 5:00 p.m., New York City time, on, 1995, or such later date and time to which it is extended by the Company. The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Certain Conditions to the Note Exchange Offer . . . . . . . . . . . . The Exchange Offer is subject to certain customary conditions, which may be waived by the Company. See "The Exchange Offer -- Certain Conditions to the Exchange Offer." Procedures for Tendering Old Notes . . . Each holder of Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with such Old Notes and any other required documentation to the Exchange Agent (as defined) at the address set forth herein. By executing the Letter of Transmittal, each holder will represent to the Company that, among other things, (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in the distribution of the New Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or, if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Interest on the New Notes . . . . . . . . The New Notes will bear interest at the rate of 9 7/8% per annum, payable semiannually on January 15 and July 15, commencing January 15, 1996 to holders of record on the immediately preceding January 1 and July 1, respectively. Holders of the New Notes will receive interest on January 15, 1996 from the date of initial 8 11 issuance of the New Notes, plus an amount equal to the accrued interest on the Old Notes from the most recent date to which interest has been paid to the date of exchange thereof. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the New Notes. Special Procedures for Beneficial Owners . . . . . . . . . . . Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender such Old Notes in the Exchange Offer should contact such registered holder promptly instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering his Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the Expiration Date. Guaranteed Delivery Procedures . . . . . . . . . . . . . . Holders of Notes who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent, prior to the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." Registration Requirements . . . . . . . . The Company has agreed to use its best efforts to consummate by November 15, 1995 the registered Exchange Offer pursuant to which holders of the Old Notes will be offered an opportunity to exchange their Old Notes for the New Notes which will be issued without legends restricting the transfer thereof. In the event that applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer or in certain other circumstances, the Company has agreed to file a Shelf Registration Statement covering resales of the Old Notes and to use its best efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act and, subject to certain exceptions, keep such Shelf Registration Statement effective until three years after the effective date thereof. Certain Federal Income Tax Considerations . . . . . . . . . . . . For a discussion of certain federal income tax considerations relating to the exchange of the New Notes for the Old Notes, see "Certain Federal Income Tax Considerations Relating to the Exchange Offer." Use of Proceeds . . . . . . . . . . . . . There will be no proceeds to the Company from the exchange of Notes pursuant to the Exchange Offer. 9 12 Exchange Agent . . . . . . . . . . . . . Bankers Trust Company is the Exchange Agent. The address and telephone number of the Exchange Agent are set forth in "The Exchange Offer -- Exchange Agent." TERMS OF THE NEW NOTES The form and terms of the New Notes are the same as the form and terms of the Old Notes except that the New Notes are registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof. See "Description of the Old Notes." New Notes . . . . . . . . . . . . . . . . $110 million aggregate principal amount of 9 7/8% Senior Notes due 2005, Series B of the Company. Maturity . . . . . . . . . . . . . . . . July 15, 2005. Interest Payment Dates . . . . . . . . . January 15 and July 15, commencing January 15, 1996. Ranking . . . . . . . . . . . . . . . . . The New Notes will be senior unsecured obligations of the Company ranking pari passu in right of payment with all existing and future senior unsecured obligations of the Company and are effectively subordinated in right of payment to all existing and future secured indebtedness of the Company and its subsidiaries. As of June 30, 1995, after giving effect to the Transactions, the Company and its subsidiaries had approximately $96.9 million of secured indebtedness outstanding, including $36.4 million of indebtedness outstanding under the New Credit Facility and the $45 million aggregate principal amount of the Company's 7.68% Senior Notes due 2004 (the "2004 Notes"), which are secured by the inventory, accounts receivable and certain intangibles of the Company and its domestic subsidiaries and by a pledge of 100% of the capital stock of the Company's wholly-owned domestic subsidiaries and of up to 65% of the capital stock of the Company's wholly-owned foreign subsidiaries, including the subsidiaries which will own Dyno. In addition, the New Notes will be effectively subordinated in right of payment to all existing and future liabilities, including trade payables, of the Company's subsidiaries which are not Guarantors, which, as of June 30, 1995, after giving effect to the Transactions, would have totalled approximately $79 million (excluding intercompany liabilities). Guarantees . . . . . . . . . . . . . . . The New Notes will be guaranteed on a senior unsecured basis, jointly and severally, by the Company's principal wholly-owned domestic operating subsidiaries, including Walbro Automotive Corporation and Walbro Engine Management Corporation. See "Description of New Notes -- Guarantees" and Note 20 of the Notes to the Company's Consolidated Financial Statements. Optional Redemption . . . . . . . . . . . Except as provided below, the New Notes are not redeemable at the Company's option prior to July 15, 2000. Thereafter, the New Notes will be redeemable, in whole or in part, at the option of the 10 13 Company, at the redemption prices set forth herein plus accrued interest to the date of redemption. In addition, prior to July 15, 1998, the Company may, at its option, redeem up to an aggregate of 30% of the principal amount of the combined Notes originally issued with the net proceeds from one or more Public Equity Offerings at the redemption price set forth herein plus accrued interest to the date of redemption. See "Description of the Old Notes -- Optional Redemption." Change of Control . . . . . . . . . . . . In the event of a Change of Control, the Company will be obligated to make an offer to purchase all of the outstanding Notes at a redemption price of 101% of the principal amount thereof plus accrued interest to the date of repurchase. See "Description of the Notes -- Change of Control." Offer to Repurchase . . . . . . . . . . . The Company will be required in certain circumstances to make an offer to repurchase the New Notes at a price equal to 100% of the principal amount thereof, plus accrued interest to the date of repurchase, with the net cash proceeds of certain asset sales. See "Description of the New Notes -- Certain Covenants -- Disposition of Proceeds of Asset Sales." Certain Covenants . . . . . . . . . . . . The indenture under which Old Notes were issued and the New Notes will be issued (the "Indenture") contains covenants including, but not limited to, covenants with respect to limitations on the following matters: (i) the incurrence of additional indebtedness, (ii) the issuance of preferred stock by subsidiaries, (iii) the creation of liens, (iv) sale and leaseback transactions, (v) restricted payments, (vi) the sales of assets and subsidiary stock, (vii) mergers and consolidations, (viii) payment restrictions affecting subsidiaries and (ix) transactions with affiliates. See "Description of the New Notes -- Certain Covenants." Investment Considerations . . . . . . . . Holders of Old Notes should carefully consider the matters set forth under the caption "Investment Considerations" prior to making a decision with respect to the Exchange Offer. See "Investment Considerations." 11 14 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following table sets forth summary historical financial data of the Company (excluding Dyno) and pro forma condensed consolidated financial data of the Company and Dyno. The summary historical financial data of the Company for each of the five years ended December 31 was derived from the audited consolidated financial statements of the Company. The summary historical financial data of the Company for both of the six-month periods ended June 30 derived from the unaudited consolidated financial statements of the Company which, in the opinion of the Company's management, reflect all adjustments necessary for a fair presentation of the financial position and results of operations for the periods. The information contained in this table should be read in conjunction with "Pro Forma Unaudited Condensed Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Walbro Corporation," "Selected Financial and Operating Data -- Dyno," "Management's Discussion and Analysis of Results of Operations -- Dyno," and the consolidated financial statements of the Company and the combined financial statements of Dyno included elsewhere herein.
Six Months Ended June 30, Year Ended December 31, -------------------------------- --------------------------------------------------------------------- Pro Pro forma forma 1995(1) 1995 1994 1994(1) 1994 1993 1992 1991 1990 --------- --------- --------- ---------- --------- --------- --------- --------- --------- Statement of Income Data: Net sales ............... $ 296,123 $ 188,291 $ 166,181 $ 472,352 $ 325,205 $ 273,463 $ 241,416 $ 200,130 $ 166,678 Cost of sales ........... 234,991 150,585 131,308 374,745 261,501 216,804 185,712 158,743 134,295 Gross profit ............ 61,132 37,706 34,873 97,607 63,704 56,659 55,704 41,387 32,383 Selling and administrative expenses .............. 41,510 24,152 19,353 67,909 39,318 33,043 33,614 26,961 20,946 Reorganization and restructuring charges . -- -- -- -- -- 1,760 -- 2,230 -- Operating income 19,622 13,554 15,520 29,698 24,386 21,856 22,090 12,196 11,437 Interest expense, net ... 9,486 2,538 1,537 17,530 3,771 2,559 3,113 6,014 6,474 Equity in (income) loss of joint ventures (2,074) (2,074) (592) (2,609) (2,609) 89 (179) 465 2,128 Net income(2) ........... 8,044 8,923 8,960 6,009 14,595 9,667 12,526 4,838 1,097 Net income per share(3) . .94 1.04 1.04 .70 1.70 1.13 1.63 .98 .26 Weighted average shares outstanding ........... 8,599,490 8,599,490 8,608,474 8,602,077 8,602,077 8,537,375 7,675,974 4,952,951 4,289,161 Ratio of earnings to fixed charges ......... 1.8x 4.2x 7.3x 1.4x 4.6x 6.4x 4.7x 2.0x 1.6x OTHER DATA: Depreciation and amortization .......... 12,667 7,838 6,935 23,600 14,672 11,339 10,339 6,996 7,708 Capital expenditures .... 26,861 20,730 7,280 27,548 18,844 20,260 14,681 9,717 6,621 EBITDA(4) ............... 31,758 20,861 21,798 51,315 36,345 31,128 31,513 19,192 19,145 Ratio of EBITDA to interest expense, net(4) ................ 3.4x 8.2x 14.2x 2.9x 9.6x 12.2x 10.1x 3.2x 3.0x BALANCE SHEET DATA: (at end of period) Total assets ............ $ 468,484 $ 287,489 $ 238,244 $ 257,366 $ 215,295 $ 193,020 $ 161,243 $ 143,026 Total long-term debt, less current portion .. 221,719 86,322 59,690 66,136 52,392 49,638 62,777 83,443 Total debt .............. 234,708 94,354 67,445 81,548 58,175 59,349 70,922 85,529 Total stockholders' equity(5)(6) .......... 136,190 136,230 122,695 127,915 114,146 99,910 50,339 27,424
(1) The summary unaudited pro forma condensed consolidated statements of operations and other data for the period ended June 30, 1995 and the year ended December 31, 1994 gives effect to the Transactions as if they had occurred on January 1, 1994. The summary unaudited pro forma financial data are not necessarily indicative of future operating results or financial position. (2) The Company adopted SFAS 106 as of January 1, 1993. As a result, the Company recorded a one-time after tax charge of $2,900 for the cumulative effect of this accounting change in the year ended December 31, 1993. (3) Primary and fully diluted income per share were the same in all periods presented except the year ended December 31, 1992 when fully diluted income per share was $1.58 based on weighted average shares outstanding of 8,160,472. (4) "EBITDA" represents, for any period, the sum of operating income (minus foreign currency exchange losses and other expenses, net) and depreciation and amortization. EBITDA is not intended to be a performance measure that should be regarded as an alternative either to operating income or net income as an indicator of operating performance or to cash flow as a measure of liquidity. The Company has included information concerning EBITDA as it understands that it is used by certain investors as one measure of an issuer's historical ability to service its debt. (5) Reflects cash dividends declared of $1,713, $1,712, $3,426, $3,403, $3,192, $610 and $1,836 in the six months ended June 30, 1995 and 1994 and the years ended December 31, 1994, 1993, 1992, 1991 and 1990, respectively. (6) The Company adopted SFAS 115 as of January 1, 1994. As a result, the Company recorded an increase to stockholders' equity of $2,096 (net of income taxes) as of January 1, 1994. 12 15 INVESTMENT CONSIDERATIONS Prospective investors should consider carefully the following factors regarding an investment in the New Notes. SUBSTANTIAL LEVERAGE After giving effect to the Transactions on a pro forma basis, the Company has consolidated indebtedness that is substantial in relation to its stockholders' equity and significantly greater than its existing indebtedness. After giving effect to the Transactions on a pro forma basis, as of June 30, 1995, the Company would have $234.7 million of total debt and $136.2 million of stockholders' equity. Additionally, as of June 30, 1995, after giving effect to the Transactions on a pro forma basis, the Company and its subsidiaries would have approximately $96.9 million of secured indebtedness outstanding, including $36.4 million of borrowings under the New Credit Facility and the $45 million aggregate principal amount of the 2004 Notes. Such secured indebtedness, though ranking pari passu with the Notes, has a lien on specified assets of the Company or its subsidiaries, as the case may be. As a result, in an insolvency proceeding, holders of secured indebtedness would have claims against the assets of the Company or its subsidiaries, as the case may be, securing their indebtedness to satisfy their claims, and such assets would be applied to the payment of such claims before claims of holders of unsecured senior indebtedness, such as the Notes, would be satisfied. Because the inventory, accounts receivable and certain intangibles of the Company and its domestic subsidiaries and capital stock of the Company's subsidiaries have been pledged to the lenders under the New Credit Facility and the 2004 Notes to secure the Company's borrowings thereunder, in the event of an insolvency of the Company, such lenders would have a claim to such assets, while the holders of the New Notes would have no claim over specific assets of the Company and its subsidiaries. The Company's indebtedness will have several important consequences for the holders of the Notes, including but not limited to the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to debt service requirements (principal and interest) on its indebtedness and will not be available for other purposes; (ii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, or to refinance the New Notes or for general corporate purposes may be impaired; (iii) the Company's leverage may increase its vulnerability to economic downturns and limit its ability to withstand competitive pressures; and (iv) the Company's ability to capitalize on significant business opportunities may be limited. The Company's ability to make payments with respect to the Notes and to satisfy its other debt obligations will depend on its future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond the Company's control. The Company believes, based on current circumstances, that the Company's cash flow, together with available borrowings under the New Credit Facility, will be sufficient to permit the Company to meet its operating expenses and to service its debt requirements as they become due. Significant assumptions underlie this belief, including, among other things, that the Company will succeed in implementing its business strategy and there will be no material adverse developments in the business, liquidity or capital requirements of the Company. If the Company is unable to service its indebtedness, it will be forced to adopt an alternative strategy that may include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing its indebtedness or seeking additional equity capital. There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Walbro Corporation - -- Liquidity and Capital Resources." The Indenture will, among other things, limit the incurrence of additional indebtedness by the Company and its subsidiaries. However, this limitation is subject to a number of important qualifications. 13 16 RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS The Indenture restricts the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments or investments, consummate certain asset sales, enter into certain transactions with affiliates, incur liens, or merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of their assets. The Indenture also imposes limitations on the Company's ability to restrict the ability of its subsidiaries to pay dividends or make certain payments to the Company or any of its subsidiaries. In addition, the New Credit Facility contains other and more restrictive covenants. The agreement under which the 2004 Notes were issued (the "2004 Note Agreement") requires, and the New Credit Facility requires the Company to maintain specified financial ratios and satisfy certain financial tests. The Company's ability to meet such financial ratios and tests may be affected by events beyond its control, and there can be no assurance that the Company will meet such tests. A breach of any of these covenants could result in an event of default under the 2004 Note Agreement or the New Credit Facility. In an event of default under the 2004 Note Agreement or the New Credit Facility, the lenders thereunder could elect to declare all amounts borrowed, together with accrued interest, to be immediately due and payable and the lenders under the New Credit Facility could terminate all commitments thereunder. If any such indebtedness were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay in full such indebtedness and the other indebtedness of the Company, including the New Notes. See "Description of the New Notes -- Certain Covenants" and "Description of Other Indebtedness." FRAUDULENT CONVEYANCE CONSIDERATIONS Under applicable provisions of the federal bankruptcy law or comparable provisions of state fraudulent transfer laws, if any Guarantor, at the time it incurs a Guarantee, (a)(i) was or is insolvent or rendered insolvent by reason of such incurrence, (ii) was or is engaged in a business or transaction for which the assets remaining with such Guarantor constituted unreasonably small capital or (iii) intended or intends to incur, or believed or believes that it would incur, debts beyond its ability to pay such debts as they mature and (b) received or receives less than reasonably equivalent value or fair consideration, the obligations of such Guarantor under its Guarantee could be avoided, or claims in respect of such Guarantee could be subordinated to all other debts of such Guarantor. Among other things, a legal challenge of a Guarantee on fraudulent conveyance grounds may focus on the benefits, if any, realized by such Guarantor as a result of the issuance by the Company of the Old Notes. To the extent that any Guarantee were a fraudulent conveyance or held unenforceable for any other reason, the holders of the Notes would cease to have any claim in respect of a Guarantor and would be solely creditors of the Company and any other Guarantors whose Guarantees were not avoided or held unenforceable. In such event, the claims of the holders of the Notes would be subject to the prior payment of all liabilities of the Guarantor whose Guarantee was avoided. There can be no assurance that, after providing for all prior claims, there would be sufficient assets to satisfy the claims of the holders of the Notes relating to any avoided portion of a Guarantee. Each Guarantor agrees, jointly and severally with the other Guarantors, to contribute to the obligations of any Guarantor under a Guarantee of the Notes. Further, the Guarantee of each Guarantor will provide that it is limited to an amount that would not render the Guarantor thereunder insolvent. The Company believes that the Guarantors will receive equivalent value at the time the indebtedness is incurred under the Guarantees. In addition, the Company believes that none of the Guarantors will be, at the time of or as a result of the issuance of the Guarantees, insolvent, that none of the Guarantors is or will be engaged in a business or transaction for which its remaining assets constitute unreasonably small capital and that none of the Guarantors will have intended or will intend to incur debts beyond its ability to pay such debts as they mature. Since each of the components of the question of whether a Guarantee is a fraudulent conveyance is inherently fact based and fact specific, 14 17 there can be no assurance that a court passing on such questions would agree with the Company. HOLDING COMPANY STRUCTURE The Company derives all of its operating income and cash flow from its subsidiaries. The Company must rely upon cash distributions from its subsidiaries to generate the funds necessary to meet its obligations, including the payment of principal and interest on the Notes. Any right of the holders of the Notes to participate in the assets of a non-Guarantor subsidiary of the Company upon any liquidation or reorganization of such subsidiary will be subject to the prior claims of such subsidiary's creditors, including the lenders under the New Credit Facility, holders of the 2004 Notes and trade creditors. Accordingly, the Notes are structurally subordinated to all liabilities, including trade payables, of the non-Guarantor subsidiaries of the Company. As of June 30, 1995, after giving effect to the Transactions on a pro forma basis, the non-Guarantors would have outstanding liabilities, including trade payables, of approximately $79 million. In addition, 100% of the capital stock of the Company's wholly-owned domestic subsidiaries and up to 65% of the capital stock of its wholly-owned foreign subsidiaries are pledged as collateral to the lenders under the New Credit Facility and the holders of the 2004 Notes. Accordingly, upon any liquidation or reorganization of the Company, the holders of the New Notes will have no claim against such capital stock until the lenders under the New Credit Facility and the holders of the 2004 Notes are paid in full. DEPENDENCE ON PRINCIPAL CUSTOMERS Sales to the Company's two largest customers, Ford and Chrysler, accounted for the following respective percentages of the Company's consolidated net sales, excluding Dyno: 30% and 23% in 1994; 30% and 21% in 1993; and 33% and 20% in 1992. On a pro forma basis, including Dyno, Ford and Chrysler accounted for 21% and 16% of the Company's consolidated net sales in 1994, respectively. Although the Company has ongoing supply relationships with both Ford and Chrysler, there can be no assurance that sales to either of these customers will continue at the same levels; further, continuation of the relationships is dependent upon the customers' satisfaction with the price, quality and delivery of the Company's products. While management believes its relationships with its customers are mutually satisfactory, if either of these customers were to reduce substantially or discontinue its purchases, the Company would be adversely affected. See "Business -- Walbro Automotive Corporation -- Automotive Markets and Customer Base." COMPETITION The automotive fuel system and small engine supply industries in which the Company operates are highly competitive. There can be no assurance that the Company's products will continue to compete successfully with the products of other companies, including the automotive OEMs themselves, many of whom are significantly larger and have greater financial and other resources available to them. In addition, the Company is under constant pressure from its major customers to reduce product costs. Management believes that the Company's experience in engineering and implementing cost reduction programs and its ability to develop proprietary new products and to control manufacturing and development costs should allow the Company's product prices to remain competitive. However, there can be no assurance that the Company will be able to improve or maintain its profit margins on sales to vehicle manufacturers and small engine producers. CYCLICAL NATURE OF AUTOMOTIVE AND SMALL ENGINE INDUSTRIES The Company's principal operations are related directly to domestic and foreign automotive vehicle and small engine consumer product sales. Sales and production of automobiles and small engine 15 18 products are cyclical and can be affected by the strength of a country's general economy, prevailing interest rates and by other factors which may have an adverse effect on the level of the Company's sales to automobile and small engine product manufacturers. IMPACT OF ENVIRONMENTAL REGULATIONS The manufacturers of small engine products, such as lawn mowers and chain saws, are confronting emission regulations for the first time. In 1992, the California Air Resources Board promulgated comprehensive air quality regulations limiting small engine emissions, which regulations became effective in August 1995. A more stringent phase is scheduled to become effective in 1999. In addition, the Environmental Protection Agency ("EPA") has proposed similar regulations scheduled to become effective in August 1996, with the more stringent phase expected to become effective during the 1999 to 2001 period. The implementation of the 1999 California air quality regulations and proposed EPA regulations could significantly reduce the number of units the Company sells of its current carburetor models, especially diaphragm carburetors, and the Company's resulting net sales. Hand-held power equipment is most vulnerable to a decrease in demand because the cost of compliance with these emission standards could force manufacturers to replace gasoline-powered lawn and garden equipment with electric-powered equipment. The Company is attempting to produce products and systems which meet these emissions requirements; however, there can be no assurance that the Company will develop cost effective products to meet all of these regulations or that the ultimate customer might not select electric-powered equipment instead. See "Business -- Walbro Engine Management Corporation -- Small Engine Industry Overview." WARRANTY EXPOSURE AND RECALLS The Company warrants to its OEM customers that its products are free from defect and that they meet certain OEM designated specifications. The OEMs in turn offer product warranties to their retail customers. In some instances of common complaint, the automobile manufacturer will institute a voluntary recall or will be required by a governmental agency to conduct a recall. As a result, from time to time, the Company and Dyno have received claims against them and requests for payment from their OEM customers to remedy complaints made by the ultimate consumers. The Company plans to implement product recall insurance in selected European markets. There can be no assurance that the Company will not incur substantial warranty or recall expense in the future. Such complaints and the related expenses may have a material adverse effect on the Company's relationship with its OEM customers, its financial condition and results of operations. See "Business -- Walbro Automotive Corporation -- Automotive Warranty and Other Product Exposure." INTEGRATION OF DYNO; INCREASED FOREIGN OPERATIONS As a result of the Dyno Acquisition, management will have to integrate into its current business a large, complex manufacturing operation in six countries which was previously connected with a large Norwegian company. Management believes that it has or can obtain the resources necessary to integrate this business and capitalize on the strengths of Dyno. Walbro's implementation strategies, however, are subject to numerous contingencies, some of which are beyond management's control. These contingencies include general and regional economic conditions, competition and changes in regulation and interest rates. Even if management is able to successfully integrate this business, Walbro will significantly increase its dependence on international operations, specifically those in Europe, and therefore the Company is subject to various political, economic and other uncertainties. Among others, the Company's operations are subject to the risks of taxation policies, foreign exchange restrictions, changing political conditions and governmental regulations. Accordingly, no assurance can be given that any of the Company's strategies will prove to be effective or that management's goals will be achieved. In addition, the Company will receive a substantial portion of its revenues in currencies other than U.S. Dollars. Fluctuations in the exchange rates of these currencies with respect to the U.S. Dollar could 16 19 have an adverse effect on the Company's financial results. From time to time the Company engages in hedging programs intended to reduce the Company's exposure to currency fluctuations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Walbro Corporation -- Foreign Currency Transactions." CONSEQUENCES OF FAILURE TO EXCHANGE; POSSIBLE ADVERSE EFFECT ON TRADING MARKET FOR OLD NOTES Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold unless registered under the Securities Act and applicable state laws, or pursuant to an exemption therefrom. Subject to the obligation by the Company to file a Shelf Registration Statement covering resales of Old Notes in certain circumstances, the Company does not intend to register the Old Notes under the Securities Act and, after consummation of the Exchange Offer, will not be obligated to do so. In addition, any holder of Old Notes who tender in the Exchange Offer for the purpose of participating in a distribution of the New Notes may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Additionally, as a result of the Exchange Offer, it is expected that a substantial decrease in the aggregate principal amount of Old Notes outstanding will occur. As a result, it is unlikely that a liquid trading market will exist for the Old Notes at any time. This lack of liquidity will make transactions more difficult and may reduce the trading price of the Old Notes. See "The Exchange Offer" and "Description of the Old Notes Registration Rights." ABSENCE OF PUBLIC MARKET There has not previously been any public market for the New Notes. Although the Company has agreed pursuant to the Registration Rights Agreement to use its best efforts to cause the New Notes to be listed on the New York Stock Exchange, there can be no assurance as to the liquidity of any markets that may develop for the New Notes, the ability of holders to sell the New Notes, or the price at which holders would be able to sell the New Notes. Future trading prices of the New Notes will depend on many factors, including among other things, prevailing interest rates, the Company's operating results and the market for similar securities. Historically, the market for securities similar to the New Notes, including non-investment grade debt, has been subject to disruptions that have caused substantial volatility in the prices of such securities. There can be no assurance that any market for the New Notes, if such market develops, will not be subject to similar disruptions. The Initial Purchasers have advised the Company that they currently intend to make a market in the New Notes offered hereby. However, the Initial Purchasers are not obligated to do so and any market making may be discontinued at any time without notice. 17 20 USE OF PROCEEDS OF NEW NOTES This Exchange Offer is intended to satisfy certain obligations of the Company under the Registration Rights Agreement. The Company will not receive any proceeds from the issuance of the New Notes offered hereby. In consideration for issuing the New Notes as contemplated in this Prospectus, the Company will receive, in exchange, Old Notes in like principal amount. The form and terms of the New Notes are identical in all material respects to the form and terms of the Old Notes, except as otherwise described herein under "The Exchange Offer -- Terms of the Exchange Offer." The Old Notes surrendered in exchange for the New Notes will be retired and cancelled and cannot be reissued. Accordingly, issuance of the New Notes will not result in any increase in the outstanding debt of the Company. CAPITALIZATION The following table sets forth the Company's capitalization at June 30, 1995, and as adjusted to reflect: (a) the Initial Offering, (b) the Dyno Acquisition and (c) the New Credit Facility.
As of June 30, 1995 -------------------------------- As adjusted for the Actual Transactions ------------ -------------- (In thousands) Total short-term debt . . . . . . . . . . . . . . . . . . . . . . . . $8,032 $12,989(1)(3) Long-term debt, less current portion: New Credit Facility . . . . . . . . . . . . . . . . . . . . . . -- 36,385 Existing Credit Facilities . . . . . . . . . . . . . . . . . . 11,000 -- 7.68% Senior Notes due 2004 . . . . . . . . . . . . . . . . . . 45,000 45,000(2) 9 7/8% Senior Notes due 2005 . . . . . . . . . . . . . . . . . -- 109,615 Other long-term debt, net(3) . . . . . . . . . . . . . . . . . 30,322 30,719 Total long-term debt, net of current portion . . . . . . . . . . . . 86,322 221,719 Total stockholders' equity(4) . . . . . . . . . . . . . . . . . . . . 136,230 136,190(5) Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . 230,584 370,898
- ----------------- (1) Reflects cash overdraft and short-term notes payable assumed in connection with the Dyno Acquisition. (2) Pursuant to the 2004 Note Agreement, the 2004 Notes are equally and ratably secured with the New Credit Facility by the Company's domestic inventory, accounts receivable and certain intangibles and certain capital stock of the Company's subsidiaries. (3) Of these amounts, approximately $6,600 are secured by certain assets of the Company or its subsidiaries. (4) On June 30, 1995, the Company had 8,564,576 shares of common stock issued and outstanding and the price of the Company's common stock was $18.00 per share as reported on the Nasdaq Stock Market. (5) Reflects the write-off of deferred financing fees related to the retirement of certain credit facilities of $55. 18 21 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER Pursuant to the Registration Rights Agreement by and among the Company, the Guarantors and the Initial Purchasers, the Company has agreed (i) to file a registration statement with respect to an offer to exchange the Old Notes for senior debt securities of the Company with terms substantially identical to the Old Notes (except that the New Notes will not contain terms with respect to transfer restrictions) within 60 days after the date of original issuance of the Old Notes and (ii) to use best efforts to cause such registration statement to become effective under the Securities Act within 120 days after such issue date. In the event that applicable law or interpretations of the staff of the Commission do not permit the Company to file the registration statement containing this Prospectus or to effect the Exchange Offer, or if certain holders of the Old Notes notify the Company that they are not permitted to participate in, or would not receive freely tradeable New Notes pursuant to, the Exchange Offer, the Company will use its best efforts to cause to become effective the Shelf Registration Statement with respect to the resale of the Old Notes and to keep the Shelf Registration Statement effective until three years after the effective date thereof. The interest rate on the Old Notes is subject to increase under certain circumstances if the Company is not in compliance with its obligations under the Registration Rights Agreement. See "Old Notes Registration Rights." Pursuant to the Registration Rights Agreement, the Company has agreed to use its best efforts to cause the Exchange Notes to be listed on the New York Stock Exchange. Each holder of the Old Notes who wishes to exchange such Old Notes for New Notes in the Exchange Offer will be required to make certain representations, including representations that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in the distribution of the New Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or, if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. See "Old Notes Registration Rights." RESALE OF NEW NOTES Based on interpretations by the staff of the Commission set forth in no-action letters issued to third-parties, the Company believes that, except as described below, New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than a holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and such holder does not intend to participate and has no arrangement or understanding with any person to participate in the distribution of such New Notes. Any holder who tenders in the Exchange Offer with the intention or for the purpose of participating in a distribution of the New Notes cannot rely on such interpretation by the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Unless an exemption from registration is otherwise available, any such resale transaction should be covered by an effective registration statement containing the selling security holders information required by Item 507 of Regulation S-K under the Securities Act. This Prospectus may be used for an offer to resell, resale or other retransfer of New Notes only as specifically set forth herein. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." 19 22 TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept for exchange any and all Old Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of outstanding Old Notes surrendered pursuant to the Exchange Offer. Old Notes may be tendered only in integral multiples of $1,000. The form and terms of the New Notes will be the same as the form and terms of the Old Notes except the New Notes will be registered under the Securities Act and hence will not bear legends restricting the transfer thereof. The New Notes will evidence the same debt as the Old Notes. The New Notes will be issued under and entitled to the benefits of the Indenture, which also authorized the issuance of the Old Notes, such that both series will be treated as a single class of debt securities under the Indenture. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Old Notes being tendered for exchange. As of the date of this Prospectus, $110 million aggregate principal amount of the Old Notes are outstanding. This Prospectus, together with the Letter of Transmittal, is being sent to all registered holders of Old Notes. There will be no fixed record date for determining registered holders of Old Notes entitled to participate in the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the provisions of the Registration Rights Agreement and the applicable requirements of the Exchange Act, and the rules and regulations of the Commission thereunder. Old Notes which are not tendered for exchange in the Exchange Offer will remain outstanding and continue to accrue interest and will be entitled to the rights and benefits such holders have under the Indenture and the Registration Rights Agreement. The Company shall be deemed to have accepted for exchange properly tendered Notes when, as and if the Company shall have given oral or written notice thereof to the Exchange Agent and complied with the provisions of Section 2 of the Registration Rights Agreement. The Exchange Agent will act as agent for the tendering holders for the purposes of receiving the New Notes from the Company. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Old Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions specified below under "-- Certain Conditions to the Exchange Offer." Holders who tender Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See "The Exchange Offer -- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date," shall mean 5:00 p.m., New York City time on October 31, 1995, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. 20 23 In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will mail to the registered holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the then Expiration Date. The Company reserves the right, in its sole discretion, (i) to delay accepting for exchange any Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "The Exchange Offer -- Conditions" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders of Old Notes. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders, and the Company will extend the Exchange Offer, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such period. INTEREST ON THE NEW NOTES The New Notes will bear interest at a rate of 9 7/8% per annum, payable semi-annually, on each January 15 and July 15, commencing January 15, 1996. Holders of New Notes will receive interest on January 15, 1996 from the date of initial issuance of the New Notes, plus an amount equal to the accrued interest on the Old Notes from the most recent date to which interest has been paid to the date of exchange thereof for New Notes. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the New Notes. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other term of the Exchange Offer, the Company will not be required to accept for exchange, or exchange any New Notes for, any Old Notes, and may terminate the Exchange Offer as provided herein before the acceptance of any Old Notes for exchange, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which, in the Company's sole judgment, might materially impair the ability of the Company to proceed with the Exchange Offer; or (b) any law, statute, rule or regulation is proposed, adopted or enacted, or any existing law, statute, rule or regulation is interpreted by the staff of the Commission, which, in the Company's sole judgment, might materially impair the ability of the Company to proceed with the Exchange Offer; or (c) any governmental approval has not been obtained, which approval the Company shall, in its sole discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby. The Company expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for exchange of any Old Notes, by giving oral or written notice of such extension to the holders thereof. During any such extensions, all Old Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by the Company. Any Old Notes not accepted for exchange for any reason will 21 24 be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Old Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified above under "-- Certain Conditions to the Exchange Offer." The Company will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the Old Notes as promptly as practicable, such notice in the case of any extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, the Company will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for any such Old Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939 (the "TIA"). PROCEDURES FOR TENDERING Only a holder of Old Notes may tender such Old Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, or facsimile thereof, have the signature thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In addition, either (i) Old Notes must be received by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely confirmation of book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at the Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below must be received by the Exchange Agent prior to the Expiration Date, or (iii) the holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the Letter of Transmittal and other required documents must be received by the Exchange Agent at the address set forth below under "The Exchange Offer -- Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. The tender by a holder which is not withdrawn prior to the Expiration Date will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. 22 25 Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder of Old Notes to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such owner's name or obtain a properly completed bond power from the registered holder of Old Notes. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the Expiration Date. Signatures on a Letter of Transmittal or a notice of withdrawal described below, as the case be, must be guaranteed by an Eligible Institution (as defined below) unless the Old Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantor must be a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of the recognized signature guarantee programs identified in the Letter of Transmittal (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Old Notes listed therein, such Old Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Old Notes with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In all cases, issuance of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of Notes or a timely Book- 23 26 Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Old Notes are not accepted for exchange for any reason set forth in the terms and conditions of the Exchange Offer or if Old Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such non-exchanged Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address set forth below under "The Exchange Offer -- Exchange Agent" on or prior to the Expiration Date or, if the guaranteed delivery procedures described below are to be complied with, within the time period provided under such procedures. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available or (ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, may effect a tender if: (a) The tender is made through an Eligible Institution; (b) Prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the registered number(s) of such Old Notes and the principal amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three (3) New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the Old Notes or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) Such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as all tendered Notes in proper form for transfer or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within three (3) New York Stock Exchange trading days after the Expiration Date. 24 27 Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes), and (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes were registered, if different from that of the withdrawing holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "-- Procedures for Tendering Old Notes" above at any time on or prior to the Expiration Date. EXCHANGE AGENT Bankers Trust Company has been appointed as Exchange Agent of the Exchange Offer. Questions and request for assistance, request for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Overnight Courier or Hand Delivery: By Registered or Certified Mail: Bankers Trust Company Bankers Trust Company Corporate Trust & Agency Group Corporate Trust & Agency Group Receipt & Delivery Window Reorganization Department 123 Washington Street-1st Floor P.O. Box 1458 New York, New York 10006 Church Street Station New York, New York 10008-1458
25 28 By Facsimile: (212) 250-3290 (212) 250-6275 (For Eligible Institutions Only) Confirm by Telephone: (212) 250-6270 FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to broker-dealers or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be approximately $100,000. Such expenses include registration fees, fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, and related fees and expenses. The Company will pay all transfer taxes, if any, applicable to the exchange of Notes pursuant to the Exchange Offer. If, however, certificates representing Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of Notes tendered, or if tendered Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. TRANSFER TAXES Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register New Notes in the name of, or request that Old Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes, as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register 26 29 the Old Notes under the Securities Act. Based on interpretations by the staff of the Commission, New Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer. Any holder who tenders in the Exchange Offer for the purpose of participating in a distribution of the New Notes (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. In addition, to comply with the securities laws of certain jurisdictions, if applicable, the New Notes may not be offered or sold unless they have been registered or complied with. The Company has agreed, pursuant to the Registration Rights Agreement and subject to certain specified limitations therein, to register or qualify the New Notes for offer or sale under the securities or blue sky laws of such jurisdictions as any holder of the New Notes reasonably requests in writing. 27 30 THE COMPANY Walbro is a global leader in the design, development and manufacture of precision fuel systems and products for automotive and small engine markets worldwide. The Company manufactures fuel pumps, fuel modules, fuel level sensors, plastic fuel tanks and fuel rails for sale to OEMs. The Company acquired Dyno, which is a leading European plastic fuel tank manufacturer, on July 27, 1995. Products manufactured for the small engine market include carburetors and ignitions for chain saws, outboard marine engines, two-wheeled vehicles, industrial engines and lawn and garden equipment, such as lawn mowers and weed trimmers. From 1989 to 1994, the Company (excluding Dyno) increased net sales and EBITDA at the compound rates of approximately 19% and 21% per year, respectively, despite an automotive industry downturn in 1990-1991. This growth was primarily due to the introduction of new automotive products, penetration of additional automotive platforms and a recovery in the small engine industry. The Company, including Dyno on a pro forma basis, had 1994 net sales of $472.4 million and EBITDA of $51.3 million. Through its subsidiary, Walbro Automotive Corporation, the Company designs, develops and manufactures fuel storage and delivery products for a broad range of U.S. and foreign manufacturers of passenger automobiles and light trucks (including minivans). The Company holds a strong market position in the U.S. and, through the Dyno Acquisition and Walbro's joint ventures in France, Brazil, Japan and South Korea, has diversified its business across a number of geographic markets. Management believes that, in the North American automotive market, the Company manufactures fuel pumps for approximately 40% of Ford's automobiles and light trucks, including the Taurus, Explorer, Windstar and F-Series Pickup. The Company manufactures all fuel module requirements for Ford light trucks, and, according to management's estimates, manufactures approximately 25% of Ford's fuel rail needs. In addition, management estimates that the Company supplies Chrysler with approximately 70% of its fuel pump and fuel module requirements, including all requirements for Chrysler's passenger cars and minivans and most requirements for Chrysler's light trucks, including the Dodge Ram Truck. Other automotive customers of the Company, including Dyno and the Company's joint ventures, include Renault, Peugeot, Mercedes-Benz, Fiat, Volvo, Rover, Saab, Volkswagen, Audi, Daewoo, Hyundai and Kia. Management believes that the Company manufactures substantially all of the fuel tank systems for Volvo and Saab and the fuel tank for the Mercedes 190/C Class, Volkswagen Polo and Renault Twingo. Approximately 73% of the Company's 1994 net sales, including Dyno on a pro forma basis, were generated by its automotive operations. Through its subsidiary, Walbro Engine Management Corporation, the Company designs, develops and manufactures diaphragm carburetors for portable engines (such as those used in chain saws and weed trimmers), float feed carburetors for ground supported engines (such as those used in lawn mowers and generators) and ignition systems and other components for a variety of small engine products. The Company believes that it is the world's largest independent manufacturer of small engine carburetors, with an approximate 76% share of the global diaphragm carburetor market including sales to such leading chain saw and weed trimmer manufacturers as Poulan/Weedeater (a Division of Electrolux, A.B.), Homelite (a Division of Deere & Company), Stihl, Incorporated, McCulloch (a Division of Shop Vac), Ryobi Ltd. and Kioritz (Echo) Corporation. Walbro believes it has an approximate 14% share of the global float feed carburetor market, including sales to Briggs & Stratton Corporation, the world's largest small engine manufacturer, Kohler Company, Tecumseh Products Co., and to Mercury Marine (a Division of Brunswick Corporation), a major manufacturer of outboard marine engines. Walbro also manufactures replacement products for both the automotive and small engine aftermarkets, sales of which are included within its small engine product business. Approximately 27% of the Company's 1994 net sales, including Dyno on a pro forma basis, were generated by its small engine operations. The Company was incorporated in Michigan in 1950 and reincorporated in Delaware in 1972. The Company's principal executive offices are located at 6242 Garfield Street, Cass City, Michigan 48726-1325, and its telephone number is (517) 872-2131. 28 31 THE DYNO ACQUISITION THE DYNO ACQUISITION On July 27, 1995, the Company purchased Dyno for a purchase price equal to approximately $124 million. Concurrently with the consummation of the Dyno Acquisition, (i) the Company completed the Initial Offering and (ii) the Company and certain of its subsidiaries entered into the New Credit Facility with Comerica Bank, as agent, and the other lenders named therein, providing for borrowings of up to $135 million. USE OF PROCEEDS FROM THE INITIAL OFFERING The gross proceeds from the Initial Offering were used, along with the borrowings under the New Credit Facility, to acquire Dyno, retire certain current credit facilities and pay fees and expenses relating to the Initial Offering and New Credit Facility. The following table sets forth the sources and uses of funds in: (a) the Initial Offering, (b) the Dyno Acquisition and (c) the New Credit Facility:
Amount -------------- (in thousands) Sources: Initial Offering . . . . . . . . . . . . . . . . . . . . . . . $109,615 New Credit Facility . . . . . . . . . . . . . . . . . . . . . . 36,385 -------- Total sources . . . . . . . . . . . . . . . . . . . . . . . $146,000 Uses: Dyno Acquisition(1) . . . . . . . . . . . . . . . . . . . . . . $130,000 Retire certain credit facilities(2) . . . . . . . . . . . . . . 11,000 Fees and expenses of the Initial Offering and New Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 -------- Total uses . . . . . . . . . . . . . . . . . . . . . . . . . $146,000 - ------------------------
(1) Based on a purchase price of $124,000, adjusted to reflect estimated closing adjustments and certain related fees and expenses of $6,000. (2) Based on the outstanding principal balances as of June 30, 1995. 29 32 PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA The following Pro Forma Unaudited Condensed Consolidated Statements of Operations for the six months ended June 30, 1995 and the year ended December 31, 1994 present pro forma operating results as if the Transactions had occurred as of January 1, 1994. The Pro Forma Unaudited Condensed Consolidated Balance Sheet as of June 30, 1995 gives effect to the Transactions as if they had occurred on that date. The pro forma adjustments are described in the notes thereto. The Pro Forma Unaudited Condensed Consolidated Financial Data should be read in conjunction with the Company's and Dyno's historical financial statements and related notes thereto included elsewhere in this Prospectus. The Pro Forma Unaudited Condensed Consolidated Financial Data do not purport to represent either future results or the results that would have occurred if the Transactions had occurred on the dates indicated, nor do they give effect to any matters other than those described in the notes thereto. PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended June 30, 1995 ------------------------------------------------------------- Company Dyno Historical Historical(1) Adjustments Pro Forma ---------- ------------- ----------- --------- (Unaudited dollars in thousands, except per share data) Net sales . . . . . . . . . . . . . . . . $ 188,291 $107,832 $ -- $ 296,123 Cost of sales . . . . . . . . . . . . . . 150,585 85,065 (659)(2) 234,991 ---------- -------- ------- ---------- Gross margin . . . . . . . . . . . . . . 37,706 22,767 659 61,132 Selling and administrative expenses . . . 24,152 17,358 -- 41,510 ---------- -------- ------- ---------- Operating income . . . . . . . . . . . . 13,554 5,409 659 19,622 Interest expense, net . . . . . . . . . . 2,538 1,036 5,912 (3) 9,486 Other expense, net . . . . . . . . . . . 416 285 -- 701 ---------- -------- ------- ---------- Income before taxes and other . . . . . . 10,600 4,088 (5,253) 9,435 Provision for income taxes . . . . . . . 3,751 1,556 (1,842)(5) 3,465 Equity in (income) loss of joint ventures . . . . . . . . . . . . . . . . (2,074) -- -- (2,074) ---------- -------- ------- ---------- Net income . . . . . . . . . . . . . . . $ 8,923 2,532 (3,411) 8,044 ========== ======== ======= ========== Net income per share . . . . . . . . . . $ 1.04 $ .94 ========== ========== Weighted average shares outstanding . . . 8,599,490 8,599,490 EBITDA(6) . . . . . . . . . . . . . . . . $ 20,861 $ 10,897 $ 31,758 Ratio of EBITDA to interest expense, net 8.2x 3.4x Year ended December 31, 1994 ------------------------------------------------------------- Company Dyno Historical Historical(1) Adjustments Pro Forma ---------- ------------- ----------- --------- (Unaudited dollars in thousands, except per share data) Net sales . . . . . . . . . . . . . . . $ 325,205 $147,147 $ -- $ 472,352 Cost of sales . . . . . . . . . . . . . 261,501 112,514 730 (2) 374,745 ---------- -------- -------- ---------- Gross margin . . . . . . . . . . . . . 63,704 34,633 (730) 97,607 Selling and administrative expenses . . 39,318 29,541 (950)(4) 67,909 ---------- -------- -------- ---------- Operating income . . . . . . . . . . . 24,386 5,092 220 29,698 Interest expense, net . . . . . . . . . 3,771 2,792 10,967 (3) 17,530 Other expense, net . . . . . . . . . . 2,713 984 -- 3,697 ---------- -------- -------- ---------- Income before taxes and other . . . . . 17,902 1,316 (10,747) 8,471 Provision for income taxes . . . . . . 5,824 2,329 (3,174)(5) 4,979 Minority interest . . . . . . . . . . . 92 -- -- 92 Equity in (income) loss of joint ventures . . . . . . . . . . . . . . . (2,609) -- -- (2,609) ---------- -------- -------- ---------- Income (loss) before extraordinary item 14,595 (1,013) (7,573) 6,009 ---------- -------- -------- ---------- Extraordinary item -- gain on forgiveness of debt . . . . . . . . . . -- 4,691 (4,691) -- ---------- -------- -------- ---------- Net income . . . . . . . . . . . . . . $ 14,595 $ 3,678 $(12,264) $ 6,009 ========== ======== ======== ========== Net income per share . . . . . . . . . $ 1.70 $ .70 ========== ========== Weighted average shares outstanding . . 8,602,077 8,602,077 EBITDA(6) . . . . . . . . . . . . . . . $ 36,345 $ 14,020 $ 950 $ 51,315 Ratio of EBITDA to interest expense, net 9.6x 2.9x
30 33 NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1) The Dyno historical information represents amounts derived from the unaudited combined financial statements of Dyno for the six months ended June 30, 1995 and the audited combined financial statements of Dyno for the year ended December 31, 1994, included elsewhere in this Prospectus, translated from Norwegian Kroner ("NOK") to U.S. Dollars at the average exchange rates of 6.38 NOK and 7.05 NOK to one U.S. Dollar for the six months ended June 30, 1995 and the year ended December 31, 1994, respectively. (2) Adjustments consist of pro forma adjustments to the historical expenses of Dyno to reflect estimated adjustments to depreciation and amortization expense resulting from the revaluation of Dyno net assets acquired. The adjustments include the following items:
Six months Year ended ended December 31, June 30, 1995 1994 ------------- ------------ Depreciation and amortization expense on revalued assets . . . . $ 4,829 $ 9,658 Elimination historical depreciation and amortization expense on assets . . . . . . . . . . . . . . . . . . . . . . . . . (5,488) (8,928) ------- ------- Elimination of interest expense on certain credit facilities . . $ (659) $ 730 ======= =======
(3) Reflects interest expense changes resulting from new indebtedness incurred in conjunction with the Transactions. Amortization of deferred financing fees was calculated based on a ten year amortization period for fees related to the Initial Offering and a five year amortization period for fees related to the New Credit Facility. In addition, the remaining balance of deferred financing fees on the existing credit agreement is assumed to be written off. In connection with the Dyno Acquisition, certain liabilities are not being assumed by the Company, consisting principally of certain borrowings of long-term debt, amounts payable to related entities, certain notes payable and subordinated loans. As such, interest expense incurred on these borrowings not being assumed has been eliminated in the pro forma presentation.
Six months Year ended ended December 31, June 30, 1995 1994 ------------- ------------ Interest expense on the Old Notes, at 9 7/8%, including amortization of original issue discount of $10 and $39, respectively . . . . . . . . . . . . . . . . . . . . . . . $ 5,450 $10,901 Estimated interest on New Credit Facility borrowings . . . . . . 1,988 4,294 Elimination of interest expense on certain credit facilities (452) (1,629) Elimination of interest expense on Dyno borrowings not assumed . . . . . . . . . . . . . . . . . . . . . . . . (1,326) (3,104) Fee amortization on Old Notes . . . . . . . . . . . . . . . . . . 218 436 Fee amortization on New Credit Facility . . . . . . . . . . . . . 64 129 Write-off of unamortized deferred financing fees . . . . . . . . (30) (60) ------- ------- - - $ 5,912 $10,967 ======= =======
(4) Reflects the elimination of a $950 charge recorded in 1994 related to a litigation claim against Dyno Industrier A.S in France which is still pending. In accordance with the agreement to acquire Dyno, Dyno Industrier A.S will retain all obligations related to this claim. 31 34 (5) Reflects estimated income tax adjustments resulting from the pro forma adjustments as follows:
Six Months Year Ended ended December 31, June 30, 1995 1994 ------------- ------------ Income tax effects of adjustments in Notes 2 and 4 above at Dyno's estimated effective income tax rate of 38.1% and 177.1%, respectively . . . . . . . . . . . . . . . . . . . $ 251 $ 390 Income tax effects of adjustments in Note 3 above at the Company's estimated effective income tax rate of 35.4% and 32.5%, respectively . . . . . . . . . . . . . . . . . . . . (2,093) (3,564) ------- ------- $(1,842) $(3,174) ======= =======
(6) "EBITDA" represents, for any period, the sum of operating income (minus foreign currency exchange losses and other expenses, net) and depreciation and amortization. EBITDA is not intended to be a performance measure that should be regarded as an alternative either to operating income or net income as an indicator of operating performance or to cash flow as a measure of liquidity. The Company has included information concerning EBITDA as it understands that it is used by certain investors as one measure of an issuer's historical ability to service its debt. 32 35 PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
As of June 30, 1995 --------------------------------------------------------- Company Dyno Historical Historical(1) Adjustments Pro Forma ---------- ------------- ----------- --------- (Unaudited dollars in thousands) ASSETS Cash . . . . . . . . . . . . . . . . . . . . $ 3,419 $ 8,921 $ -- $ 12,340 Accounts receivable, net . . . . . . . . . . 69,928 37,522 -- 107,450 Inventories . . . . . . . . . . . . . . . . . 33,939 15,924 -- 49,863 Other current assets . . . . . . . . . . . . 8,688 7,025 -- 15,713 -------- ------- ------- -------- Total current assets . . . . . . . . . . . . 115,974 69,392 -- 185,366 -------- ------- ------- -------- Property, plant and equipment . . . . . . . . 163,692 111,871 (21,173)(2) 254,390 Accumulated depreciation . . . . . . . . . . (57,209) (47,525) 47,525 (2) (57,209) -------- ------- ------- -------- Net property, plant and equipment . . . . . . 106,483 64,346 26,352 197,181 -------- ------- ------- -------- Goodwill . . . . . . . . . . . . . . . . . . 19,025 1,574 13,737 (2) 34,336 Other assets . . . . . . . . . . . . . . . . 46,007 3,183 2,411 (3)(4) 51,601 -------- ------- ------- -------- Total other assets . . . . . . . . . . . . . 65,032 4,757 16,148 85,937 -------- ------- ------- -------- Total assets . . . . . . . . . . . . . . . . $287,489 $138,495 $42,500 $468,484 ======== ======= ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt . . . . . . . . . . . . . . . $ 8,032 $15,330 $(10,373)(4) $ 12,989 Other current liabilities . . . . . . . . . . 43,272 46,701 (7,976)(4) 81,997 -------- ------- ------- -------- Total current liabilities . . . . . . . . . . 51,304 62,031 (18,349) 94,986 -------- ------- ------- -------- Total long-term debt, less current portion . 86,322 18,003 117,394 (4)(5) 221,719 -------- ------- ------- -------- Other long-term liabilities . . . . . . . . . 13,633 8,467 (6,511)(4)(6) 15,589 -------- ------- ------- -------- Total long-term liabilities . . . . . . . . . 99,955 26,470 110,883 237,308 -------- ------- ------- -------- Total stockholders' equity . . . . . . . . . 136,230 49,994 (50,034)(2)(3) 136,190 -------- ------- ------- -------- Total liabilities and stockholders' equity . $287,489 $138,495 $42,500 $468,484 ======== ======= ======= ========
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET (1) The Dyno historical information represents amounts derived from the unaudited combined financial statements of Dyno for the six months ended June 30, 1995, included elsewhere in this Prospectus, translated from NOK to U.S. Dollars at the June 30, 1995 exchange rate of 6.16 NOK to one U.S. Dollar. (2) The purchase price of $130,000 in cash includes provisions for estimated closing adjustments and fees and expenses estimated at $6,000. The Dyno Acquisition was accounted for using the purchase method of accounting and the total purchase cost was allocated first to assets and liabilities based upon their respective fair market values, with the remainder allocated to goodwill. Historical Dyno equity balances are eliminated for purposes of the pro forma consolidated balance sheet. The allocation of the purchase price reflected above is based on estimates and may differ from the final allocation. (3) Reflects fees of $5,000 related to the Initial Offering and the New Credit Facility, net of the write-off of unamortized fees of $40 on the retirement of borrowings under certain credit facilities. (4) The assets acquired and liabilities assumed by the Company in the Dyno Acquisition excluded certain long-term assets, a portion of long-term debt (both current and non-current portions), amounts payable to related entities, income taxes payable, deferred income taxes and certain long-term liabilities. (5) Reflects the effects of the Transactions as follows: Issuance of the Old Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $109,615 Borrowings under the New Credit Facility . . . . . . . . . . . . . . . . . . . . . . 36,385 Retirement of the borrowings outstanding under certain credit facilities . . . . . . (11,000) -------- Net increase in long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $135,000
(6) Reflects the recognition of deferred income taxes on the write-up of property, plant and equipment computed at the statutory tax rate in effect in each country where the stock is being acquired as follows: Belgium -- 40%, France -- 33% and Spain -- 35%. 33 36 SELECTED FINANCIAL AND OPERATING DATA -- WALBRO CORPORATION (dollars in thousands, except share data)The following table sets forth selected historical financial and operating data of the Company, excluding Dyno. The selected historical financial data as of and for each of the five years ended December 31 was derived from the audited consolidated financial statements of the Company. The selected historical financial data as of and for the six months ended June 30 was derived from the unaudited consolidated financial statements of the Company which, in the opinion of management, include all adjustments necessary for a fair presentation of the financial position and results of operations for the periods. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Walbro Corporation" and the consolidated financial statements of the Company and the notes thereto, included elsewhere herein.
Six Months Ended June 30, Year Ended December 31, ------------------------- ---------------------------------------------------------- 1995 1994 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Statement of Income Data: Net sales . . . . . . . . . . . . $ 188,291 $ 166,181 $ 325,205 $ 273,463 $ 241,416 $ 200,130 $ 166,678 Cost of sales . . . . . . . . . . 150,585 131,308 261,501 216,804 185,712 158,743 134,295 Gross profit . . . . . . . . . . 37,706 34,873 63,704 56,659 55,704 41,387 32,383 Selling and administrative expenses . . . . . . . . . . . . 24,152 19,353 39,318 33,043 33,614 26,961 20,946 Reorganization and restructuring charges . . . -- -- -- 1,760 -- 2,230 -- Operating income . . . . . . . . 13,554 15,520 24,386 21,856 22,090 12,196 11,437 Interest expense, net . . . . . . 2,538 1,537 3,771 2,559 3,113 6,014 6,474 Equity in (income) loss of joint ventures . . . . . . (2,074) (592) (2,609) 89 (179) 465 2,128 Net income(1) . . . . . . . . . . 8,923 8,960 14,595 9,667 12,526 4,838 1,097 Net income per share (2) . . . . 1.04 1.04 1.70 1.13 1.63 .98 .26 Weighted average shares outstanding . . . . . . . . 8,599,490 8,608,474 8,602,077 8,537,375 7,675,974 4,952,951 4,289,161 Ratio of earnings to fixed charges . . . . . . . . . . 4.2x 7.3x 4.6x 6.4x 4.7x 2.0x 1.6x OTHER DATA: Depreciation and amortization . . 7,838 6,935 14,672 11,339 10,339 6,996 7,708 Capital expenditures . . . . . . 20,730 7,280 18,844 20,260 14,681 9,717 6,621 EBITDA(3) . . . . . . . . . . . . 20,861 21,798 36,345 31,128 31,513 19,192 19,145 Ratio of EBITDA to interest expense, net(3) . . . . . . 8.2x 14.2x 9.6x 12.2x 10.1x 3.2x 3.0x BALANCE SHEET DATA: (at end of period) Total assets . . . . . . . . . . $ 287,489 $ 238,244 $ 257,366 $ 215,295 $ 193,020 $ 161,243 $ 143,026 Total long-term debt, less current portion . . . 86,322 59,690 66,136 52,392 49,638 62,777 83,443 Total debt . . . . . . . . . . . 94,354 67,445 81,548 58,175 59,349 70,922 85,529 Total stockholders' equity(4)(5) 136,230 122,695 127,915 114,146 99,910 50,339 27,424
- ---------------------- (1) The Company adopted SFAS 106 as of January 1, 1993. As a result, the Company recorded a one-time after tax charge of $2,900 for the cumulative effect of this accounting change in the year ended December 31, 1993. (2) Primary and fully diluted income per share were the same in all periods presented except the year ended December 31, 1992 when fully diluted income per share was $1.58 based on weighted average shares outstanding of 8,160,472. (3) "EBITDA" represents, for any period, the sum of operating income (minus foreign currency exchange losses and other expenses, net) and depreciation and amortization. EBITDA is not intended to be a performance measure that should be regarded as an alternative either to operating income or net income as an indicator of operating performance or to cash flow as a measure of liquidity. The Company has included information concerning EBITDA as it understands that it is used by certain investors as one measure of an issuer's historical ability to service its debt. (4) Reflects cash dividends declared of $1,713, $1,712, $3,426, $3,403, $3,192, $610 and $1,836 in the six months ended June 30, 1995 and 1994 and the years ended December 31, 1994, 1993, 1992, 1991 and 1990, respectively. (5) The Company adopted SFAS 115 as of January 1, 1994. As a result, the Company recorded an increase to stockholders equity of $2,096 (net of income taxes) as of January 1, 1994. 34 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- WALBRO CORPORATION The Company's business is operated in two segments: automotive and small engine. Selected financial information about the Company's (excluding Dyno) continuing operations by business segment is set forth below:
Six Months Ended June 30 Year Ended December 31, --------------------- --------------------------------- 1995 1994 1994 1993 1992 -------- -------- -------- -------- -------- (Dollars in thousands) Net Sales Automotive . . . . . . . . . . . . . . $113,298 $ 98,370 $198,260 $167,201 $152,347 Small Engine . . . . . . . . . . . . . 74,993 67,811 126,945 106,262 89,069 -------- -------- -------- -------- -------- Total . . . . . . . . . . . . . . . $188,291 $166,181 $325,205 $273,463 $241,416 ======== ======== ======== ======== ======== Cost of Sales Automotive . . . . . . . . . . . . . . $ 92,188 $ 79,459 $161,649 $133,989 $114,953 Small Engine . . . . . . . . . . . . . 58,397 51,849 99,852 82,815 70,759 -------- -------- -------- -------- -------- Total . . . . . . . . . . . . . . . $150,585 $131,308 $261,501 $216,804 $185,712 ======== ======== ======== ======== ======== Gross Margin Automotive . . . . . . . . . . . . . . $ 21,110 $ 18,911 $ 36,611 $ 33,212 $ 37,394 Small Engine . . . . . . . . . . . . . 16,596 15,962 27,093 23,447 18,310 -------- -------- -------- -------- -------- Total . . . . . . . . . . . . . . . $ 37,706 $ 34,873 $ 63,704 $ 56,659 $ 55,704 ======== ======== ======== ======== ========
RESULTS OF OPERATIONS Six months ended June 30, 1995 compared to six months ended June 30, 1994 Net Sales. Net sales for the first six months of 1995 increased 13.3% to $188.3 million compared to $166.2 million for the same period of 1994. Sales of automotive products increased 13.5% to $111.7 million for the 1995 period compared to $98.4 million for the 1994 period. The increased automotive product sales were primarily the result of increased sales during the first quarter of 1995, with strong demand for fuel modules used in light trucks which had a sales increase during the first quarter of 1995 at 0.6%, while passenger car sales declined by 7.0% compared to the first quarter of 1994. Sales of small engine products increased 10.8% to $61.4 million for the first six months of 1995 compared to $55.4 million for the same period of 1994. Sales of diaphragm carburetors increased by 13.3% for the first six months of 1995 while sales of float feed carburetors decreased by 6.0% compared to the same period of 1994. Most of the increased sales of diaphragm carburetors occurred in the second quarter and were derived primarily from international sales. Approximately 55% of the increased sales during the first six months of 1995 resulted from foreign currency fluctuations. The weather related decline in U.S. sales of float feed carburetors during the second quarter of 1995 more than offset the small increase in sales during the first quarter of 1995. Ignition products and carburetors for two-wheeled vehicles in China represented a significant portion of the small engine product sales increase for the first six months of 1995. Sales to the aftermarket increased 9.7% to $13.6 million for the first six months of 1995 compared to $12.4 million for the same period of 1994. Sales increased in all product areas due to the same reasons stated above for the second quarter. Automotive fuel system products accounted for most of the increased aftermarket sales. 35 38 Cost of Sales. Cost of sales for the first six months of 1995 increased 14.7% to $150.6 million compared to $131.3 million for the same period of 1994. Cost of sales as a percent of net sales was 80.0% compared to 79.0% for the first half of 1994. In automotive products, the cost of sales as a percent of net sales increase resulted from lower sales volumes of fuel pumps and fuel rails. In small engine products, the higher cost of sales as a percent of net sales was due to lower float feed carburetor sales volume in the U.S. in conjunction with higher cost of sales in Japan and Singapore caused by the weaker U.S. Dollar. Selling and Administrative Expenses. Selling and Administrative expenses ("S & A") S & A expenses increased by 24.8% for the first six months of 1995 compared to the same period of 1994. S & A expenses increased because of increased spending for research and development and for expansion of the Company's automotive systems center in Auburn Hills, Michigan. In addition, S & A expenses increased in Japan and Singapore because of the weaker U.S. Dollar. Net Interest Expense. Net interest expense was 65.1% higher for the first six months of 1995 compared to the same period of 1994. Interest expense increased because of increased borrowings for capital expenditures and because of higher interest rates paid on the October, 1994 senior notes (7.68%). Provision for Income Taxes. The provision for income taxes was 24.3% lower for the first six months of 1995 compared to the same period of 1994 because of lower taxable income and a lower effective tax rate of 35.4% for the 1995 six-month period compared to 37.2% for the same 1994 period. Joint Venture Income. The equity in income from joint ventures was $2.07 million for the first six months of 1995 compared to the 1994 income of $.59 million for the same period, primarily because of increased sales and improved profitability at Marwal Systems (in France) and Marwal do Brasil. Net Income and Income Per Share. Net income for the first six months of 1995 was $8.9 million, a decrease of 1.1% compared to net income of $9.0 million for the same period of 1994. The decrease was due to the reasons described above. Net income per share was $1.04, unchanged from the first six months of 1994. 1994 compared to 1993, 1993 compared to 1992 Net Sales. The Company reported record sales in 1994 of $325.2 million, an increase of 18.9%. The 1994 sales increase represents the 12th consecutive year of sales increases. Sales in 1993 were $273.5 million compared to sales of $241.4 million in 1992. The $51.7 million of additional sales in 1994 was divided between the automotive market with $31.1 million of the increase, the small engine market with $14.4 million of the increase and a $6.3 million increase from aftermarket sales. On a percentage basis, automotive market sales increased 18.6% in 1994 compared to a 9.8% increase in 1993, while sales in the small engine market increased 16.5% in 1994 compared to a 21.3% increase in 1993. Aftermarket sales increased 33.2% in 1994 compared to an increase of 10.9% in 1993. Sales of the Company's original equipment automotive products hit a record level of $198.3 million in 1994, up from $167.2 million in 1993 and $152.3 million in 1992. The U.S. light vehicle sales market grew by 1.2 million units in 1994 to reach 15.1 million vehicles, an 8.4% increase. U.S. light vehicle sales increased by 8.0% in 1993 and by 4.5% in 1992. In 1994, the Company was able to increase automotive product sales by 18.6% while the U.S. light vehicle market grew by 8.4%. Automotive product sales benefited from the overall market growth, from increased penetration of existing products and from the development of new products for new models in 1994. In addition, the Company sold its first multi-layer plastic fuel tanks in 1994. For 1994, fuel pumps reported a modest sales increase while fuel rail sales increased by 22.3% and fuel module (in-tank reservoir with fuel pump assembled) sales increased by 32.2%. The Company expects the growth in sales of fuel modules to continue as OEMs use fuel modules on more platforms. Fuel modules have also gained acceptance in the European and the South American markets. The Company currently produces primarily steel fuel rails. In the future, the Company expects continued growth in the newer composite plastic fuel rails which the Company also produces. 36 39 Although the U.S. light vehicle market grew significantly in 1993, the Company's sales growth in 1993 was the result of many dynamic forces in the marketplace, some positive and some negative. Sales by one major domestic customer grew by 19.5% in 1993, resulting in increased demand for the Company's products for existing platforms, and new models introduced during the year. Another major domestic customer chose to restrict the growth of its purchases of one of the Company's products because of increased in-house production. In 1993, fuel pumps and fuel rails reported modest sales increases, while fuel module sales increased by 25.8%. Sales to the Company's unconsolidated joint venture in Europe, Marwal Systems, declined by $4.0 million in 1993 because the joint venture increased its own internal production of components formerly supplied by the Company to the European automotive market. Sales to the Company's joint venture in Brazil, Marwal do Brasil (formed in 1993), helped to partially offset some of the decline in U.S. sales to Europe. Automotive product sales in 1992 increased by 18.7% in a market which grew by 4.5%, but the Company's two major domestic customers increased their own sales by an average of 12% during the year. In addition, automotive product sales were helped by a positive change in the product mix, the introduction of new applications for all customers and increased sales to the Company's unconsolidated European joint venture. Sales of the Company's small engine products also hit a record level of $101.8 million in 1994, up from $87.4 million in 1993 and $72.1 million in 1992. Overall sales growth of small engine products was 16.5% in 1994 compared to 21.3% during 1993. Sales of diaphragm carburetors increased 7.4% in 1994 compared to 24.4% for 1993, from $46.9 million in 1992 to $58.3 million in 1993 to $62.6 million in 1994. U.S. diaphragm carburetor sales declined in the second half of 1994 and were adversely affected by customer order delays related to delays in the Company's customers' engine certifications by the California Air Resources Board. U.S. sales increases in the first half of 1994 combined with increases in Europe and Asia during all of 1994 more than offset the second half decline in the U.S. Sales growth in 1992 and 1993 for diaphragm carburetors was the result of increased worldwide market penetration for the Company's products resulting in part from one of the Company's major competitors being adversely affected by the strong Yen. Sales of float feed carburetors increased 27.7% in 1994 compared to a 7.7% increase for 1993, with $30.0 million of sales in 1994 versus $23.5 million in 1993 and $21.8 million in 1992. In 1994, float feed carburetor sales increased to most customers with a 36% increase to the Company's largest lawn and garden customer and a 36% increase in sales of marine carburetors. In 1993, sales of float feed carburetors were flat to the Company's two largest customers compared to 1992. Sales of small engine ignition systems added $7.1 million to small engine sales in 1994 compared to $5.1 million in 1993 and $2.4 million in 1992 as customer demand grew for this expanding family of products, new to the Company since 1992. In addition, sales from the Company's new subsidiary in The People's Republic of China, Fujian Hualong Carburetor, added $1.9 million to small engine sales in 1994. Management believes that ignition systems will play a more significant role in the future as small engines become subject to more stringent emissions regulations. These regulations could significantly affect unit sales of existing products due to a shifting of the low cost segment of the portable power equipment market from internal combustion engines to electric motors. In addition, these regulations will require new levels of technology within the tight cost constraints required by the small engine market. The Company, however, believes it has the capability to assist engine manufacturers by designing and producing ignition systems and fuel systems capable of meeting these emission standards. Although certain of these regulations may have the effect of reducing unit sales, the more sophisticated products 37 40 required by stringent emissions regulations are expected to command higher unit prices. See "Business -- Walbro Engine Management Corporation -- Small Engine Industry Overview." Since 1991, the Company's aftermarket business for both automotive products and carburetors has been consolidated as a business unit within Walbro Engine Management Corporation. Aftermarket sales have grown at an increasingly higher rate with sales of $17.0 million in 1992, $18.9 million in 1993 and $25.1 million in 1994. Each year, aftermarket sales have represented approximately 7% to 8% of total Company sales. The 33.2% increase in 1994 sales was the result of the addition of several new aftermarket customers and the expansion of the product offering for aftermarket sales. Cost of Sales. The Company's cost of sales is composed primarily of material, labor, and manufacturing and engineering overhead. Cost of sales was $261.5 million in 1994 compared to $216.8 million in 1993 and $185.7 million in 1992. Cost of sales as a percent of sales was 80.4% in 1994 compared to 79.3% in 1993 and 76.9% in 1992. In 1991, the Company reorganized its business into Walbro Automotive Corporation and Walbro Engine Management Corporation. The reorganization was designed to foster decentralized decision-making, improved focus, accountability and to empower managers to adopt programs responsive to their respective industries. In 1993, cost of sales as a percent of sales for small engine products continued the favorable trend downward. However, for automotive products, percentage cost of sales increased resulting in an overall increase in the percentage for the Company. The increased cost of sales for automotive products resulted primarily from the Company's decision to enter the multi-layer plastic fuel tank business by building a new manufacturing facility in Ossian, Indiana, and its decision to consolidate two small fuel rail manufacturing plants into one larger facility in Ligonier, Indiana. The plastic fuel tank is a critical element of the Company's long-term strategy of supplying fuel storage and delivery systems to the automotive market. However, the short-term effect of building this facility was to increase cost of sales in 1993 without any significant sales. Start-up expenses associated with the fuel rail plant consolidation caused higher cost of sales for that year. Automotive cost of sales was also adversely impacted by customer recall expenses, some of which resulted from the start-up at the Ligonier facility. Cost of sales as a percent of sales increased for both automotive and small engine products in 1994. The increase for automotive products resulted from continuing start-up costs at the Company's Ossian, Indiana plant, slightly less than break-even results at the Company's Ligonier, Indiana plant and additional costs of expanding production capacity at the Company's Meriden, Connecticut plant. The start-up costs at the Company's Ossian, Indiana plant are expected to continue through the remainder of 1995 as the production orders for multi-layer plastic fuel tanks have not reached the break-even level. The additional costs of expanding production at the Company's Meriden, Connecticut plant are expected to decline in 1995 as new capacity comes on line and sales volumes expand. The increase for small engine products was primarily the result of the decline in U.S. diaphragm carburetor sales in the second half of 1994. A secondary factor for the increase for small engine products was the higher cost of manufacturing carburetors in Japan and Singapore in light of the weaker U.S. Dollar during 1994. In December 1990, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 106 (SFAS 106), Employer's Accounting for Post Retirement Benefits Other Than Pensions, and the Company changed its method of accounting for these benefits in 1993 as required by SFAS 106. See Note 10 of the Company's Notes to Consolidated Financial Statements for a detailed discussion of the impact of this change. Selling and Administrative Expenses. Selling and administrative expenses were $39.3 million in 1994, an increase of 19.0% compared to $33.0 million in 1993. The 1993 selling and administrative expenses decreased by 1.7% compared to $33.6 million in 1992. As a percent of sales, selling and 38 41 administrative expenses were 12.1% in 1994, 12.1% in 1993 and 13.9% in 1992. In 1994, most expense categories increased to support the sales growth. Research and development spending increased in 1994 by 28.6% to support the new product development efforts required by emission regulations in both the small engine and automotive industries. The accrual for incentive compensation at Walbro Engine Management Corporation was increased in 1994 because of increased profitability. The percentage decrease in 1993 resulted from strong sales growth coupled with modest increases in most selling and administrative expense categories, including research and development, which were offset by an increase in miscellaneous income and a decline in the accruals for incentive compensation tied to stockholder value. Reorganization Charges. In 1993, the Company recorded a $1.8 million reorganization charge reflecting the Company's actual and anticipated expenses from reorganization of the executive management team at Walbro Automotive Corporation. $1.0 million was paid in 1993 and the remaining $0.8 million was paid in 1994. The Company does not anticipate incurring any additional reorganization or restructuring charges in the near future. See Note 5 of the Company's Notes to Consolidated Financial Statements. Write Down of Long-Term Marketable Securities. In 1990, the Company acquired 207,000 shares of Common Stock of Mitsuba Electric Company, its joint venture partner in Mitsuba-Walbro Corporation located in Japan. The investment was treated as a long-term marketable security for financial statement presentation. In 1992, management determined that the decline in market value was likely to be permanent and a charge to earnings of $1.1 million was recorded. See Note 3 of the Company's Notes to Consolidated Financial Statements. Loss on Foreign Exchange Transactions. Foreign exchange contracts are used primarily to manage the exposure to foreign currency losses from operations in foreign countries, from investments in foreign joint ventures and from commitments in foreign currencies. In 1992, the Company entered into forward foreign exchange contracts to hedge currency exposure related to a sales commitment to a foreign customer. The loss on these contracts was treated as a hedge for accounting purposes and recorded as a deferred asset, which is being recognized in income as the hedged transaction occurs. In 1993 and 1994, the Company entered into forward currency exchange contracts to reduce its exposure against fluctuations in foreign currency rates and the losses on these contracts were recorded as foreign currency exchange loss in 1993 and 1994. The foreign currency exchange loss in 1994 was $2.6 million, $1.5 million in 1993 and $0.6 million in 1992. See Note 12 of the Company's Notes to Consolidated Financial Statements. Net Interest Expense. Net interest expense was $3.8 million in 1994, an increase of $1.2 million, compared to $2.6 million in 1993. Net interest expense declined by $0.5 million in 1993, continuing the trend from 1992, when net interest expense declined by $2.9 million. The 1994 increase resulted from higher interest rates and increased borrowings for additional working capital and the full year effect of financing the Company's Ossian, Indiana plant. During the fourth quarter of 1994, the Company issued $45 million of the 2004 Notes which contributed to the higher net interest expenses. The 1992 decline resulted from improved operating results, lower short-term interest rates and a net debt reduction of $11.6 million from the application of proceeds from the Company's common stock offering of $22.1 million in March 1992. The 1993 decline in net interest expense resulted from lower short-term interest rates and a debt reduction for part of the year. During the first half of 1993, the remaining $6.6 million of 8% Convertible Subordinated Promissory Notes were converted to shares of common stock. Later in 1993, additional debt was issued to finance the Company's facility in Ossian, Indiana. The average cost of borrowing was 7.9% in 1992, 4.9% in 1993 and 5.9% in 1994. 39 42 Net Income and Income Per Share. Net income for 1994 was $14.6 million, an increase of 16.1% compared to $12.6 million income before cumulative effect of accounting change in 1993. Net income was $12.5 million for 1992. The Company's adoption of SFAS 106 during 1993, resulted in a cumulative charge of $2.9 million ($0.34 per share), net of tax. Therefore, net income for common stockholders was $9.7 million in 1993. Net income per share was $1.70 for 1994 compared with income per share before cumulative effect of accounting change of $1.47 for 1993 and $1.58 net income per share for 1992. Net income per share for 1993 was $1.13. All per share data is fully diluted. Net income as a percent of sales was 4.5% in 1994, 4.6% in 1993 (income before accounting change as a percent of sales), and 5.2% in 1992. The decline in net income as a percent of sales during 1994 was the result of higher cost of sales, higher interest expense and foreign exchange losses as explained above. Although sales increased by 13.3% in 1993, income was basically unchanged from 1992. The 1993 income results reflected increased costs and expenses. Cost of sales as a percentage increased because of start-up expenses at the Ligonier and Ossian facilities, and because of automotive customer recall expenses. Other factors affecting 1993 income were costs incurred from the reorganization at Walbro Automotive Corporation and losses at joint ventures. Joint Venture Income. As detailed below, the Company has actively pursued joint venture opportunities as a means of expanding into new regions of the world market. The joint venture structure allows the Company to share the risks, capital requirements and early stage start-up losses with a partner, while gaining access to new markets and the knowledge and relationships of its joint venture partners. The Company reported equity in income of joint ventures in 1992 of $179,000, losses of $89,000 in 1993 and income of $2.6 million in 1994. The loss in 1993 was due primarily to first year losses of $538,000 in Brazil and the significant income in 1994 resulted from profits in all the Company's joint ventures. The Company's income from Marwal Systems was $1.1 million in 1994 compared to a small profit in 1993 based on sales growth of 52.9% during 1994. The Company's income from Marwal do Brasil was $1.1 million in 1994 compared to the loss of $500,000 in 1993. Marwal do Brasil was in the start-up phase of operations during 1993 with total sales of $2.3 million which grew to $22 million in 1994. In February 1993, the Company acquired a 49% interest in Marwal do Brasil, a Brazilian joint venture with Magneti Marelli S.p.A. of Italy, to manufacture and market electronic fuel injection system components for the South American automotive market. In March 1993, the Company acquired all of the outstanding shares of Walbro Korea Ltd., a joint venture with Siemens A.G. of Germany and Daesung Ltd. of South Korea. This joint venture was originally formed to manufacture and market electronic fuel injection system components for the South Korean automotive market. In December 1994, the Company announced the signing of an agreement to form a joint venture with Daewoo Precision Industries, Ltd. of South Korea to manufacture electronic fuel pumps, fuel level sensors and fuel modules for the Korean automobile market. In January 1993, the Company sold its 50% interest in Orbital-Walbro Corporation to its joint venture partner, Orbital Engine Company Ltd. of Australia, in exchange for 3.7 million shares of Orbital Engine Company, Ltd. stock and $5.5 million in cash. INFLATION Inflation potentially affects the Company in two principal ways. First, a portion of the Company's debt is tied to prevailing short-term interest rates which may change as a result of inflation rates, translating into changes in interest expense. Second, general inflation can impact labor, parts and supply costs. The Company has limited ability to pass on inflation-related cost increases to its customers on a short-term basis. In addition, the markets served by the Company are competitive in nature, and 40 43 competition limits the pass-through of inflation-related cost increases in many cases. In the past three years, however, inflation has not been a significant factor for the Company. FOREIGN CURRENCY TRANSACTIONS Approximately 24% of the Company's sales during the first six months of 1995 were derived from international manufacturing operations in Japan, The People's Republic of China, Singapore and Mexico. The financial position and the results of operations of the Company's subsidiaries in Japan, Walbro Japan, Inc. and Walbro Automotive Japan, Inc. (8% of sales) and in The People's Republic of China, Fujian Hualong Carburetor Co., Ltd. (1% of sales) are measured in local currency of the countries in which they operate and translated into U.S. Dollars. The effects of foreign currency fluctuations in Japan and The People's Republic of China are somewhat mitigated by the fact that expenses are generally incurred in the same currencies in which sales are generated and the reported income of these subsidiaries will be higher or lower depending on a weakening or strengthening of the U.S. Dollar. For the Company's subsidiary in Singapore, Walbro Singapore Pte. Ltd., (6% of sales), the expenses are generally incurred in the local currency, but sales are generated in U.S. Dollars; therefore, results of operations are more directly influenced by a weakening or strengthening of the local currency. The Company's subsidiary in Mexico, Walbro de Mexico, S.A. DE C.V. (9% of sales) operates as a Maquiladora, or contract manufacturer, where only certain direct manufacturing expenses are incurred in the local currency and sales are generated in U.S. Dollars. Thus, results of operations of the Company's subsidiary in Mexico are also more directly influenced by a weakening or strengthening of the local currency. Approximately 13% of the Company's net assets at June 30, 1995, are based in its foreign operations and are translated into U.S. Dollars at foreign currency exchange rates in effect as of the end of each period. Accordingly, the Company's consolidated shareholders' equity will fluctuate depending upon the weakening or strengthening of the U.S. Dollar. In addition, the Company has equity investments in unconsolidated joint ventures in France, Brazil, Japan and Korea. The Company's reported income from these joint ventures will be higher or lower depending upon a weakening or strengthening of the U.S. Dollar. The acquisition of Dyno in July 1995 will result in a significant increase in the foreign component of the Company's operations. Specifically, giving effect to the Dyno Acquisition on a pro forma basis, approximately 47% of the Company's net sales for the six months ended June 30, 1995 and approximately 39% of the Company's net assets at June 30, 1995 would have been related to foreign operations. The Company's strategy for management of currency risk relies primarily upon the use of forward currency exchange contracts to manage its exposure to foreign currency fluctuations related to its operations in foreign countries, to manage its firm transaction commitments in foreign currencies and to hedge its equity investment in certain foreign joint ventures. See Note 12 of the Notes to the Company's Consolidated Financial Statements for a detailed discussion of the Company's forward currency exchange contracts. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1995, the Company had outstanding $8.0 million in short-term debt, including current portion of long-term debt, and $86.3 million in long-term debt. As of June 30, 1995, the approximate minimum principal payments required on the Company's long-term debt in each of the five fiscal years subsequent to December 31, 1994 are $8.5 million in 1995, $1.0 million in 1996, $1.4 million in 1997, $7.5 million in 1998 and $7.1 million in 1999. 41 44 On July 27, 1995, the Company, through certain of its wholly-owned subsidiaries, acquired Dyno. The net purchase price of the Dyno Acquisition was approximately $124 million (approximately $138 million less approximately $14 million in cash acquired by the Company). The Company financed the acquisition through the combination of a private placement of $110 million in aggregate principal amount of the Old Notes and the New Credit Facility with a group of commercial banks. At August 1, 1995, the Company had available to it approximately $86 million under the New Credit Facility. See Note 1 of the Notes to consolidated Financial Statements for further discussion. The Company's (including Dyno's) plans for 1995 capital expenditures for facilities, equipment and tooling total approximately $45.l million, of which approximately $23.4 million represents maintenance expenditures. The Company intends to finance the capital expenditures with the New Credit Facility and cash from operations. Management believes that the Company's long term cash needs will continue to be provided principally by operating activities supplemented, to the extent required, by borrowing under the Company's existing and future credit facilities. Management expects to replace these credit facilities as they expire with comparable facilities. As of June 30, 1995, accounts receivable amounted to $69.9 million, an increase of $11.6 million, compared to $58.3 million at June 30, 1994. The average collection period at June 30, 1995 was 63.3 days, slightly higher than the average collection period during calendar 1994 and increased for the reasons listed below for 1994. The average collection period in calendar year 1994 was 62.3 days compared to 56.8 days in 1993 and 55.0 days in 1992. Approximately 55% of the accounts receivable increase in 1994 was due to increased sales in 1994, while the remaining increase was due to long collection periods. The average collection period in 1994 increased primarily because of a substantial increase in fuel pump sales to the Company's Marwal joint ventures, which received longer payment terms consistent with customary payment practices in Europe and South America. 42 45 SELECTED FINANCIAL AND OPERATING DATA -- DYNO (DOLLARS IN THOUSANDS) The following table presents certain selected historical combined financial information of Dyno, prepared in accordance with United States generally accepted accounting principles, as of the dates and for the periods indicated below and should be read in conjunction with the financial statements of Dyno and the related notes thereto included elsewhere in this Prospectus. The Dyno historical information represents amounts derived from the unaudited combined financial statements of Dyno for the six months ended June 30, 1995 and 1994 and the audited combined financial statements of Dyno for the years ended December 31, 1994 and 1993, included elsewhere in this Prospectus. The statement of income data was translated from NOK to U.S. Dollars at the average exchange rates of 6.38, 7.29, 7.05 and 7.09 NOK to one U.S. Dollar for the six months ended June 30, 1995 and 1994 and the years ended December 31, 1994 and 1993, respectively. The balance sheet data was translated from NOK to U.S. Dollars at the end of period exchange rates of 6.16, 6.93, 6.76 and 7.52 NOK to one U.S. Dollar as of June 30, 1995 and 1994, December 31, 1994 and 1993, respectively.
Six Months Ended June 30, Year Ended December 31, ------------------------ ------------------------- 1995 1994 1994 1993 -------- -------- -------- --------- Statement of Income Data: Revenues . . . . . . . . . . . . . . . . $107,832 $ 67,243 $147,147 $ 87,140 Cost of goods sold . . . . . . . . . . . 85,065 52,248 112,514 68,396 Gross profit . . . . . . . . . . . . . . 22,767 14,995 34,633 18,744 Selling, general and administrative expenses . . . . . . . . . . . . . . . 17,358 13,929 29,541 24,055 Operating income (loss) . . . . . . . . . 5,409 1,066 5,092 (5,311) Interest expense, net . . . . . . . . . . 1,036 (1,338) 2,792 2,516 Net income (loss) . . . . . . . . . . . . $ 2,532 $ (1,658) $ 3,678 $ (7,720) Other Data: Depreciation and amortization . . . . . . 5,488 4,234 8,928 6,361 Capital expenditures . . . . . . . . . . 6,131 4,945 8,704 25,673 EBITDA(1) . . . . . . . . . . . . . . . . 10,897 5,300 14,020 1,050 Balance Sheet Data: (at end of period) Total assets . . . . . . . . . . . . . . $138,495 $119,170 $124,146 $105,602 Long-term debt, less current portion. . . 18,003 13,056 14,796 20,785 Shareholders' and divisional equity . . . 49,994 19,327 42,540 10,293
- ------------------------- (1) "EBITDA" represents, for any period, the sum of operating income plus depreciation and amortization. EBITDA is not intended to be a performance measure that should be regarded as an alternative either to operating income or net income as an indicator of operating performance or to cash flow as a measure of liquidity. The Company has included information concerning EBITDA as it understands that it is used by certain investors as one measure of an issuer's historical ability to service its debt. 43 46 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS -- DYNO RESULTS OF OPERATIONS Overview The following discussion and analysis was prepared by management of the Company. The management of Dyno Industrier A.S did not participate in the preparation of this discussion or analysis. The combined financial statements of Dyno are presented elsewhere herein in NOK. The percentage comparisons listed below are based on NOK results. Six months ended June 30, 1995 compared to six months ended June 30, 1994 Revenues. Dyno reported revenues of NOK 688 million ($108 million) in the first six months of 1995, an increase of 40.4% compared to revenues of NOK 490 million ($67 million) for the same period in 1994. The increased revenues were primarily the result of increased shipments of plastic fuel tanks and plastic tank systems from plants in Spain, Belgium and Norway. These increases represent the continued growth of new automotive platforms recently started in those countries. European automobile sales increased by only 1.4% during the first six months of 1995. Cost of Goods Sold. Cost of goods sold consists mostly of material, labor and overhead expenses. Cost of goods sold in the first six months of 1995 was NOK 543 million ($85 million) compared to NOK 381 million ($52 million) for the same period in 1994, an increase of 42.5%. Cost of goods sold as a percent of revenues was 78.9% for the first six months of 1995 compared to 77.8% for the same period in 1994. The higher costs of goods sold as a percent of revenues resulted in a lower gross margin of 21.1% for the first six months of 1995 compared to 22.2% for the first six months of 1994. The lower gross profit margin was primarily caused by the additional costs associated with the startup of operations in Spain which began in the second half of 1994. There were no revenues from Dyno's Spanish facility during the first six months of 1994 while the revenues during the first six months of 1995 contained lower gross margins as compared to the other Dyno facilities. In addition, higher material prices for plastic resin contributed to the higher cost of goods sold during the first six months of 1995. Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses were NOK 111 million ($17 million) for the first six months of 1995, an increase of 8.8% compared to NOK 102 million ($14 million) for the same period in 1994. As a percentage of revenues, SG&A expenses were 16.1 the first six months of 1995, down significantly from 20.8% for the same period in 1994 due to a small increase in SG&A expenses combined with the 40.4% increase in revenues for the same period. Provision for Income Taxes and Net Income. Income taxes increased the amount of net loss for the first six months of 1994 because taxes were paid in the countries where profits were earned but tax credits were not available in the countries where losses were incurred. For the first six months of 1995, the effective tax rate was 38.1%. As a result of the factors described above, net income was NOK 16.2 million ($2.5 million) for the first six months of 1995 compared to a net loss of NOK 12.1 million ($1.7 million) for the first six months of 1994. 44 47 1994 compared to 1993 Revenues. Dyno reported revenues in 1994 of NOK 1,038 million ($147 million), an increase of 68% compared to 1993 revenues of NOK 618 million ($87 million). The NOK 420 million ($60 million) of increased revenues in 1994 was generated in part by Dyno plants in Germany - NOK 175 million ($25 million); Belgium - NOK 128 million ($18 million); Spain - NOK 52 million ($7 million); United Kingdom - NOK 20 million ($3 million), while revenues in France were unchanged in 1994. Almost all of the increased revenues were from plastic fuel tanks and plastic tank systems. The increase in revenues in 1994 in Germany, Belgium and Spain was attributed to the installation of Dyno fuel tanks on new automotive platforms introduced in those countries. In Belgium, 1994 represented the first full year of tank production and in Spain, tank production began in the fourth quarter. In addition, 1994 marked the first significant upturn in European auto sales, which increased by 6.1% for the year, after two years of recession. Cost of Goods Sold. Cost of goods sold was NOK 793 million ($113 million) in 1994 compared to NOK 485 million ($68 million) in 1993, a 63.6% increase. As a result, cost of goods sold as a percent of revenues was 76.5% in 1994, compared to 78.5% in 1993. Start-up costs in Spain and Belgium and expansion at its German plant contributed to the higher percentage cost of goods sold in 1993. In addition, higher revenues in 1994 helped reduce the percentage cost of goods sold in 1994. These factors resulted in a higher gross profit in absolute terms, NOK 244 million ($35 million) in 1994 compared to NOK 133 million ($19 million) in 1993, as well as a higher gross profit percentage, 23.5% in 1994 versus 21.5% in 1993. Selling, General and Administrative Expenses. SG&A expenses were NOK 208 million ($30 million) in 1994, an increase of 22.1% compared to NOK 171 million ($24 million) in 1993. As a percentage of revenues, SG&A expenses were 20.1% in 1994, down significantly from 27.6% in 1993. The decline in percentage SG&A expenses resulted from the substantial growth in sales during 1994. Substantially all of the NOK 37 million ($6 million) increase in SG&A expenses in 1994 was due to start-up costs at Dyno's Belgian and Spanish plants and expansion at its German plant. Provision for Income Taxes and Net Income. Income taxes had a significant impact on net income (loss) in both 1994 and 1993. In 1993, tax credits were not available to reduce the net loss. Also in 1994, the effective tax rate was very high because tax credits were not available from France and Spain to reduce the taxes paid in other countries resulting in income taxes which were greater than taxable income. Net income for 1994 was NOK 26 million ($3.7 million) compared to a net loss of NOK 55 million ($7.7 million) in 1993. In 1994, Dyno benefited from an extraordinary gain on forgiveness of debt in the amount of NOK 33 million ($4.7 million), as intercompany debt at Dyno's subsidiary in France was forgiven by its parent company. Before this extraordinary item in 1994, Dyno reported a loss of NOK 7 million ($1.0 million). 45 48 BUSINESS GENERAL Walbro is a global leader in the design, development and manufacture of precision fuel systems and products for automotive and small engine markets worldwide. The Company manufactures fuel pumps, fuel modules, fuel level sensors, plastic fuel tanks and fuel rails for sale to OEMs. On July 27, 1995, the Company acquired Dyno, which is a leading European plastic fuel-tank manufacturer. Products manufactured for the small engine market include carburetors and ignitions for chain saws, outboard marine engines, two-wheeled vehicles, industrial engines and lawn and garden equipment, such as lawn mowers and weed trimmers. From 1989 to 1994, the Company (excluding Dyno) increased net sales and EBITDA at the compound rates of approximately 19% and 21% per year, respectively, despite an automotive industry downturn in 1990-1991. This growth was primarily due to the introduction of new automotive products, penetration of additional automotive platforms and a recovery in the small engine industry. The Company had 1994 net sales of $472.4 million and EBITDA of $51.3 million. Through its subsidiary, Walbro Automotive Corporation, the Company designs, develops and manufactures fuel storage and delivery products for a broad range of U.S. and foreign manufacturers of passenger automobiles and light trucks (including minivans). The Company holds a strong market position in the U.S. and, through the Dyno Acquisition and Walbro's joint ventures in France, Brazil, Japan and South Korea, has diversified its business across a number of geographic markets. Management believes that, in the North American automotive market, the Company manufactures fuel pumps for approximately 40% of Ford's automobiles and light trucks, including the Taurus, Explorer, Windstar and F-Series Pickup. The Company manufactures all fuel module requirements for Ford light trucks, and, according to management's estimates, manufactures approximately 25% of Ford's fuel rail needs. In addition, management estimates that the Company supplies Chrysler with approximately 70% of its fuel pump and fuel module requirements, including all requirements for Chrysler's passenger cars and minivans and most requirements for Chrysler's light trucks, including the Dodge Ram Truck. Other automotive customers of the Company, including Dyno and the Company's joint ventures, include Renault, Peugeot, Mercedes-Benz, Fiat, Volvo, Rover, Saab, Volkswagen, Audi, Daewoo, Hyundai and Kia. Management believes that the Company manufactures substantially all of the fuel tank systems for Volvo and Saab and the fuel tank for the Mercedes 190/C Class, Volkswagen Polo and Renault Twingo. Approximately 73% of the Company's 1994 net sales, including Dyno on a pro forma basis, were generated by its automotive operations. Through its subsidiary, Walbro Engine Management Corporation, the Company designs, develops and manufactures diaphragm carburetors for portable engines (such as those used in chain saws and weed trimmers), float feed carburetors for ground supported engines (such as those used in lawn mowers and generators) and ignition systems and other components for a variety of small engine products. The Company believes that it is the world's largest independent manufacturer of small engine carburetors, with an approximate 76% share of the global diaphragm carburetor market including sales to such leading chain saw and weed trimmer manufacturers as Poulan/Weedeater (a Division of Electrolux, A.B.), Homelite (a Division of Deere & Company), Stihl, Incorporated, McCulloch (a Division of Shop Vac), Ryobi Ltd. and Kioritz (Echo) Corporation. Walbro believes it has an approximate 14% share of the global float feed carburetor market, including sales to Briggs & Stratton Corporation, the world's largest small engine manufacturer, Kohler Company, Tecumseh Products Co., and to Mercury Marine (a Division of Brunswick Corporation), a major manufacturer of outboard marine engines. Walbro also manufactures replacement products for both the automotive and small engine aftermarkets, sales of which are included within its small engine product business. Approximately 27% of the Company's 1994 net sales, including Dyno on a pro forma basis, were generated by its small engine operations. 46 49 DYNO On July 27, 1995, the Company acquired Dyno for approximately $124 million. Dyno is a leading designer, manufacturer and marketer of plastic mono-layer fuel tank systems and components to many European vehicle manufacturers, including Renault, Mercedes-Benz, Volvo, Peugeot, Saab, Rover, Volkswagen and Audi, and has operations in France, Norway, Germany, Great Britain, Spain and Belgium. Dyno produced approximately 1.5 million plastic fuel tanks in 1994, which management estimates to be approximately 17% of the European plastic fuel tank market. In addition to manufacturing fuel tanks, Dyno manufactures plastic fill pipes, fuel overflow containers, and other automobile blow-molded components for cooling, heating and air conditioning systems. Management expects these products, in the aggregate, to account for approximately 10% of Dyno's 1995 revenues. Dyno has increased its revenues and EBITDA from $87.1 million and $1.1 million, respectively, in 1993 to $147.1 million and $14.0 million, respectively, in 1994 (based on the average Norwegian Kroner/U.S. Dollar exchange rates for each of 1993 and 1994). Dyno has achieved this growth by capitalizing on the European OEMs' increased use of plastic instead of steel fuel tanks. Plastic blow molding techniques are especially suited for the short automobile production runs common in Europe. In addition, Dyno's results have improved as production in its Spanish, Belgium and German plants has increased to absorb the fixed start-up costs associated with the first two of these locations and the expansion costs at its German facility and as Dyno has added new platforms. The Dyno Acquisition is a continuation of the Company's efforts to strengthen its position as a key supplier of integrated fuel systems to the global automotive market, and it will create the only integrated provider of plastic fuel tank and fuel pump systems in Europe. The Dyno Acquisition is expected to provide Walbro with a number of benefits, including: . Further diversification of the Company's geographic markets and the increased ability to participate in the current European automotive market recovery. Walbro's international sales, on a pro forma basis for the Dyno Acquisition, would have been 47% of the Company's net sales (excluding joint ventures) in 1994 compared to 24% without Dyno. . An increased opportunity for Walbro to sell its fuel system products to Dyno's European-based OEM customers and for Dyno to sell its products to the European operations of Chrysler, Ford and General Motors. . The ability to share blow molding process technology, especially with respect to the eventual transfer of Walbro's multi-layer blow molding technology to Dyno's European facilities. WALBRO AUTOMOTIVE CORPORATION AUTOMOTIVE INDUSTRY OVERVIEW A number of trends within the global automotive market have had and will continue to have a fundamental impact on the Company's future profitability and growth prospects, including: the shift by OEMs to the purchase of "systems" rather than individual components, the globalization of the OEM supplier base, the expansion of OEM supplier responsibilities and increased emissions regulation. These trends have contributed to a consolidation of OEM suppliers which the Company expects will continue. Purchase of Integrated Systems. North American automotive OEMs are relying increasingly on suppliers who can provide entire systems rather than a number of different parts. OEMs can reduce 47 50 internal engineering efforts and their number of suppliers by assembling systems rather than components. Management believes the engineering and technological challenges facing systems suppliers will continue to grow as these systems become more complex. To strengthen the Company's position as a major supplier of automotive fuel systems, the Company is investing in its engineering and testing capabilities and actively pursuing its systems philosophy. The Company believes that the systems approach will also be adopted outside North America and that the acquisition of Dyno, which shares the Company's systems philosophy, will allow the Company to provide systems to the European market in the future. Globalization of the OEM Supplier Base. Several OEMs, including Ford, Walbro's largest customer, are introducing automobile models which are designed for the world automotive market ("World Cars"). This departure from the historical practice of designing separate models for each regional market will require suppliers to establish international development and manufacturing facilities capable of providing system components with consistent quality on a worldwide basis. Through the Dyno Acquisition and the Company's joint ventures, the Company believes it is well positioned as a major supplier of fuel systems to the world automotive markets. Expansion of OEM Supplier Responsibilities. Since the 1980s, Ford, Chrysler and General Motors have been actively reducing their supplier base to key suppliers who accept significant responsibility for product management and meet increasingly strict standards for product quality, on time delivery and manufacturing costs. These suppliers are expected to control all aspects of production of system components, including design, development, component sourcing, manufacturing, quality assurance, testing and delivery to the customer's assembly plant. The Company believes that many suppliers do not have the resources to meet these OEM requirements and that the automotive OEM supplier market will be divided among a smaller group of high quality key suppliers. The Company has received a number of quality awards from its OEM customers, including the Ford Q1 Award and Chrysler QE Award, and believes that this supplier consolidation provides an opportunity for the Company's increased penetration of the OEM market. Increasing Emissions Regulation. Beginning in the late 1970s, U.S. environmental regulations, including fuel economy regulations and the Clean Air Act and its Amendments, have had a significant impact on fuel systems and the controls placed on mobile source emissions. As a result, U.S. automotive fuel systems have evolved from mechanically controlled carbureted systems to more sophisticated, electronically controlled systems. The resulting system is composed of an electronic fuel injection system and several subsystems which provide emission control functions as well as improved performance and fuel economy. Governmental action in many other parts of the world is forcing a similar transition to engine management systems which produce less emissions. For example, the European Economic Community, which previously had less stringent automotive exhaust regulations, adopted exhaust standards effective January 1, 1993 which are comparable to 1983 U.S. requirements. Compliance with these regulations has resulted in efforts to recover vapor emissions and the development of new "flexible" fuels such as ethanol and methanol blends. In response to these changes, Walbro has developed a number of products including ORVR systems, electric pumps designed for electronic fuel injection systems and plastic fuel tanks which reduce hydrocarbon permeation and are corrosion resistant to flexible fuels. AUTOMOTIVE BUSINESS STRATEGY The Company intends to capitalize on trends in the automotive industry through the development of its fuel systems technology and expansion of its product line and customer base. The key elements of the Company's strategy include: 48 51 Systems Approach to Product Development. The Company is utilizing its expertise in fuel pump technology to develop integrated fuel delivery systems which reduce evaporative emissions, are compatible with the corrosive nature of flexible fuels and provide customers with the cost savings and convenience of purchasing complete systems rather than numerous individual components. The Company's "systems" approach to product development is designed to allow the Company to increase the Walbro product content on each vehicle in which Walbro's products are installed while providing customers with substantial performance and cost benefits. This system approach has provided the Company with the capability to equip an automobile with up to $100 in Walbro products in 1995 compared to $15 in 1987, while providing quality improvements for its OEM customers. The 1995 Ford Windstar with a three-liter engine, for example, is equipped with $54 of Walbro products, whereas a similar Ford model was equipped with only $15 of Walbro products in 1987. The Company's ability to assume responsibility for the development of fuel delivery systems allows OEMs to reduce internal engineering efforts and use fewer suppliers through the assembly of systems rather than components. Global Capabilities. The Company's international manufacturing and market presence will allow the Company to offer its current and future fuel systems technology to the global automotive market. The Dyno Acquisition significantly expands Walbro's presence in Europe and provides the Company with additional resources and marketing contacts to supply integrated fuel systems to both European and North American OEMs assembling vehicles in Europe and European OEMs assembling vehicles in the United States. Dyno's plastic tank manufacturing capability will assist Walbro in pursuing its systems strategy in Europe and in serving OEM customers as they confront new environmental and regulatory challenges worldwide and introduce World Cars designed for sale to the global automotive market. In addition, the Company has entered into joint ventures with foreign manufacturers in Brazil, France, Japan and South Korea which enable the Company to access those foreign markets. In the future, the Company may make additional strategic acquisitions of, or enter into strategic alliances with, fuel systems product manufacturers whose products could be integrated with the Company's existing product line as part of the Company's focus on systems development and global capabilities. Technical and Product Development Capabilities. The Company's engineers focus their research and development efforts to respond to the technical challenges facing their customers. The Company has designed its current line of FSDS products in response to U.S. fuel economy and emission regulations and changing consumer demands over the past two decades. Management believes that the Company is well positioned to capitalize on the emergence of more stringent global emission regulations through the development of a new generation of products and systems with greater fuel efficiency, reduced component weight, improved durability, fuel vapor control and flexible fuel compatibility. Examples of these products include the idle air solenoid, which regulates engine idle speed in concert with the engine management system, and ORVR systems, which capture fuel vapors generated in the fuel tank and systematically route them to the carbon canister for storage and use. The Company has made substantial investments in fuel system technology, product design and test capability and technical personnel to lead the advancement of FSDS technology and respond to customer needs. The Company's new state-of-the-art systems center in Auburn Hills, Michigan provides the Company with the full-service product management capability which OEMs require of key suppliers and provides the Company with a competitive advantage in the development of proprietary fuel systems technology. Similarly, the Company intends to build a new systems center in Europe to provide product design and test capabilities to both Dyno and the Company's Marwal Systems joint venture, thereby enabling the Company to be a full-service FSDS supplier to European and North American OEMs manufacturing vehicles in Europe. 49 52 AUTOMOTIVE PRODUCTS The Company's product development engineers design fuel storage and delivery systems in response to customer needs and in anticipation of evolving trends in the market. Today's electronic fuel injection system equipped engines demand an uninterrupted supply of fuel under pressure and some vehicles require complex fuel tank configurations. The Company specializes in technology employed in the FSDS and currently manufactures and sells fuel pumps, fuel modules, fuel level sensors, plastic fuel tanks, bracket assemblies and fuel rails. In response to the environmental and fuel efficiency demands on today's automobiles, the Company has developed, and is continually taking steps to improve, an electric pump designed to deliver fuel under pressure to electronic fuel injection equipped engines. The pump is fastened to a bracket and flange assembly, which allows the pump to be mounted in the fuel tank. The assembly has been increasingly replaced with a single integrated unit, called a fuel module, which performs all of the functions of the assembly described above. The fuel module is a complete, value-added package for specific applications composed of a fuel pump, plastic reservoir, fuel level sensor and related parts. These injection-molded plastic units fit inside the fuel tank, ensuring continuous fuel delivery under low fuel conditions, maximum vehicle driving range and enhanced fuel delivery under high temperature conditions, all at a reduced noise level. Although vehicles were not equipped with fuel modules until 1988, approximately 28% of cars and light trucks currently sold by General Motors, Ford and Chrysler in North America use fuel modules. Walbro supplies approximately 70% of all of the fuel modules purchased in North America, principally to Ford and Chrysler. Approximately 20% of North American automobiles and 65% of European automobiles produced in 1994 contain plastic fuel tanks. Plastic fuel tanks offer several advantages over conventional steel tanks, including lighter weight, greater corrosion resistance to new, cleaner-burning fuels like methanol and the ability to be produced in unusual shapes to better use available space. In anticipation of customer demand in North America for more sophisticated fuel tanks, the Company built a new facility in Ossian, Indiana in 1993 to produce plastic multi-layer fuel tanks. Walbro began production of three-layer plastic fuel tanks during the third quarter of 1994 for the 1995 Ford Windstar. The multi-layer construction of Walbro's new, six-layer plastic tank substantially eliminates fuel permeation, making this one of the first plastic tanks which complies with future EPA permeability requirements due to become effective beginning in model year 1996. The first production run of six-layer tanks will begin in Fall of 1995 for the 1996 GM T600 Truck. Through Dyno, the Company is currently producing single-layer plastic tanks for the Mercedes-Benz 190/C Class, Audi V8, Saab 900, Volvo 850, Volkswagen Polo, Renault Twingo, Peugeot 306 and Peugeot 309. As Dyno's customers require more sophisticated fuel tanks, the Company will likely supplement a portion of Dyno's single-layer blow molding machines with multi-layer blow-molding machines to provide the Company's OEM customers in Europe with advanced, plastic fuel tank process technology. The Company also produces metal and plastic fuel rails suitable for a variety of engine applications. An extension of the FSDS concept, these under-hood components, located on the engine, deliver fuel to the individual fuel injectors used in electronic multi-point fuel injection systems. Some of the Company's fuel rails include a patented, award-winning "low profile" design that allows lower hood lines for better aerodynamics and improved fuel economy, as well as offering cost savings. Extending the Company's fuel rail technology, the Company has designed a plastic fuel rail which is superior to metal fuel rails in cost, weight and handling of more corrosive flexible fuels. In 1994, Ford began to install this new rail on the three-liter engine in the Windstar. In 1995, Chrysler began to install this rail on the V-8 engine for its Dodge Ram and Dakota trucks. 50 53 An important advantage of the Company's systems philosophy is that it assists customers in responding to developments in safety and environmental standards. For example, current safety and environmental regulations call for a FSDS that minimizes or eliminates the escape of fuel vapors during refueling, storage and operation. In January 1994, the EPA announced regulations governing ORVR systems as mandated by the 1990 Clean Air Act. The regulations require installation of devices which trap hydrocarbon vapors on a phase-in basis for passenger cars beginning in model year 1998 and for light trucks in model year 2001. In anticipation of these regulations, the Company developed a variety of ORVR devices which help prevent fuel vapor loss from fuel delivery systems. These devices are expected to enter production during 1996. AUTOMOTIVE MARKETS AND CUSTOMER BASE The Company currently provides a wide variety of products to a diverse customer base in a number of geographic areas. The following table depicts a summary of the various customers and platforms for which the Company will supply products during 1995:
Customer Platform Product - -------------------------- --------------------------------------------------------- --------------------- FORD Aerostar, Cougar, Econoline, Escort/Lynx, Explorer, Fuel Pump F-Series Pickup, Mustang, Ranger, Sable, Thunderbird, Taurus, Windstar Econoline, F-Series Pickup Fuel Module Aerostar, Cougar, Crown Victoria, Grand Marquis, Fuel Rail Mustang, Ranger, Sable, Taurus, Thunderbird, Town Car, Windstar Mustang, Ranger Oil Separator Windstar Fuel Tank FORD(1) F-100, BE-6 Fuel Module CHRYSLER Cirrus/Stratus, Dodge Ram Truck, K-Base Passenger Car, Fuel Pump/Module LH (Intrepid, Vision, Concord, New Yorker and LHS), Assembly Minivan, Neon Minivan Service Pump/Module Dodge Dakota and Dodge Ram Truck Plastic Fuel Rail GENERAL MOTORS T600 Truck Fuel Tank Firebird/Camaro V6 Steel Fuel Rail BOSCH GM SATURN Reservoir without Pump HYUNDAI Various Platforms Fuel Pump KIA Various Platforms Fuel Pump DAEWOO J-Car, T-Car (Lemans), V-Car Fuel Pump RENAULT(1) R19, CL10 Fuel Module RENAULT(2) R5, R9/R11, R-19, Twingo, X-54, X-06 Fuel Pump/Module PEUGEOT(2) 106, 205, 306, 405, 504, 505, 605 Fuel Pump, Bracket Assembly and Level Sensor FIAT(2) Dedra, Miero, Panda, Punto, Tempra, Tipo, Uno Fuel Pump, Bracket Assembly and Level Sensor VOLVO AND NEDCAR(2) 300, 400 Fuel Module, Fuel V40/D40 Pump, Bracket Assembly and Level Sensor SAAB(2) 900, 9000, I16 Fuel Pump ROVER(2) R8, 200, 400 Fuel Pump, Bracket Assembly and Level Sensor
51 54
Customer Platform Product - ------------------------- ------------------------------------------------------ ------------------ AUTOLATINA(1) BE-6 (Escort/Logas) Fuel Sending Unit FIASA(1) Tempra, Uno, 178 Fuel Module VOLKSWAGEN(1) AB9 (Golf Family), Santana Family, CE-14 Fuel Sending Unit WEBER USA Harley Davidson Motorcycle Fuel Pump
- ------------------------- (1) South American customers supplied by Marwal do Brasil. (2) European customers supplied by Marwal Systems, S.A. The following table depicts a summary of the various customers and platforms for which Dyno will supply products during 1995:
Customer Platform Product - ------------------------- ------------------------------------------------------ ---------------------- MERCEDES-BENZ 190/C Class, Truck Glendewagen, Light Truck Fuel Tank, Filler Pipe, Expansion Tank RENAULT Twingo, Safrane, Espace Fuel Tank, Filler Pipe, Air Duct VOLVO AND 850, 940/960, DX400 Fuel Tank, NEDCAR Condensor, Water Container, Expansion Tank, Air Ducts, Air Inlets, Connecting Pipe SAAB 900, 9000, 640 Fuel Tank, Air Hose, Air Duct PEUGEOT 306, 309, 405, 505 Fuel Tank LAND ROVER Discovery, Defender Fuel Tank, Air Intake, Demister Nozzle, Filler Pipe, Catchment Bottle VOLKSWAGEN Polo Fuel Tank AUDI 100 Diesel, V8 Fuel Tank
North America. Net sales (excluding Dyno) to the Company's largest customer, Ford, accounted for 30% of the Company's consolidated net sales in 1994, 30% in 1993 and 33% in 1992. Net sales (excluding Dyno) to Chrysler accounted for 23%, 21% and 20% of the Company's consolidated net sales in 1994, 1993 and 1992, respectively. Including the Dyno Acquisition, on a pro forma basis net sales to Ford and Chrysler would have accounted for 21% and 16%, respectively, of the Company's consolidated net sales in 1994. Both of these customers have ongoing supply relationships with the Company which are subject to continued satisfactory price, quality and delivery. The Company is the primary outside supplier of fuel pumps, the core of the FSDS, to Ford and Chrysler. In the past, the Company has capitalized on its fuel system components penetration to supply additional fuel system products, such as fuel modules and fuel rails, to Ford and Chrysler, and to assume a key role in the development of new fuel system products, such as ORVR devices. General Motors currently develops and produces substantially all of its fuel storage and delivery systems internally. 52 55 Europe. In 1991, Walbro began operations in Europe with the establishment of its Marwal Systems joint venture with Magneti Marelli S.p.A. of Italy in France. This joint venture has expanded to pursue ventures in Brazil and Mexico. Marwal's net sales were $104.4 million in 1994 to customers which included Peugeot, Renault, Fiat, Rover, Volvo, Saab and Nissan. Following the Dyno Acquisition, on a pro forma basis, Walbro's international sales (excluding joint ventures) have increased from approximately 24% to approximately 47% of the Company's consolidated net sales, and Walbro will become the only integrated FSDS company in Europe. Dyno will provide Walbro with the immediate opportunity to increase its participation in the improving European automotive market. In addition, Walbro intends to use its relationships with Chrysler and Ford to increase Dyno's sales to American manufacturers in Europe. Similarly, Walbro intends to take advantage of Dyno's relationships with Mercedes-Benz, Renault, Volkswagen, Peugeot and other European manufacturers to enhance Walbro's marketing efforts with these European manufacturers. South America and East Asia. In South America and East Asia, the Company has established joint ventures to expand its presence in these automotive manufacturing markets. In January 1993, operations began at the Company's Marwal do Brasil joint venture in Brazil, which targets the South American automotive market of approximately two million units per year. In November 1994, the Company established Korea Automotive Fuel Systems Ltd., a joint venture with Daewoo Precision Industries Ltd. in South Korea, to manufacture and market fuel sending units (which include a fuel pump, bracket and level sensor) for the domestic Korean automotive market (estimated at approximately 1.5 million units per year) and additional export markets established by Korean OEMs. In December 1986, the Company entered into a joint venture in Japan known as Mitsuba-Walbro, Inc. with Mitsuba Electric Manufacturing Company. Although the Company does not currently supply products to the Japanese manufacturing plants located in the U.S., management believes that the Mitsuba-Walbro joint venture and its marketing efforts in the Japanese market will enhance the Company's long-term prospects of obtaining future business from the U.S. operations of the Japanese OEMs. AUTOMOTIVE COMPETITION The Company competes with several other manufacturers, including the OEMs themselves, all of which have greater sales and financial resources than the Company. In the fuel pump market, the Company's major competitors include Robert Bosch GmbH, Nippondenso Co., Ltd., VDO (a division of Mannesmann) and Delphi Automotive Systems (GM's component group). In the fuel rail market, the Company's major competitors include Delphi, Ford, Handy & Harman and Siemens A.G. Walbro believes that it has limited competition in the fuel module market. The Company's largest competitors in the plastic fuel tank market include Kautex Werke Reinold Hagen A.G., Solvay S.A., Plastic Omnium Industries, Inc. and Ford. Steel tanks, manufactured primarily by the OEMs, also compete with the Company's plastic fuel tanks. The Company principally competes for new business both at the beginning of the development of new models and upon the redesign of existing models. New model development generally begins two to five years prior to a product introduction. Once a producer has been designated to supply parts for a new program, an OEM usually will continue to purchase those parts from the designated producer for the life of the program, although not necessarily for a redesign. Competitive factors in the market for fuel storage and delivery products include product quality and reliability, cost and timely delivery, technical expertise and development capability and new product innovation. AUTOMOTIVE SALES AND ENGINEERING SUPPORT Sales of the Company's FSDS products to automotive OEMs are made directly by the Company's sales/engineering force, who not only sell the products but assist customers with related engineering matters. Because of the automobile design process, Walbro is able to determine a few years in advance 53 56 the models for which it will supply products. Walbro's sales/engineering force works closely with the Company's engineering departments and systems center in Auburn Hills in the research, design, development and improvement of new products. Upon completion of the Company's systems center in Europe, Dyno and Marwal will also have additional design and research capabilities to provide OEMs in Europe with full-service product management. Because the Company has the capacity to provide comprehensive engineering resources with respect to its product line and assume increasing responsibility for the development of FSDS products, the Company has been successful in responding to the decisions by OEMs to consolidate suppliers and reduce internal engineering resources. AUTOMOTIVE WARRANTY AND OTHER PRODUCT EXPOSURE The design and manufacture of fuel systems entails an inherent risk that a governmental authority or a customer may require the recall of one of the Company's products or a product in which one of the Company's products has been installed. The Company has taken and intends to continue to take all reasonable precautions to avoid the risk of exposure to an expensive recall campaign which could have a material adverse effect on the business and financial condition of the Company. Dyno through its former parent, Dyno Industrier A.S, carried recall insurance against losses of up to 50 million NOK, or approximately $7 million, which insurance covered certain costs incurred in connection with a recall. The Company is uncertain whether it will insure its European operations against recall losses following the Dyno Acquisition, and does not believe that recall insurance in the United States is cost effective. AUTOMOTIVE ACQUISITION AND JOINT VENTURE STRATEGY As part of a long-term strategy for growth and expansion into new geographic and product markets, the Company may undertake select acquisitions and strategic alliances in the form of joint ventures. The Company may make select acquisitions of fuel system product manufacturers such as Dyno whose products can be integrated with the Company's traditional products as part of the Company's system development focus. These acquisitions would contribute new product technology and open new markets to the Company. In evaluating these acquisitions, the Company seeks high quality operations which fit with the Company's expertise in markets where the Company has an established customer base and a clear vision of opportunities, thus decreasing transition costs and other financial risks associated with corporate acquisitions. Similarly, each of the Company's joint ventures provides the Company with the opportunity to benefit from established customer relationships or a unique technological advancement which the Company could not develop on its own without the risk and expense of establishing marketing and manufacturing organizations alone. In management's opinion, the Company's joint ventures ultimately reduce the cost of penetrating new markets and limit the Company's financial exposure with respect to these operations. At the present time the Company has no specific agreements with respect to any such acquisitions or joint ventures. WALBRO ENGINE MANAGEMENT CORPORATION SMALL ENGINE INDUSTRY OVERVIEW The small engine industry is facing a number of environmentally driven changes which will require an increased emphasis on fuel systems technology and the development of new fuel systems products. Growth opportunities outside of the U.S. are expected to be driven by growth in the use of two-wheeled vehicles and the increased use of gasoline-powered portable equipment in developing countries. Emphasis on Engine Management Systems and New Product Development. Historically, exhaust emission of gasoline-powered small engines was unregulated. In 1992, the California Air Resources Board promulgated comprehensive air quality regulations limiting small engine emissions, which regulations became effective in August 1995. A more stringent phase is scheduled to become effective 54 57 in 1999. In addition, the EPA has proposed similar regulations scheduled to become effective in August 1996, with the more stringent phase expected to become effective during the 1999 to 2001 period. The products designed to meet these new emission standards in the small engine market will require more sophisticated product research and new product capabilities. The increased technological content and sophistication required to meet emission regulations is expected to result in lower unit sales with greater value added per product and higher unit prices. Growing Demand in Developing Countries. The Company expects significant growth in the demand for float feed carburetors in developing countries as per capita income increases and two-wheeled vehicles become more affordable. Production of two-wheeled vehicles in The People's Republic of China, for example, increased from approximately 49,000 units in 1980 to approximately 3.4 million in 1993 and approximately 5.2 million in 1994. In addition, management believes demand for diaphragm carburetors used in gasoline-powered portable tools is also expected to grow in these developing countries. The inaccessibility of electrical power distribution and geographic isolation of many of these projects, such as the clearing of land and highway construction, hinder the use of electric-powered equipment. SMALL ENGINE BUSINESS STRATEGY To respond to the promulgation of increasingly strict emission regulations in the small engine industry, the Company is working to develop a small engine management system which will comply with new emission standards. As the leading developer of fuel systems technology for portable engines, Walbro is well positioned to draw upon its expertise in carburetor and ignition system design and development, as well as its experience in responding to emissions-driven challenges in the automotive sector. The Company's advanced product design and development facilities in Michigan and Japan, which are equipped with sophisticated emission measurement instruments, provide the Company with the facilities necessary to develop more sophisticated small engine management systems. In addition to developing new technologies, the Company intends to grow its small engine business through expansion into foreign markets. Walbro's presence in developing countries such as The People's Republic of China will allow it to benefit from the growing market for carburetors for two-wheeled vehicles and from infrastructure development which requires portable power tools. SMALL ENGINE PRODUCTS The Company was founded as a manufacturer of carburetors for small engine products such as lawn mowers and marine engines, and later expanded its customer base to include manufacturers of chain saws, weed trimmers, snow blowers and two-wheeled vehicles. The Company's carburetor technology has continually evolved, with the Company now manufacturing diaphragm and float feed carburetors, ignition systems and other components for small engine products and aftermarket applications. Walbro's diaphragm carburetor, float feed carburetor and ignition system sales accounted for 49%, 25% and 6%, respectively, of the Company's 1994 small engine revenues. The remaining 20% of small engine revenue consisted of aftermarket sales. The diaphragm carburetor uses a diaphragm and a series of interconnected passages to draw and regulate the amount of fuel delivered to the engine from the fuel tank. The Company manufactures several basic models of diaphragm carburetors from which are derived numerous variations. Diaphragm carburetors are used on chain saw and weed trimmer engines because they will operate in any position and minimize vapor lock. The Company believes that it is the world's largest manufacturer of small engine diaphragm carburetors. 55 58 The float feed carburetor uses a float in a reservoir of fuel to regulate the amount of fuel delivered to the engine. In contrast to the diaphragm carburetor, which operates in all positions, the float feed carburetor operates only in an upright position. The Company manufactures several basic models of float feed carburetors from which are derived numerous variations. The Company's float feed carburetors are used on engines for lawn mowers, garden tractors, two-wheeled vehicles, marine outboard engines, generators and industrial engines. The ignition system uses rotating magnets in a flywheel, which induce an electrical charge in the ignition module. The ignition module releases this charge to the spark plug. The Company's ignition systems are used predominantly in chain saw and weed trimmer applications. In response to California and proposed EPA air quality regulations, the Company began to integrate its carburetor and ignition technology to develop an engine management system which will electronically control both fuel delivery and ignition functions to limit exhaust emissions. The Company has successfully refined existing carburetors through the incorporation of extremely close tolerances which provide more accurate control of the fuel/air mixture to meet the first set of standards due to take effect in California in 1995 and nationwide in 1996. Company engineers are developing new technology to meet the subsequent requirements which will become effective in California in 1999 and nationwide during the period 1999 to 2001. This development effort focuses on complete engine management systems that control air flow, fuel delivery and ignition timing to enhance fuel efficiency and reduce pollution. SMALL ENGINE MARKETS AND CUSTOMER BASE The Company sells its small engine products in a global market. Carburetors and small engine ignitions are sold by Walbro's sales/engineering staff directly to engine manufacturers. The Company sells a major portion of its diaphragm carburetors to most of the leading chain saw and weed trimmer manufacturers, including Poulan/Weedeater (a Division of Electrolux, A.B.), Homelite (a Division of Deere & Company), Stihl, Incorporated, McCulloch (a Division of Shop Vac), Ryobi Ltd. and Kioritz (Echo) Corporation. The Company sells float feed carburetors to several of the leading manufacturers of small engines, including Briggs & Stratton Corporation, the world's largest small engine manufacturer. Mercury Marine (a Division of Brunswick Corporation), a major outboard engine manufacturer, buys all of its outboard engine carburetors from the Company. Eight of the Company's small engine customers in 1994 collectively accounted for approximately 60% of small engine product sales and approximately 16% of the Company's net sales, including Dyno on a pro forma basis. One of Walbro's opportunities for growth in the small engine industry is the Chinese market. In January 1994, the Company acquired a 60% interest in Fujian Hualong Carburetor Co., Ltd. (Fujian) which manufactures and markets carburetors for two-wheeled vehicles in The People's Republic of China. In addition, the Company is building a new manufacturing facility near Beijing to provide additional capacity to take advantage of growth in the two-wheeled vehicle market. SMALL ENGINE COMPETITION The Company has several competitors that manufacture diaphragm carburetors for the global small engine market, including Zama Industries, Ltd., Tillotson Commercial Motors Ltd. and Dell' orto, some of which are divisions of large diversified organizations which have total sales and financial resources exceeding those of the Company. In the market for float feed carburetors, the Company has several competitors, including Briggs & Stratton and Tecumseh, both of which have greater sales and financial resources than the Company. The Company's major competitor in the ignition systems market is Phelon. 56 59 AFTERMARKET PRODUCTS The Company's aftermarket sales of both automotive and small engine products are consolidated within the small engine business. The Company sells automotive aftermarket products for both carbureted vehicle applications and electronic fuel injection vehicle applications through independent distributors, such as Federal Mogul and Standard Motor Products, and jobbers and dealers worldwide. Some automotive products are also sold to national manufacturing and distribution organizations for sale under private brand names or to industrial customers for use in special applications. Aftermarket sales accounted for $25.1 million in 1994 compared to $11.3 million in 1990. The Company sells automotive aftermarket products to support its OEM customers and to benefit from higher margins on aftermarket sales. Management believes that the overall market size for automotive electronic fuel injection systems components sold to the aftermarket will continue to grow as the population of vehicles equipped with electronic fuel injection systems ages. The Company sells its own brand name small engine aftermarket products through independent distributors, jobbers and dealers worldwide. Some of these products are also sold to national manufacturing and distribution organizations for sale under private brand names or to industrial customers for use in special applications. MANUFACTURING AND FACILITIES The Company (including Dyno and the Company's joint ventures) conducts operations in approximately 1.65 million square feet of space in a total of 25 locations. The Company believes that substantially all of its property and equipment is in good condition. The Company has not experienced significant limitations on its ability to transfer products between, or sell products in, various countries. Each of the Company's manufacturing facilities practices advanced inventory control procedures and has installed statistical process controls to insure high levels of quality. In that regard, some of Walbro's factories have received the Ford Q1 Award and the Chrysler QE Award. In connection with its sales to Saab, which is partially owned by General Motors, Dyno's Norway facility has been named a General Motors Supplier of the Year four years in a row beginning in 1991. Various other Company factories have been recognized by Mercury Marine, Stihl and Federal Mogul for excellence in product quality and delivery. When justified by volume, the Company has invested in labor-saving automated machining, assembly and testing equipment. For example, the operation in Meriden, Connecticut employs computer controlled molding machines to form the Company's plastic in-tank reservoirs. These machines are individually programmable so that variations can be reduced and refined as part of the continuous control process. Another example is the Caro, Michigan manufacturing facility's automated fuel pump assembly line, which is capable of producing 1,000 pumps per hour using only six persons. Over the past several years, the Company has reduced the cost to manufacture its fuel pumps at this facility by reducing both labor and material costs. In Ettlingen, Germany Dyno uses a fully automated assembly line for production of plastic fuel tanks for the Mercedes-Benz 190/C Class. In addition to these examples of purchased automation, the Company designs and builds major portions of its own machining and assembly equipment. This in-house capability permits close control over the manufacturing process and helps the Company stay competitive in both cost and quality. PATENTS, RESEARCH AND PRODUCT DEVELOPMENT The Company owns approximately 150 U.S. patents and 600 international patents in the fuel systems field and has a number of applications pending. These patents include proprietary ownership of 57 60 designs for control devices for engines and engine systems, fuel pumps, fuel rails, fuel regulators, fuel level sensors, fuel reservoirs and fuel system vapor control devices, carburetors and throttle bodies, as well as ancillary devices for engine and vehicle applications. Although these patents are significant to the Company, management believes that in many cases the adaptation and use of the technology involved and the proprietary process technology employed to manufacture these products are more important. The Company maintains a systems center in Michigan for the research, design and development of new products. The Company's engineering departments also engage in design, development and testing. In 1994, 1993 and 1992, the Company (excluding Dyno) spent approximately $12.2 million, $9.5 million and $9.0 million, respectively, for engineering and research and product development. After giving effect to the Dyno Acquisition on a pro forma basis, the Company has spent approximately $13.8 million in 1994 for engineering and research and product development. COMPONENTS, MATERIALS AND INVENTORY The Company has a number of sources for the components used in manufacturing its products. The suppliers who manufacture components often utilize tools and dies owned by the Company. If a supplier were to discontinue supplying any component, it could take the Company some time to replace the supplier; however, the Company believes its operations would not be materially adversely affected. The Company's principal customers provide it with estimates of their annual needs and make monthly purchase commitments. As a result, the Company does not experience material backlog. Consequently, the Company manages its manufacturing facilities on a just-in-time supply basis and does not maintain a finished product inventory of any significance. The Company does not believe the Dyno Acquisition will have a material effect on the Company's materials sourcing or inventory management. EMPLOYEES As of September 1, 1995, the Company, including Dyno, had approximately 4,100 employees. The Company believes that its relations with its employees are satisfactory. All of Dyno's approximately 900 plant employees are unionized. All of the Company's United States plant employees are non-unionized except approximately 450 employees at its Michigan locations. The Company's three-year contract with the bargaining unit for these Michigan plants expires in November 1995. Management anticipates that it will be able to renegotiate this union contract successfully without a material adverse effect on the Company. REGULATION The Company's operations are subject to increasingly stringent environmental laws and regulations governing air emissions, waste water discharges, the generation, treatment, storage, disposal and remediation of hazardous substances and wastes, and employee health and safety. Certain of these laws can impose joint and several liability for releases or threatened releases of material upon certain statutorily defined parties, including the Company, regardless of fault or the lawfulness of the original activity or disposal. The Company believes it is currently in material compliance with applicable environmental laws and regulations. The Company's compliance with environmental laws and regulations has not materially affected the results of its operations or the conduct of its business; however, the Company cannot predict the future effects of such laws and regulations. 58 61 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The directors and principal executive officers of the Company are as follows:
Name Age Position with the Company ------------------------- --- ------------------------------------------------------------- Lambert E. Althaver 64 Chairman of the Board, President, Chief Executive Officer and Director Robert H. Walpole 55 Vice President and a Director; President of Walbro Engine Management Corporation Gary L. Vollmar 44 Vice President; President of Walbro Automotive Corporation Richard H. Whitehead, III 51 Vice President Daniel L. Hittler 60 Chief Administrative Officer and Secretary Michael A. Shope 51 Chief Financial Officer and Treasurer William T. Bacon, Jr. 72 Director Frank E. Bauchiero 60 Director Herbert M. Kennedy 66 Director Vernon E. Oechsle 52 Director Robert D. Tuttle 70 Director John E. Utley 54 Director
The Company's Board of Directors consists of three classes of directors serving three-year terms with one class standing for election at each annual meeting of stockholders. Messrs. Bacon, Bauchiero and Oechsle have been elected to serve for a term expiring in 1996. Messrs. Kennedy, Tuttle and Walpole have been elected to serve for a term expiring in 1997. Mr. Althaver and Mr. Utley have been elected to serve for a term expiring in 1998. Lambert E. Althaver has been President since 1977, and Chief Executive Officer of the Company since 1982 and became Chairman of the Board of the Company in 1987. Mr. Althaver joined the Company in 1954 and has served as a Director since 1968. Robert H. Walpole is the brother-in-law of Mr. Althaver. Robert H. Walpole has been a Vice President of the Company since 1983 and President of Walbro Engine Management Corporation since 1991. Mr. Walpole joined the Company in 1970 and has served as a Director since 1983. Mr. Walpole is the brother-in-law of Lambert E. Althaver. Gary L. Vollmar has been President of Walbro Automotive Corporation since 1993. He has served as a Vice President of the Company since 1989 and was Chief Financial Officer from 1989 to 1993. Prior to joining the Company in 1978 as Controller, Mr. Vollmar was a practicing Certified Public Accountant. Richard H. Whitehead, III became a Vice President of the Company in 1988. From 1988 to 1990, Mr. Whitehead served as the Vice President/General Manager of the Company's Meriden, Connecticut operations. Mr. Whitehead was the President of Whitehead Engineered Products, Inc. from 1980 to 1988, prior to its acquisition by the Company. Daniel L. Hittler has served as Chief Administrative Officer since 1994 and Secretary of the Company since 1993. He was Director of Administration from 1992 to 1994. He was the Director of Technical Planning from 1989 to 1992. 59 62 Michael A. Shope has served as Chief Financial Officer of the Company since December 1993 and as Treasurer since April 1994. From 1986 to 1993 he was the Treasurer of Libbey-Owens-Ford Co., a manufacturer of glass for automotive and industrial applications. William T. Bacon, Jr. has served as a Director of the Company since 1972. Mr. Bacon has been associated with the Chicago Corporation since 1994. Mr. Bacon also served as an Honorary Director of Stifel Financial Corp. (the parent of Stifel, Nicolaus & Company, Incorporated, one of the Initial Purchasers) from 1984 to 1994. Prior to that, he was a Managing Partner of Bacon Whipple & Co., Inc. He is a director of Safecard Services, Incorporated. Frank E. Bauchiero became a Director of the Company in 1990. Mr. Bauchiero has been the President-Industrial, North American Operations, Dana Corporation since December 1990. Mr. Bauchiero was a Dana Group Vice President from 1987 to 1990. Dana Corporation manufactures automotive product systems, mobile off-highway equipment and industrial equipment. Mr. Bauchiero also serves as a director for Regal Beloit, M&I Bank of Beloit, Madison Kipp Corp. and Rockford Products Corporation. Herbert M. Kennedy has served as a Director of the Company since 1981. In July 1995, Mr. Kennedy retired as a Professor of Business Administration at Principia College, a position Mr. Kennedy had held since before 1989. Vernon E. Oechsle became a Director of the Company in October 1994. He has been Chief Operating Officer of Quanex Corporation, a manufacturer of specialty steel and aluminum products, since 1993. From 1990 to 1992, he was Chief Executive Officer of Allied Signal Automotive. Before that he was Group Executive of Automotive and Trucks for Dana Corporation and President of Hayes-Dana, Dana's Canadian subsidiary. Robert D. Tuttle became a Director of the Company in 1981. Mr. Tuttle is also a Director of FMB Corp., CMS Energy Corporation, Woodhead Industries, Inc. and Guardsman Products, Inc. From before 1989 to 1991, Mr. Tuttle was Chairman and Chief Executive Officer of SPX Corporation, which produces specialty tools and diagnostic equipment and distributes automotive components. John E. Utley became a Director of the Company in 1993. Mr. Utley has also served as a director and Chairman of the Board of Kelsey-Hayes Company since 1991 and was its President from 1989 to 1991. He is a Senior Vice President of Varity Corporation. Kelsey-Hayes Company produces anti-lock braking systems, traction systems and wheel assemblies for the automotive industry. He also serves as Chairman of the Board of Hayes Wheels International, Inc. LIMITATION OF LIABILITY AND INDEMNIFICATION Pursuant to the provisions of the Delaware General Corporation Law ("DGCL"), the Company has adopted provisions in its Certificate of Incorporation which eliminate the personal liability of its directors to the Company or its stockholders for monetary damages for breach of their duty of due care to the fullest extent permitted by the DGCL, and which require the Company to indemnify its directors and permit the Company to indemnify its officers or employees to the fullest extent permitted by the DGCL, including those circumstances in which indemnification would otherwise be discretionary, except that the Company shall not be obligated to indemnify any such person (i) with respect to proceedings, claims or actions initiated or brought voluntarily by any such person and not by way of defense, or (ii) for any amounts paid in settlement of an action indemnified against by the Company without the prior written consent of the Company. The Company has a directors' and officers' liability insurance policy. 60 63 EXECUTIVE COMPENSATION The table below provides information concerning the annual and long-term compensation for services in all capacities to the Company for the fiscal years ended December 31, 1994, 1993 and 1992 of the persons who were at December 31, 1994 (i) the Chief Executive Officer and (ii) the four other most highly compensated (based upon combined salary and bonus) executive officers of the Company (collectively, the "Named Officers"). SUMMARY COMPENSATION TABLE
Long Term Compensation Annual Compensation Awards (1) --------------------- ------------ Securities All Other Name and Salary Bonus Underlying Compensation Principal Position Year ($) ($) Options (#) ($)(2) ------------------------------- ---- -------- ------ ----------- ------------ Lambert E. Althaver, 1994 $330,000 $ -0- 14,559 $11,575 Chairman, President and Chief 1993 305,000 -0- 11,244 11,229 Executive Officer 1992 280,008 13,147 8,076 2,220 Robert H. Walpole, 1994 242,000 -0- -0- 11,725 Vice President 1993 235,000 -0- -0- 10,244 1992 220,008 9,260 -0- 1,200 Gary L. Vollmar, 1994 200,000 -0- 8,824 8,849 Vice President 1993 166,670 -0- 6,452 7,705 1992 125,004 11,832 3,605 1,563 Richard H. Whitehead, III, 1994 170,000 -0- 7,500 5,006 Vice President 1993 165,000 -0- 6,083 6,866 1992 165,000 192,752 -0- -0- Daniel L. Hittler, 1994 125,000 -0- 5,515 7,422 Secretary 1993 120,000 -0- 4,424 7,136 1992 112,008 -0- 3,230 1,750
- -------------------- (1) None of the Named Officers had any restricted stockholdings as of December 31, 1994. (2) These amounts represent matching and retirement contributions made by the Company pursuant to its salary savings plan, entitled the "Advantage Plan." 61 64 The following table provides information on grants of stock options in 1994 to the Named Officers pursuant to the Company's Equity Based Long Term Incentive Plan (the "Equity Plan"). No stock appreciation rights were granted under the Equity Plan during 1994. OPTION GRANTS IN 1994
Individual Grants --------------------------------------------------- Potential Realizable Value at Assumed Annual Rates of Stock Number of Price Appreciation for Securities % of Total Option Terms (2) Underlying Options ---------------------- Options Granted to Exercise Granted Employees Price Expiration Name (#)(1) in 1994 ($/Sh) Date 5% ($) 10% ($) - -------------------------- ---------- ---------- -------- ---------- -------- -------- Lambert E. Althaver 14,559 16.4% $17.00 12/6/2004 $155,636 $394,403 Robert H. Walpole 0 0 - - - - Gary L. Vollmar 8,824 9.9 17.00 12/6/2004 94,329 239,042 Richard H. Whitehead, III 7,500 8.5 17.00 12/6/2004 80,175 203,175 Daniel L. Hittler 5,515 6.2 17.00 12/6/2004 58,955 149,401
- -------------------------- (1) These options were granted under the Equity Plan, approved, as amended, by the stockholders on April 19, 1995. The Named Officers may exercise the options at a price of $17.00 per share at any time after June 5, 1995 through December 6, 2004. Each option includes the grant of a stock performance award under the terms of which the Named Officer will receive a target number of shares of Common Stock if the $17.00 share price appreciates to $37.27 per share by December 6, 1999. (2) Gains are reportable net of the option exercise price but before taxes associated with exercise. These amounts represent certain assumed rates of appreciation only. Actual gains, if any, on stock option exercise are dependent on the future performance of Common Stock, as well as the option holder's continued employment throughout the vesting period. The amounts reflected in the Table may not necessarily be achieved. 62 65 The following table provides information for the Named Officers' unexercised options at December 31, 1994. Included are options granted under the Equity Plan and the 1983 Incentive Stock Option Plan. No options were exercised by the Named Officers in 1994. AGGREGATED OPTION EXERCISES IN 1994 AND YEAR-END 1994 OPTION VALUES
Number of Securities Underlying Value of Unexercised In- Unexercised Options at the-Money Options at December 31, 1994 (#) December 31, 1994 ($)(1) ------------------------------- --------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ----------------------------------------- ------------- ------------- ----------- ------------- Lambert E. Althaver 40,790 14,559 $135,563 $29,118 Robert H. Walpole 2,400 0 19,488 0 Gary L. Vollmar 19,916 8,824 63,671 17,648 Richard H. Whitehead, III 6,083 7,500 0 15,000 Daniel L. Hittler 9,154 5,515 12,180 11,030
- ---------------------- (1) Based upon the difference between the exercise prices and the $19.00 closing price of the Common Stock on the Nasdaq National Market on December 30, 1994. The following table provides information on awards in 1994 to the Named Officers pursuant to the Company's Equity Plan and its Engine Management Corporation Incentive Compensation Plan. LONG-TERM INCENTIVE PLANS AWARDS IN 1994
Estimated Future Payouts under Non-Stock Price-Based Plans --------------------- Performance or Number of Shares, Other Period Until Units or Other Rights Maturation or Target Name (#) Payout ($) - ----------------------------------- --------------------- ------------------ --------------------- Lambert E. Althaver -0- N/A N/A Robert H. Walpole 24 Units (1) 1 1/2 years $362,779 Gary L. Vollmar -0- N/A N/A Richard H. Whitehead, III -0- N/A N/A Daniel L. Hittler -0- N/A N/A
- ----------------------- (1) Award granted under the Company's Engine Management Incentive Compensation Plan, which provides an opportunity for participants to share a pool of money (the "Pool") if Walbro Engine Management Corporation meets cumulative financial performance goals ("EBIT Target") over a five year period, commencing July 1, 1991. A total of 500 units are being granted under the Plan, 100 each fiscal year. Each participant, including the Named Officer, is entitled to the percentage of the Pool calculated by dividing his total units granted by 500. Threshold before any dollars are assigned to the Pool is 70% of the EBIT Target. The value of the Pool as of the determination date is equal to the product of the fair market value of Walbro Engine Management Corporation (as determined by an independent investment advisor) and a target 63 66 percentage. If the cumulative EBIT Target is achieved or exceeded, the target percentage is 15%. If the performance is between 70% and 100% of the EBIT Target, the target percentage is decreased proportionately. EMPLOYMENT AND SEVERANCE AGREEMENTS The Company has entered into employment agreements with Messrs. Althaver, Hittler and Vollmar which have terms expiring on August 5, 1996 and provide them minimum base salaries of $305,000, $120,000 and $150,000, respectively, subject to review and increase by the Board of Directors Compensation Committee (the "Compensation Committee"). Each employment agreement is renewable automatically for twelve months, subject to cancellation by the Company prior to the anniversary date. In addition, each is entitled to participate in the Equity Plan. The Company has also entered into an employment agreement with Mr. Walpole which has a term expiring on September 30, 1995 and provides him a minimum base salary of $235,000, subject to review and increase by the Compensation Committee. In addition, he is entitled to participate in the Engine Management Incentive Compensation Plan. The Company also entered into an employment agreement with Mr. Whitehead, which has a term expiring in May 1996 and provides him with a minimum base salary of $180,000 per year subject to review by the Compensation Committee. Each employment agreement includes a severance clause under the terms of which the employee is entitled to severance pay if during the initial term of the agreement or a renewal term, his employment is terminated by the Company other than as a result of his (i) permanent disability or (ii) termination for cause. The severance pay payable under the agreements is an amount equal to the annual base compensation being paid to the Named Officer at the date of termination, offset by the amount due under the portion of the employment agreement that had not yet been performed, if any, and the amount of compensation the Named Officer may receive from any other employers during the twelve months immediately following the date notice of termination is given to him by the Company. In 1990, the Company entered into Severance Compensation Consulting Agreements (the "Severance Agreements") with over 40 senior employees, including each of the Named Officers. The Severance Agreements were the result of a determination by the Board of Directors that it was important to, and in the best interests of the Company and its stockholders to ensure that, in the event of a possible change in control of the Company, the stability and continuity of management will continue unimpaired, free of distraction incident to any such change in control. The Severance Agreements provide that if during a two-year period following a Change in Control of the Company (as defined below), an employee's employment is terminated by the Company other than for cause, death or permanent disability, or if the employee terminates employment for good reason, the employee will receive (1) a single sum payment equal to either three times or two times (depending upon the individual employment agreement) the employee's average compensation of the prior five calendar years (including incentive bonus), and (2) 36 months of additional medical, dental, life, disability and accident insurance and other perquisites substantially similar to that in effect for the employee at the time of the Change in Control of the Company. However, in no event can the payments and benefits exceed an amount which would render them "parachute payments" under Section 280G of the Internal Revenue Code. In order to assure an orderly transition in the event of a Change in Control of the Company, the covered employees have agreed to remain in the employ of the Company for a period of ninety (90) days following a Change in Control of the Company. "Change in Control of the Company" is defined to include certain reorganizations, consolidations or mergers of the Company, certain sales or transfers of substantially all the assets of the Company, approval by the stockholders of the Company of its liquidation or dissolution, a change in the composition of the Company's Board of Directors such that it is comprised of directors a majority of whom are not "Continuing Directors" as defined in the agreements, or the acquisition by certain persons of thirty percent or more of the combined voting power of the Company's outstanding securities. 64 67 The Severance Agreements further provide that following a Change in Control of the Company, if the employee terminates employment other than for good reason and the Company could not have terminated the employee for cause, death or disability, the employee may elect to serve as a consultant to the Company for a one-year period following the termination of employment and will be paid a single sum amount equal to the annual compensation, including bonus, paid the individual during the immediately preceding calendar year. The individual will also be provided an additional year of coverage with respect to medical, dental, life, disability and accident insurance and other perquisites substantially similar to the insurance and other perquisites at the time the employee elects to render consulting services. The Severance Agreements have a term of two years, renewable automatically for additional twelve month periods, subject to cancellation by the Company upon six months advance notice. If there has been a Change in Control of the Company during the term of the Severance Agreements they would expire two years after the Change in Control of the Company. 65 68 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding beneficial ownership of Common Stock by owners of more than five percent (5%) of the Common Stock, each of the Directors, each of the Named Officers and all Directors and executive officers of the Company as a group as of September 22, 1995:
Amount and Nature of Beneficial Percentage Names Ownership(1) of Class - --------------------------------------------------- ----------------- ---------- David L. Babson & Co., Inc. 784,900(2) 9.2% The Capital Guardian Trust Company and The Capital 447,000(3) 5.2% Group Companies, Inc. Lambert E. Althaver 214,108(4) 2.5% William T. Bacon, Jr. 67,775(5) * Frank E. Bauchiero 11,000(6) * Daniel L. Hittler 17,507(7) * Herbert M. Kennedy 12,500(8) * Vernon E. Oechsle 11,000(9) * Robert D. Tuttle 16,000(10) * John E. Utley 10,500(11) * Gary L. Vollmar 33,883(12) * Robert H. Walpole 194,455(13) 2.3% Richard H. Whitehead, III 14,046(14) * All Directors and Executive Officers as a Group 608,383(15) 7.1% (12 persons)
- ------------------- * Indicates that the percentage beneficially owned does not exceed one percent. (1) The named stockholders have sole voting and dispositive power over all shares except as otherwise noted and except as to those shares over which beneficial ownership is disclaimed. (2) As reported on a Schedule 13G dated February 10, 1995 filed with the Commission by David L. Babson & Co., Inc. According to such Schedule 13G, David L. Babson & Co., Inc. has sole voting power with respect to 447,800 of these shares, shared voting power with respect to 337,100 of these shares and sole dispositive power with respect to all 784,900 of these shares. The address of the Stockholder is One Memorial Drive, Cambridge, MA 02142-1300. (3) As reported on a Schedule 13G dated February 8, 1995 filed with the Commission by The Capital Group Companies, Inc. and The Capital Guardian Trust Company. The Capital Guardian Trust Company is a wholly-owned subsidiary of The Capital Group Companies, Inc. According to such Schedule 13G, The Capital Group Companies, Inc. and The Capital Guardian Trust Company each have sole voting power with respect to 277,000 of these shares and no voting power with respect to the remaining 170,000 shares and have sole dispositive power with respect to all 447,000 of these shares. The address of the Stockholder is c/o 333 S. Hope Street, Los Angeles, CA 90071. (4) Includes 74,643 shares owned by Mr. Althaver's wife. Mr. Althaver disclaims beneficial ownership of these shares. Also includes 55,349 shares which are covered by presently exercisable options under the Company's stock option plans and 17,734 shares held for the account of Mr. Althaver by the trustee of the Company's Advantage Plan. (5) Includes 3,300 shares owned by Mr. Bacon's wife and 5,025 shares owned by Mr. Bacon's son. Mr. Bacon disclaims beneficial ownership of these shares. Also includes 10,000 shares over which Mr. Bacon shares voting power as co-trustee of two trusts for the benefit of the beneficiaries of the estate of his deceased mother. Includes 10,000 shares which are exercisable under the Equity Plan. (6) Includes 10,000 shares which are exercisable under the Equity Plan. (7) Includes 1,600 shares owned by Mr. Hittler's wife and 1,500 shares owned by Mr. Hittler. Mr. Hittler disclaims beneficial ownership of these shares. Also includes 131,169 shares which are covered by presently exercisable options under the Company's stock option plans and 1,238 shares held for the account of Mr. Hittler by the trustee of the Company's Employee Stock Ownership Plan. 66 69 (8) Includes 1,250 shares over which Mr. Kennedy has voting power as trustee of a trust. Also includes 1,250 shares over which Mr. Kennedy's wife has sole voting power as trustee of a trust and as to which Mr. Kennedy disclaims beneficial ownership. Includes 10,000 shares which are exercisable under the Equity Plan. (9) Includes 10,000 shares which are exercisable under the Equity Plan. (10) Includes 3,000 shares which Mr. Tuttle owns jointly with his wife, over which Mr. Tuttle and his wife share voting and dispositive power. Includes 10,000 shares which are exercisable under the Equity Plan. (11) Includes 10,000 shares which are exercisable under the Equity Plan. (12) Includes 28,740 shares which are covered by presently exercisable options under the Company's stock option plans and 3,643 shares held for the account of Mr. Vollmar by the trustee of the Company's Advantage Plan. (13) Includes 79,385 shares over which Mr. Walpole shares voting power as co-trustee of a trust for the benefit of the beneficiaries of the estate of his deceased father. Includes 13,325 shares owned by Mr. Walpole's wife. Mr. Walpole disclaims beneficial ownership of these shares. Also includes 165 shares held for the account of Mr. Walpole by the trustee of the Company's Advantage Plan. (14) Includes 13,583 shares which are covered by presently exercisable options under the Company's stock option plans. Also includes 463 shares held for the account of Mr. Whitehead by the trustee of the Company's Advantage Plan. (15) Includes 178,050 shares which are covered by presently exercisable options under the Company's stock option plans. Also includes 22,005 shares held for the account of three officers of the Company by the trustee of the Company's Advantage Plan and includes 1,238 shares held for one officer of the Company by the trustee of the Company's Employee Stock Ownership Plan. CERTAIN TRANSACTIONS On September 1, 1995, Messrs. Althaver, Vollmar and Walpole were indebted to the Company in the amount of $161,250, $145,125 and $112,875, respectively, and each amount is the maximum indebtedness since January 1, 1994. The loans carry interest at the prime rate in effect from time to time 8.75% on September 1, 1995. The principal amount of the indebtedness in each case relates to loans made by the Company to the Named Officers and to approximately 24 other employees (collectively, the "Borrowers") to permit them to repay individual bank loans that came due. The bank loans originated approximately five years ago to enable the Borrowers collectively to acquire approximately 84,500 shares of the Company's common stock from UIS, Inc., which had acquired the shares in 1987 as part of an unsuccessful tender offer strategy. 67 70 DESCRIPTION OF OTHER INDEBTEDNESS NEW CREDIT FACILITY In connection with the Initial Offering, the Company entered into the New Credit Facility among the Company, certain of its subsidiaries, Comerica Bank, as agent, and the other lenders named therein. The New Credit Facility consists of a $135 million multicurrency revolving loan facility for the Company and certain of its wholly-owned domestic and foreign subsidiaries, including a $5 million swing line facility and a $17 million letter of credit facility. The New Credit Facility has an initial term of five years, with annual one year extensions of the revolving credit portion of the facility available in the lenders' discretion. At any time within three years after closing of the New Credit Facility, the Company may convert up to $70 million of revolving loans under the New Credit Facility to term loans in minimum amounts of $15 million and with maturities not exceeding seven years from the closing of the New Credit Facility. Borrowings under the New Credit Facility bear interest at a per annum rate equal to the agent's base rate or the prevailing interbank offered rate in the applicable offshore currency market, plus an additional margin ranging from 0.5% to 1.75% based on certain financial ratios of the Company. The annual letter of credit fee ranges from 0.5% to 1.5% based on the same financial ratios. The Company may upon notice convert the interest rate applicable to any term loan for its remaining term from a floating rate to a fixed rate option, to be determined at the time of such conversion, based on the lenders' funding rate in the interbank swap market. The Company is also required to pay a quarterly unused facility fee. The New Credit Facility is secured by first liens on the inventory, accounts receivable and certain intangibles (excluding intellectual property) of the Company and certain of its wholly-owned domestic subsidiaries and by a pledge of 100% of the stock of wholly-owned domestic subsidiaries, and up to 65% of the stock of wholly-owned foreign subsidiaries. Collateral for the New Credit Facility will secure the 2004 Notes on an equal and ratable basis. The Company and its wholly-owned domestic subsidiaries guaranteed payment of domestic and foreign borrowings under the New Credit Facility and the Company's wholly-owned foreign subsidiaries guaranteed payment of foreign borrowings under the New Credit Facility. The New Credit Facility contains customary representations and warranties and events of default and requires compliance with certain covenants by the Company and its subsidiaries, including, among other things: (i) maintenance of certain financial ratios and compliance with certain financial tests and limitations; (ii) limitations on the payment of dividends, incurrence of additional indebtedness and granting of certain liens; and (iii) restrictions on mergers, acquisitions, asset sales, capital expenditures and investments. SENIOR NOTES DUE 2004 In October 1994, the Company sold $45 million in principal amount of the 2004 Notes. The 2004 Notes require quarterly interest payments due January 1, April 1, July 1 and October 1. The agreement requires the Company to maintain consolidated adjusted net worth of $85 million, plus 25% of cumulative net income for each year beginning in 1995, and a funded debt to total capital ratio not greater than .65 to 1. The agreement also prohibits the Company from consolidating or merging with another corporation except under certain circumstances and from disposing of substantially all of its assets. The 2004 Note Agreement gives the holders of the 2004 Notes the option of having their 2004 Notes repurchased at the principal amount thereof in the event of a Change of Control (as defined in the 2004 Note Agreement). In addition, the 2004 Note Agreement contains events of default including (i) a default in the payment of interest, (ii) a default in the payment of any principal or required prepayment 68 71 or premium, (iii) defaults under certain other debt instruments, and (iv) certain events of insolvency or bankruptcy of the Company or its subsidiaries. The 2004 Notes will convert to secured notes upon the consummation of the Transactions and will be secured equally and ratably with the New Credit Facility by the Company's and its domestic subsidiaries' inventory, accounts receivable and certain intangibles and by a pledge of 100% of the capital stock of wholly-owned domestic subsidiaries and up to 65% of the capital stock of wholly-owned foreign subsidiaries. DESCRIPTION OF THE NEW NOTES The New Notes will be issued, and the Old Notes were issued under an Indenture dated as of July 27, 1995 (the "Indenture") among the Company, the Guarantors and Bankers Trust Company, as trustee (the "Trustee"). For purposes of the following summary, the Old Notes and the New Notes shall be collectively referred to as the "Notes." The terms and conditions of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 as in effect on the date of the Indenture. The following statements are summaries of the provisions of the Notes and the Indenture and do not purport to be complete. Such summaries make use of certain terms defined in the Indenture and are qualified in their entirety by express reference to the Indenture. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." A copy of the Indenture is filed as an exhibit to the Registration Statement of which this Prospectus is a part. GENERAL The Notes will be general unsecured obligations of the Company. The maximum aggregate principal amount of the Notes to be issued under the Indenture will be $110,000,000. The Notes will be guaranteed by each of the Guarantors pursuant to the guarantees (the "Guarantees") described below. The indebtedness represented by the Notes rank pari passu in right of payment with all existing and future senior unsecured obligations of the Company. Each Guarantee will be a general unsecured obligation of the applicable Guarantor and will rank pari passu in right of payment with all existing and future senior unsecured obligations of such Guarantor. The Notes will be effectively subordinate in right of payment to all existing and future liabilities, including trade payables, of the Company's Subsidiaries which are not Guarantors. In addition, the Notes and the Guarantees will be effectively subordinate in right of payment to all existing and future secured Indebtedness of the Company and its Subsidiaries. Substantially all of the operations of the Company are conducted by Subsidiaries of the Company. As a result, the Company is dependent upon the earnings and cash flow of its Subsidiaries to meet its obligations with respect to the Notes. The Subsidiaries of the Company which are not Wholly-Owned Restricted Subsidiaries and the Subsidiaries of the Company which are not incorporated in the United States, any state therein or the District of Columbia will not guarantee the Notes. Therefore, the Indebtedness represented by the Notes will be structurally subordinated to all obligations of such Subsidiaries. See "Investment Considerations -- Holding Company Structure." The Notes will be issued only in registered form without coupons, in denominations of $1,000 and integral multiples thereof. Principal of, premium, if any, and interest on the Notes will be payable, and the Notes will be transferable, at the office of the Company's agent in the City of New York located at the corporate trust office of the Trustee. In addition, interest may be paid at the option of the Company, by check mailed to the person entitled thereto as shown on the register for the Notes. No service charge will be made for any transfer, exchange or redemption of the Notes, except in certain circumstances for any tax or other governmental charge that may be imposed in connection therewith. Any Notes that remain outstanding after the completion of the Exchange Offer, together with the Exchange Notes issued in connection with the Exchange Offer, will be treated as a single class of Securities under the Indenture. 69 72 MATURITY, INTEREST AND PRINCIPAL The Notes will mature on July 15, 2005. Interest on the Notes will accrue at the rate of 9 7/8% per annum and will be payable semiannually on each January 15 and July 15, commencing January 15, 1996, to the holders of record of Notes at the close of business on the January 1 and July 1 immediately preceding such interest payment date. Interest on the Old Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the original date of issuance (the "Issue Date"). Holders whose Old Notes are accepted for exchange will receive accrued interest thereon to, but not including, the date of issuance of the New Notes, such interest to be payable with the first interest payment on the New Notes, but will not receive any payment in respect of interest on the Old Notes accrued after the issuance of the New Notes. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Notes will not be entitled to the benefit of any mandatory sinking fund. REDEMPTION Optional Redemption. The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after July 15, 2000. The Notes may be so redeemed on not less than 30 nor more than 60 days' prior notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning July 15 of the years indicated below:
Redemption Year Price ----------------------------- ---------- 2000 . . . . . . . . . . . . 104.938% 2001 . . . . . . . . . . . . 103.292% 2002 . . . . . . . . . . . . 101.646% 2003 and thereafter . . . . . 100.000%
Optional Redemption upon Public Equity Offerings. At any time, or from time to time, on or prior to July 15, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined) to redeem up to an aggregate of 30% of the principal amount of Notes originally issued, at a redemption price equal to 110% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of redemption. In order to effect the foregoing redemption with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Capital Stock (other than Redeemable Capital Stock) of the Company pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission in accordance with the Securities Act. Mandatory Redemption upon a Change of Control and Certain Asset Sales. In addition, as described below, the Company is obligated (a) upon the occurrence of a Change of Control, to make an offer to purchase all outstanding Notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase, and (b) to make an offer to purchase Notes with a portion of the net cash proceeds of certain sales or other dispositions of assets at a purchase price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. See "-- Certain Covenants -- Change of Control" and "-- Disposition of Proceeds of Asset Sales." 70 73 Selection and Notice. In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon surrender for cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption, unless the Company defaults in the payment of the redemption price therefor. THE GUARANTEES Each of the Guarantors will (so long as they remain Subsidiaries of the Company) unconditionally guarantee on a joint and several basis all of the Company's obligations under the Notes, including its obligations to pay principal, premium, if any, and interest with respect to the Notes. Except as provided in "Certain Covenants" below, the Company is not restricted from selling or otherwise disposing of any of the Guarantors. The Indenture provides that each Wholly-Owned Restricted Subsidiary incorporated in the United States, any state therein or the District of Columbia which incurs (as defined below) Indebtedness (other than to the Company or a Wholly-Owned Restricted Subsidiary) in an aggregate principal amount in excess of $5,000,000 will be a Guarantor for so long as such Wholly-Owned Restricted Subsidiary has Indebtedness outstanding in excess of $5,000,000 and, at the Company's discretion, any other Subsidiary may be a Guarantor. The Indenture provides that if all of the assets of any Guarantor or all of the Capital Stock of any Guarantor is sold (including by issuance or otherwise) by the Company or any of its Subsidiaries in a transaction constituting an Asset Sale, and if the Net Cash Proceeds from such Asset Sale are used in accordance with the covenant, "Disposition of Proceeds of Asset Sales," then such Guarantor (in the event of a sale or other disposition of all of the Capital Stock of such Guarantor) or the corporation or other entity acquiring such assets (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and discharged of its Guarantee obligations. CERTAIN COVENANTS The Indenture contains the following covenants, among others: Limitation on Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable, contingently or otherwise, for the payment of (in each case, to "incur") any Indebtedness (including, without limitation, any Acquired Indebtedness); provided, however, that the Company or any Guarantor will be permitted to incur Indebtedness (including, without limitation, Acquired Indebtedness) if, at the time of such incurrence, and after giving pro forma effect thereto, the Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to 2:1. Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may, to the extent specifically set forth below, incur each and all of the following: 71 74 (a) Indebtedness of the Company evidenced by the Notes and Indebtedness of any Guarantor evidenced by its Guarantee; (b) Indebtedness of the Company and its Subsidiaries outstanding on the Issue Date; (c) Indebtedness of the Company and any Guarantor under the Credit Agreement in an aggregate principal amount at any one time outstanding not to exceed the greater of (x) the sum of (A) 80% of the accounts receivable of the Company and its Restricted Subsidiaries on a consolidated basis and (B) 60% of the inventory of the Company and its Restricted Subsidiaries on a consolidated basis, and (y) $135,000,000; (d)(i) Interest Rate Protection Obligations of the Company covering Indebtedness of the Company or a Restricted Subsidiary of the Company and (ii) Interest Rate Protection Obligations of any Restricted Subsidiary of the Company covering Indebtedness of such Restricted Subsidiary; provided, however, that, in the case of either clause (i) or (ii), (x) any Indebtedness to which any such Interest Rate Protection Obligations relate is otherwise permitted to be incurred under this covenant and (y) the notional principal amount of any such Interest Rate Protection Obligations does not exceed the principal amount of the Indebtedness to which such Interest Rate Protection Obligations relate; (e) Indebtedness of a Wholly-Owned Restricted Subsidiary owed to and held by the Company or another Wholly-Owned Restricted Subsidiary, in each case which is not subordinated in right of payment to any Indebtedness of such Wholly-Owned Restricted Subsidiary, except that (i) any transfer of such Indebtedness by the Company or a Wholly-Owned Restricted Subsidiary (other than to the Company or to a Wholly-Owned Restricted Subsidiary) and (ii) the sale, transfer or other disposition by the Company or any Wholly-Owned Restricted Subsidiary of Capital Stock of a Wholly-Owned Restricted Subsidiary which is owed Indebtedness of another Wholly-Owned Restricted Subsidiary such that it ceases to be a Wholly-Owned Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness by such Wholly-Owned Restricted Subsidiary subject to the other provisions of this covenant; (f) Indebtedness of the Company owed to and held by a Wholly-Owned Restricted Subsidiary which is unsecured and subordinated in right of payment to the payment and performance of the Company's obligations under the Indenture and the Notes except that (i) any transfer of such Indebtedness by a Wholly-Owned Restricted Subsidiary (other than to another Wholly-Owned Restricted Subsidiary) and (ii) the sale, transfer or other disposition by the Company or any Wholly-Owned Restricted Subsidiary of Capital Stock of a Wholly-Owned Restricted Subsidiary which holds Indebtedness of the Company such that it ceases to be a Wholly-Owned Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness by the Company, subject to the other provisions of this covenant; (g) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (h) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within two business days of incurrence; 72 75 (i) Indebtedness of the Company or any of its Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; (j) Indebtedness of Restricted Subsidiaries of the Company which are not Guarantors not to exceed the sum of (x) 90% of the accounts receivable of any such Restricted Subsidiary, (y) 70% of the inventory of any such Restricted Subsidiary and (z) 10% of the Net Worth of any such Restricted Subsidiary; provided that if any such Subsidiary shall sell or otherwise transfer any of its accounts receivable, the Net Cash Proceeds from any such sale or transfer shall be used to repay any Indebtedness of such Subsidiary incurred pursuant to this clause (j); (k) Indebtedness incurred by the Company or any of its Restricted Subsidiaries during any period of time when the Notes are rated Investment Grade by S&P and Moody's (or if either S&P or Moody's does not make a rating of the Notes publicly available, by either S&P or Moody's and an equivalent rating by another Rating Agency) and no Default or Event of Default shall have occurred and be continuing; (l) Indebtedness of the Company or any Guarantor in addition to that described in clauses (a) through (k) above, in an aggregate principal amount outstanding at any time not exceeding $20,000,000; and (m)(i) Indebtedness of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of the Company or any of its Restricted Subsidiaries and (ii) Indebtedness of any Restricted Subsidiary of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of such Restricted Subsidiary, in each case other than the Indebtedness refinanced, redeemed or retired as described under "Use of Proceeds" herein or incurred under clause (c), (d), (e), (f), (g), (h), (i), (j) or (l) of this covenant; provided, however, that (x) the principal amount of Indebtedness incurred pursuant to this clause (m) (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof, the original issue price of such Indebtedness) shall not exceed the sum of the principal amount of Indebtedness so refinanced, plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of such Indebtedness or the amount of any premium reasonably determined by the Board of Directors of the Company as necessary to accomplish such refinancing by means of a tender offer or privately negotiated purchase, plus the amount of reasonable expenses in connection therewith, and (y) in the case of Indebtedness incurred by the Company or any Guarantor pursuant to this clause (m), such Indebtedness (A) has no scheduled principal payment prior to the earlier of (1) the final maturity of the Indebtedness refinanced or (2) the 91st day after the Final Maturity Date and (B) has an Average Life to Stated Maturity greater than either (1) the Average Life to Stated Maturity of the Indebtedness refinanced or (2) the remaining Average Life to Stated Maturity of the Notes. The Company will not, directly or indirectly, in any event incur any Indebtedness which by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate in right of payment to the Notes pursuant to subordination provisions that are substantively identical to the subordination provisions of such Indebtedness (or such agreement) that are most favorable to the holders of any other Indebtedness of the Company. 73 76 Limitation on Restricted Payments. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (a) declare or pay any dividend or make any other distribution or payment on or in respect of Capital Stock of the Company or any of its Restricted Subsidiaries or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any of its Restricted Subsidiaries (other than (x) dividends or distributions payable solely in Capital Stock of the Company (other than Redeemable Capital stock) or in options, warrants or other rights to purchase Capital Stock of the Company (other than Redeemable Capital Stock), (y) the declaration or payment of dividends or other distributions to the extent declared or paid to the Company or any Restricted Subsidiary of the Company and (z) the declaration or payment of dividends or other distributions by any Restricted Subsidiary of the Company to all holders of Common Stock of such Restricted Subsidiary on a pro rata basis), (b) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company or any of its Restricted Subsidiaries (other than any such Capital Stock owned by a Wholly-Owned Restricted Subsidiary), (c) make any principal payment on, or purchase, defease, repurchase, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment, scheduled sinking fund payment or other Stated Maturity, any Subordinated Indebtedness (other than any such Indebtedness owned by the Company or a Wholly-Owned Restricted Subsidiary), or (d) make any Investment (other than any Permitted Investment) in any person (such payments or Investments described in the preceding clauses (a), (b), (c) and (d) are collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to the proposed Restricted Payment (the amount of any such Restricted Payment, if other than cash, shall be the Fair Market Value on the date of such Restricted Payment of the asset(s) proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment), (A) no Default or Event of Default shall have occurred and be continuing, (B) immediately prior to and after giving effect to such Restricted Payment, the Company would be able to incur $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant described under "-- Limitation on Indebtedness" above (assuming a market rate of interest with respect to such additional Indebtedness) and (C) the aggregate amount of all Restricted Payments declared or made from and after the Issue Date would not exceed the sum of (1) 50% of the aggregate Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on the first day of the fiscal quarter of the Company during which the Issue Date occurs and ending on the last day of the fiscal quarter of the Company immediately preceding the date of such proposed Restricted Payment, which period shall be treated as a single accounting period (or, if such aggregate cumulative Consolidated Net Income of the Company for such period shall be a deficit, minus 100% of such deficit) plus (2) the aggregate net proceeds (the amount of such proceeds, if other than cash, shall be the Fair Market Value on the date such proceeds are received by the Company of the asset(s) comprising such proceeds) received by the Company either (x) as capital contributions to the Company after the Issue Date from any person (other than a Subsidiary of the Company) or (y) from the issuance or sale of Capital Stock (excluding Redeemable Capital Stock, but including Capital Stock issued upon the conversion of convertible Indebtedness or from the exercise of options, warrants or rights to purchase Capital Stock (other than Redeemable Capital Stock)) of the Company to any person (other than to a Subsidiary of the Company) after the Issue Date plus (3) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the Issue Date (excluding any Investment described in clause (v) of the following paragraph), an amount 74 77 equal to the lesser of the return of capital with respect to such Investment and the initial amount of such Investment, in either case, less the cost of the disposition of such Investment. For purposes of the preceding clause (C)(2), the value of the aggregate net proceeds received by the Company upon the issuance of Capital Stock upon the conversion of convertible Indebtedness or upon the exercise of options, warrants or rights will be the net proceeds received upon the issuance of such Indebtedness, options, warrants or rights plus the incremental proceeds received by the Company upon the conversion or exercise thereof. None of the foregoing provisions will prohibit (i) the payment of any dividend within 60 days after the date of its declaration, if at the date of declaration such payment would be permitted by the foregoing paragraph; (ii) so long as no Default or Event of Default shall have occurred and be continuing, the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock of the Company or any Restricted Subsidiary of the Company in exchange for, or out of the net proceeds of, a substantially concurrent (x) capital contribution to the Company from any person (other than a Subsidiary of the Company) or (y) issue and sale of other shares of Capital Stock (other than Redeemable Capital Stock) of the Company to any person (other than to a Subsidiary of the Company); provided, however, that the amount of any such net proceeds that are utilized for any such redemption, repurchase or other acquisition or retirement shall be excluded from clause (C)(2) of the preceding paragraph; (iii) so long as no Default or Event of Default shall have occurred and be continuing, any redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness by exchange for, or out of the net proceeds of, a substantially concurrent (x) capital contribution to the Company from any person (other than a Subsidiary of the Company) or (y) issue and sale of (1) Capital Stock (other than Redeemable Capital Stock) of the Company to any person (other than to a Subsidiary of the Company); provided, however, that the amount of any such net proceeds that are utilized for any such redemption, repurchase or other acquisition or retirement shall be excluded from clause (C)(2) of the preceding paragraph; or (2) Indebtedness of the Company issued to any person (other than a Subsidiary of the Company), so long as such Indebtedness is Subordinated Indebtedness which (x) has no Stated Maturity earlier than the 91st day after the Final Maturity Date, (y) has an Average Life to Stated Maturity equal to or greater than the remaining Average Life to Stated Maturity of the Notes and (z) is subordinated to the Notes in the same manner and at least to the same extent as the Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or retired; (iv) so long as no Default or Event of Default shall have occurred and be continuing, the making of any Restricted Payment by the Company or any Restricted Subsidiary of the Company during any period of time when the Notes are rated Investment Grade by S&P and Moody's (or if either S&P or Moody's does not make a rating of the Notes publicly available, by either S&P or Moody's and an equivalent rating by another Rating Agency); (v) Investments constituting Restricted Payments made as a result of the receipt of non-cash consideration from any Asset Sale made pursuant to and in compliance with the covenant described under "Disposition of Proceeds of Asset Sales" below; (vi) so long as no Default or Event of Default has occurred and is continuing, repurchases by the Company of Common Stock of the Company from employees of the Company or any of its Subsidiaries or their authorized representatives upon the death, disability or termination of employment of such employees, in an aggregate amount not exceeding $1,000,000 in any calendar year; and (vii) so long as no Default or Event of Default has occurred and is continuing, other Restricted Payments in an aggregate amount not exceeding $5,000,000. In computing the amount of Restricted Payments previously made for purposes of clause (C) of the preceding paragraph, Restricted Payments made under the preceding clauses (i), (iv), (vi) and (vii) shall be included and clauses (ii), (iii) and (v) shall not be so included. Limitation on Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind against or upon any of its property or assets, or any proceeds therefrom, unless (x) in the case of Liens securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (y) in all other cases, the Notes are equally and ratably secured, except for (a) Liens existing 75 78 as of the Issue Date and Liens under and as contemplated by agreements existing as of the Issue Date, including Liens on Capital Stock of Subsidiaries of the Company, accounts receivable, inventory and intangibles of the Company and its Restricted Subsidiaries securing Indebtedness (including any guarantees) under the Credit Agreement and the Note Agreement; (b) Liens securing the Notes or any Guarantee; (c) Liens in favor of the Company; (d) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so refinanced; and (e) Permitted Liens. Change of Control. Upon the occurrence of a Change of Control, the Company shall be obligated to make an offer to purchase (a "Change of Control Offer"), and shall purchase, on a business day (the "Change of Control Purchase Date") not more than 60 nor less than 30 days following the occurrence of the Change of Control, all of the then outstanding Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the Change of Control Purchase Date. The Company shall be required to purchase all Notes properly tendered into the Change of Control Offer and not withdrawn. The Change of Control Offer is required to remain open for at least 20 business days and until the close of business on the Change of Control Purchase Date. In order to effect such Change of Control Offer, the Company shall, not later than the 30th day after the occurrence of the Change of Control, mail to each holder of Notes notice of the Change of Control Offer, which notice shall govern the terms of the Change of Control Offer and shall state, among other things, the procedures that holders of Notes must follow to accept the Change of Control Offer. The occurrence of a Change of Control may result in the lenders under the Note Agreement and the Credit Agreement having the right to require the Company to repay all Indebtedness outstanding under the Note Agreement and the Credit Agreement, respectively. There can be no assurance that the Company will have adequate resources to repay or refinance all Indebtedness owing under the Note Agreement and the Credit Agreement or to fund the purchase of the Notes upon a Change of Control. The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that a Change of Control occurs and the Company is required to purchase Notes as described above. Disposition of Proceeds of Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Sale during any period when the Notes are not rated Investment Grade by S&P and Moody's (or if either S&P or Moody's does not make a rating of the Notes publicly available, by either S&P or Moody's and an equivalent rating by another Rating Agency (such period, the "Non-Investment Grade Period")) unless (a) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the shares or assets sold or otherwise disposed of and (b) at least 75% of such consideration consists of cash or Cash Equivalents. To the extent the Net Cash Proceeds of any Asset Sale consummated during the Non-Investment Grade Period are not required (a) to repay any Indebtedness secured by the assets subject to such Asset Sale pursuant to Liens permitted under the Indenture, (b) to repay Indebtedness incurred pursuant to clause (j) under "-- Limitation on Indebtedness" or (c) to be applied to repay, and permanently reduce the commitments under, the Credit Agreement (as required by 76 79 the terms thereof), or, in each case, are not so applied, the Company or such Restricted Subsidiary, as the case may be, may, within 365 days of such Asset Sale, apply such Net Cash Proceeds to an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used in the businesses of the Company and its Restricted Subsidiaries existing on the Issue Date or in businesses reasonably related thereto ("Replacement Assets"). Any Net Cash Proceeds from any Asset Sale consummated during the Non-Investment Grade Period that are neither used to repay Indebtedness, as specified in the immediately preceding sentence, nor invested in Replacement Assets within the 365-day period described above constitute "Excess Proceeds," subject to disposition as provided below. When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000, the Company shall make an offer to purchase (an "Asset Sale Offer"), from all holders of the Notes, not more than 40 business days thereafter, an aggregate principal amount of Notes equal to such Excess Proceeds, at a price in cash equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, to the purchase date. To the extent that the aggregate principal amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes validly tendered and not withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be purchased will be selected on a pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset to zero. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that an Asset Sale occurs and the Company is required to purchase Notes as described above. Limitation on Issuances and Sale of Preferred Stock by Restricted Subsidiaries. The Company (a) will not permit any of its Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or a Wholly-Owned Restricted Subsidiary) and (b) will not permit any person (other than the Company or a Wholly-Owned Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary of the Company; provided, however, that this covenant shall not prohibit the issuance and sale of (x) all, but not less than all, of the issued and outstanding Capital Stock of any Restricted Subsidiary of the Company owned by the Company or any of its Restricted Subsidiaries in compliance with the other provisions of the Indenture or (y) the issuance or sale of any Preferred Stock of a Restricted Subsidiary during any period of time when the Notes are rated Investment Grade by S&P and Moody's (or if either S&P or Moody's does not make a rating of the Notes publicly available, by either S&P or Moody's and an equivalent rating by another Rating Agency), so long as no Default or Event of Default shall have occurred and be continuing. Limitation on Transactions with Interested Persons. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, transfer, disposition, purchase, exchange or lease of assets, property or services) with, or for the benefit of, any Affiliate of the Company, unless (a) such transaction or series of related transactions is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those which could have been obtained in a comparable transaction at such time from persons who are not Affiliates of the Company, (b) with respect to a transaction or series of transactions involving aggregate payments or value equal to or greater than $5,000,000, the Company has obtained a written opinion from an Independent Financial Advisor stating that the terms of such transaction or series of transactions are fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view and (c) with respect to a transaction or series of transactions involving aggregate payments or value equal to or greater than $2,500,000, the Company shall have delivered an officers' certificate to the Trustee certifying that such transaction or series of transactions complies with the preceding clause (a) and, if applicable, 77 80 certifying that the opinion referred to in the preceding clause (b) has been delivered and that such transaction or series of transactions has been approved by a majority of the Board of Directors of the Company; provided, however, that this covenant will not restrict the Company from (i) paying dividends in respect of its Capital Stock permitted under the covenant described under "-- Limitation on Restricted Payments" above, (ii) paying reasonable and customary fees to directors of the Company who are not employees of the Company or (iii) making loans or advances to officers, employees or consultants of the Company and its Restricted Subsidiaries (including travel and moving expenses) in the ordinary course of business for bona fide business purposes of the Company or such Restricted Subsidiary not in excess of $5,000,000 in the aggregate at any one time outstanding. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock or any other interest or participation in, or measured by, its profits, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary of the Company, (c) make loans or advances to, or any investment in, the Company or any other Restricted Subsidiary of the Company, (d) transfer any of its properties or assets to the Company or any other Restricted Subsidiary of the Company or (e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) customary non-assignment provisions of any contract or any lease governing a leasehold interest of the Company or any Restricted Subsidiary of the Company, (iii) customary restrictions on transfers of property subject to a Lien permitted under the Indenture which could not materially adversely affect the Company's ability to satisfy its obligations under the Indenture and the Notes, (iv) any agreement or other instrument of a person acquired by the Company or any Restricted Subsidiary of the Company (or a Restricted Subsidiary of such person) in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any person, or the properties or assets of any person, other than the person, or the properties or assets of the person, so acquired, (v) provisions contained in agreements or instruments relating to Indebtedness which prohibit the transfer of all or substantially all of the assets of the obligor thereunder unless the transferee shall assume the obligations of the obligor under such agreement or instrument and (vi) encumbrances and restrictions under and as contemplated by agreements governing Indebtedness in effect on the Issue Date and encumbrances and restrictions in permitted refinancings or replacements thereof which are no less favorable to the holders of the Notes than those contained in the Indebtedness so refinanced or replaced. Limitation on Sale-Leaseback Transactions. The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale-Leaseback Transaction with respect to any property of the Company or any of its Restricted Subsidiaries. Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may enter into Sale-Leaseback Transactions with respect to property acquired or constructed after the Issue Date; provided that (a) the Attributable Value of such Sale-Leaseback Transaction shall be deemed to be Indebtedness of the Company or such Restricted Subsidiary, as the case may be, and (b) after giving pro forma effect to any such Sale-Leaseback Transaction and the foregoing clause (a), the Company would be able to incur $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant described under "-- Limitation on Indebtedness" above (assuming a market rate of interest with respect to such additional Indebtedness). Reporting Requirements. The Company will file with the Commission the annual reports, quarterly reports and other documents required to be filed with the Commission pursuant to Sections 13 and 15 of the Exchange Act, whether or not the Company has a class of securities registered under the Exchange Act. The Company will be required to file with the Trustee and provide to each holder of 78 81 Notes within 15 days after it files them with the Commission (or if any such filing is not permitted under the Exchange Act, 15 days after the Company would have been required to make such filing) copies of such reports and documents. MERGER, SALE OF ASSETS, ETC. Neither the Company nor any Guarantor will, in any transaction or series of transactions, merge or consolidate with or into, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to, any person or persons, and the Company will not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, taken as a whole, to any other person or persons, unless at the time of and after giving effect thereto (a) either (i) if the transaction or series of transactions is a merger or consolidation, the Company, the applicable Guarantor or applicable Restricted Subsidiary shall be the surviving person of such merger or consolidation, or (ii) the person formed by such consolidation or into which the Company, such Guarantor or such Restricted Subsidiary is merged or to which the properties and assets of the Company, such Guarantor or such Restricted Subsidiary, as the case may be, are transferred (any such surviving person or transferee person being the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall expressly assume by a supplemental indenture executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Company or such Guarantor, as the case may be, under the Notes or such Guarantor's Guarantee, as the case may be, and the Indenture, and in each case, the Indenture shall remain in full force and effect; (b) immediately before and immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing and the Company or the Surviving Entity, as the case may be, after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), could incur $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant described under "-- Certain Covenants -- Limitation on Indebtedness" above (assuming a market rate of interest with respect to such additional Indebtedness); and (c) immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), the Consolidated Net Worth of the Company or the Surviving Entity, as the case may be, is at least equal to the Consolidated Net Worth of the Company immediately before such transaction or series of transactions. The foregoing provisions shall not apply to a transaction involving the consolidation or merger of a Guarantor with or into another person, or the sale, lease, conveyance or disposition of all or substantially all of the assets of such Guarantor that results in such Guarantor being released from its Guarantee as provided in "-- The Guarantees"). In connection with any consolidation, merger, transfer, lease, assignment or other disposition contemplated hereby, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, transfer, lease, assignment or other disposition and the supplemental indenture in respect thereof comply with the requirements under the Indenture. Upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor corporation formed by such a consolidation or into which the Company is merged or to which 79 82 such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor corporation had been named as the Company therein; provided that solely for purposes of computing amounts described in subclause (C) of the covenant described under "-- Limitation on Restricted Payments" above, any such successor person shall only be deemed to have succeeded to and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. EVENTS OF DEFAULT The following are "Events of Default" under the Indenture: (i) default in the payment of the principal of or premium, if any, on any Senior Note when the same becomes due and payable (upon Stated Maturity, acceleration, optional redemption, required purchase, scheduled principal payment or otherwise); or (ii) default in the payment of an installment of interest on any of the Notes, when the same becomes due and payable, which default continues for a period of 30 days; or (iii) failure to perform or observe any other term, covenant or agreement contained in the Notes or the Indenture or any Guarantee (other than a default specified in clause (i) or (ii) above) and such default continues for a period of 30 days after written notice of such default requiring the Company to remedy the same shall have been given (x) to the Company by the Trustee or (y) to the Company and the Trustee by holders of 25% in aggregate principal amount of the Notes then outstanding; or (iv) default or defaults under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which the Company or any Restricted Subsidiary of the Company then has outstanding Indebtedness in excess of $5,000,000, individually or in the aggregate, and either (a) such Indebtedness is already due and payable in full or (b) such default or defaults have resulted in the acceleration of the maturity of such Indebtedness; or (v) one or more judgments, orders or decrees of any court or regulatory or administrative agency of competent jurisdiction for the payment of money in excess of $5,000,000, either individually or in the aggregate, shall be entered against the Company or any Restricted Subsidiary of the Company or any of their respective properties and shall not be discharged or fully bonded and there shall have been a period of 60 days after the date on which any period for appeal has expired and during which a stay of enforcement of such judgment, order or decree shall not be in effect; or (vi) either (i) the collateral agent under the Credit Agreement or (ii) any holder of at least $5,000,000 in aggregate principal amount of Indebtedness of the Company or any of its Restricted Subsidiaries shall commence judicial proceedings to foreclose upon assets of the Company or any of its Restricted Subsidiaries having an aggregate Fair Market Value, individually or in the aggregate, in excess of $5,000,000 or shall have exercised any right under applicable law or applicable security documents to take ownership of any such assets in lieu of foreclosure; or (vii) any Guarantee ceases to be in full force and effect or is declared null and void, or any Guarantor denies that it has any further liability under any Guarantee or gives notice to such effect (other than by reason of the termination of the Indenture or the release of any such Guarantee in accordance with the Indenture) and such condition shall have continued for a period 80 83 of 60 days after written notice of such failure (which notice shall specify the Default, demand that it be remedied and state that it is a "Notice of Default") requiring the Guarantor and the Company to remedy the same shall have been given (x) to the Company by the Trustee or (y) to the Company and the Trustee by holders of at least 25% in aggregate principal amount of the Notes then outstanding; or (viii) certain events of bankruptcy, insolvency or reorganization with respect to the Company or any Significant Subsidiary of the Company shall have occurred. If an Event of Default (other than as specified in clause (viii) above) shall occur and be continuing, the Trustee, by notice to the Company, or the holders of at least 25% in aggregate principal amount of the Notes then outstanding, by notice to the Trustee and the Company, may declare the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the outstanding Notes due and payable immediately, upon which declaration, all amounts payable in respect of the Notes shall be immediately due and payable. If an Event of Default specified in clause (viii) above occurs and is continuing, then the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of the Notes. After a declaration of acceleration under the Indenture, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the holders of a majority in aggregate principal amount of the outstanding Notes, by written notice to the Company and the Trustee, may rescind such declaration if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes, (iii) the principal of and premium, if any, on any Notes which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate borne by the Notes which has become due otherwise than by such declaration of acceleration; (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (c) all Events of Default, other than the non-payment of principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived. The holders of not less than a majority in aggregate principal amount of the outstanding Notes may on behalf of the holders of all the Notes waive any past defaults under the Indenture, except a default in the payment of the principal of, premium, if any, or interest on any Note, or in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each Note outstanding. No holder of any of the Notes has any right to institute any proceeding with respect to the Indenture or the Notes or the Guarantees or any remedy thereunder, unless the holders of at least 25% in aggregate principal amount of the outstanding Notes have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as Trustee under the Notes and the Indenture, the Trustee has failed to institute such proceeding within 30 days after receipt of such notice and the Trustee, within such 30-day period, has not received directions inconsistent with such written request by holders of a majority in aggregate principal amount of the outstanding Notes. Such limitations do not apply, however, to a suit instituted by a holder of a Note for the enforcement of the payment of the principal of, premium, if any, or interest on such Note on or after the respective due dates expressed in such Note. During the existence of an Event of Default, the Trustee is required to exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise thereof 81 84 as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. Subject to the provisions of the Indenture relating to the duties of the Trustee, whether or not an Event of Default shall occur and be continuing, the Trustee under the Indenture is not under any obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders unless such holders shall have offered to the Trustee reasonable security or indemnity. Subject to certain provisions concerning the rights of the Trustee, the holders of not less than a majority in aggregate principal amount of the outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee under the Indenture. If a Default or an Event of Default occurs and is continuing and is known to the Trustee, the Trustee shall mail to each holder of the Notes notice of the Default or Event of Default within 30 days after obtaining knowledge thereof. Except in the case of a Default or an Event of Default in payment of principal of, premium, if any, or interest on any Notes, the Trustee may withhold the notice to the holders of such Notes if a committee of its trust officers in good faith determines that withholding the notice is in the interest of the holders of the Notes. The Company is required to furnish to the Trustee annual and quarterly statements as to the performance by the Company of its obligations under the Indenture and as to any default in such performance. The Company is also required to notify the Trustee within ten days of any event which is, or after notice or lapse of time or both would become, an Event of Default. DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE The Company may, at its option and at any time, terminate the obligations of the Company and the Guarantors with respect to the outstanding Notes and Guarantees ("defeasance"). Such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, except for (i) the rights of holders of outstanding Notes to receive payment in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (ii) the Company's obligations to issue temporary Notes, register the transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office or agency for payments in respect of the Notes, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to terminate the obligations of the Company and the Guarantors with respect to certain covenants that are set forth in the Indenture, some of which are described under "-- Certain Covenants" above (including the covenant described under "-- Certain Covenants -- Change of Control" above) and any subsequent failure to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes ("covenant defeasance"). In order to exercise either defeasance or covenant defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes, cash in United States dollars, U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes to redemption or maturity (except lost, stolen or destroyed Notes which have been replaced or paid); (ii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred (in the case of defeasance, such opinion must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable federal income tax laws); (iii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (iv) such defeasance or covenant defeasance shall not cause 82 85 the Trustee to have a conflicting interest with respect to any securities of the Company; (v) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it is bound; (vi) the Company shall have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (vii) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent under the Indenture to either defeasance or covenant defeasance, as the case may be, have been complied with. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or repaid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Notes not theretofore delivered to the Trustee for cancellation (except lost, stolen or destroyed Notes which have been replaced or paid) have been called for redemption pursuant to the terms of the Notes or have otherwise become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under the Indenture by the Company; (iii) there exists no Default or Event of Default under the Indenture; and (iv) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. AMENDMENTS AND WAIVERS From time to time, the Company and the Guarantors, when authorized by a resolution of their respective Boards of Directors, and the Trustee may, without the consent of the holders of any outstanding Notes, amend, waive or supplement the Indenture or the Notes or the Guarantees for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act of 1939, as amended, or making any other change that does not adversely affect the rights of any holder of Notes; provided, however, that the Company has delivered to the Trustee an opinion of counsel stating that such change does not adversely affect the rights of any holder of Notes. Other amendments and modifications of the Indenture or the Notes or the Guarantees may be made by the Company and the Trustee with the consent of the holders of not less than a majority of the aggregate principal amount of the outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding Note affected thereby, (i) reduce the principal amount of, extend the fixed maturity of or alter the redemption provisions of, the Notes, (ii) change the currency in which any Notes or any premium or the interest thereon is payable or make the principal of, premium, if any, or interest on any Note payable in money other than that stated in the Note, (iii) reduce the percentage in principal amount of outstanding Notes that must consent to an amendment, supplement or waiver or consent to take any action under the Indenture, any Guarantee or the Notes, (iv) impair the right to institute suit for the enforcement of any payment on or with respect to the Notes, (v) waive a default in payment with respect to the Notes, (v) amend, change or modify the obligations of the Company to make and consummate a 83 86 Change of Control Offer in the event of a Change of Control or make and consummate the Asset Sale Offer with respect to any Asset Sale or modify any of the provisions or definitions with respect thereto, (vii) reduce or change the rate or time for payment of interest on the Notes, (viii) modify or change any provision of the Indenture affecting the ranking of the Notes or any Guarantee in a manner adverse to the holders of the Notes, or (ix) release any Guarantor from any of its obligations under its Guarantee or the Indenture other than in compliance with the Indenture. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee thereunder will perform only such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and provisions of the Trust Indenture Act of 1939, as amended, incorporated by reference therein contain limitations on the rights of the Trustee thereunder, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest (as defined in the Trust Indenture Act of 1939, as amended) it must eliminate such conflict or resign. GOVERNING LAW The Indenture, the Notes and the Guarantees will be governed by the laws of the State of New York, without regard to the principles of conflicts of law. CERTAIN DEFINITIONS "Acquired Indebtedness" means Indebtedness of a person (a) assumed in connection with an Asset Acquisition from such person or (b) existing at the time such person becomes a Subsidiary of any other person. "Affiliate" means, with respect to any specified person, any other person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified person. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other person pursuant to which such person shall become a Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such person or (c) the acquisition by the Company or any Restricted Subsidiary of the Company of any division or line of business of any person (other than a Restricted Subsidiary of the Company). "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease or other disposition to any person other than the Company or a Wholly-Owned Restricted Subsidiary, in one or a series of related transactions, of (a) any Capital Stock of any Restricted Subsidiary of the Company (other than in respect of director's qualifying shares or investments by foreign nationals mandated by applicable law); (b) all or substantially all of the properties and assets of any division or line of business of the Company or any Restricted Subsidiary of the Company; or (c) any other properties or assets of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business. For the purposes of this definition, the term "Asset Sale" shall not include (i) any sale, transfer or other disposition of equipment, tools or other assets (excluding Capital Stock of any Restricted Subsidiary of 84 87 the Company) by the Company or any of its Restricted Subsidiaries in one or a series of related transactions in respect of which the Company or such Restricted Subsidiary receives cash or property with an aggregate Fair Market Value of $5,000,000 or less; (ii) any sale, issuance, conveyance, transfer, lease or other disposition of properties or assets that is governed by the provisions described under "-- Merger, Sale of Assets, Etc." above; and (iii) any sale, transfer or exchange of Capital Stock of any Person other than a Restricted Subsidiary to the extent proceeds from which are Capital Stock of such Person or its Affiliates. "Attributable Value" means, as to any particular lease under which any person is at the time liable other than a Capitalized Lease Obligation, and at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such person under such lease during the initial term thereof as determined in accordance with GAAP, discounted from the last date of such initial term to the date of determination at a rate per annum equal to the discount rate which would be applicable to a Capitalized Lease Obligation with a like term in accordance with GAAP. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of insurance, taxes, assessments, utility, operating and labor costs and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Attributable Value" means, as to a Capitalized Lease Obligation under which any person is at the time liable and at any date as of which the amount thereof is to be determined, the capitalized amount thereof that would appear on the face of a balance sheet of such person in accordance with GAAP. "Average Life to Stated Maturity" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (i) the sum of the products of (a) the number of years (or any fraction thereof) from such date to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness multiplied by (b) the amount of each such principal payment by (ii) the sum of all such principal payments. "Capital Stock" means, with respect to any person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such person's capital stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock. "Capitalized Lease Obligation" means any obligation under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of the Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with a maturity of 180 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit or acceptances with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500,000,000; (iii) certificates of deposit with a maturity of 180 days or less of any financial institution that is organized under the laws of the United States, any state thereof or the District of Columbia that are rated at least A-1 by S&P or at least P-1 by Moody's or at least an equivalent rating category of another Rating Agency; (iv) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally 85 88 guaranteed by the government of the United States of America or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within 180 days from the date of acquisition; provided that the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions With Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985. "Change of Control" means the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder or a group controlled by or comprised of Permitted Holders is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 50% of the total Voting Stock of the Company; (b) the Company consolidates with, or merges with or into, another person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any person, or any person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding Voting Stock of the Company is converted into or exchanged for (1) Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation or (2) cash, securities and other property in an amount which could then be paid by the Company as a Restricted Payment under the Indenture, or a combination thereof, and (ii) immediately after such transaction no "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder or a group controlled by or comprised of Permitted Holders is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 50% of the total Voting Stock of the surviving or transferee corporation; (c) at any time during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or adopts a plan of liquidation. "Common Stock" means, with respect to any person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of, such person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated Cash Flow Available for Fixed Charges" means, with respect to any person for any period, the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Net Income, (b) Consolidated Non-cash Charges, (c) Consolidated Interest Expense and (d) Consolidated Income Tax Expense less (B) any non-cash items increasing Consolidated Net Income for such period. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any person, the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of such person for the four full fiscal quarters immediately preceding the date of the transaction (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter 86 89 period being referred to herein as the "Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of such person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated Cash Flow Available for Fixed Charges" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to, without duplication, (a) the incurrence of any Indebtedness (other than revolving credit Indebtedness) of such person or any of its Restricted Subsidiaries (and the application of the net proceeds thereof) during the period commencing on the first day of the Four Quarter Period to and including the Transaction Date (the "Reference Period"), including, without limitation, the incurrence of the Indebtedness giving rise to the need to make such calculation (and the application of the net proceeds thereof), as if such incurrence (and application) occurred on the first day of the Reference Period, and (b) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such person or one of its Restricted Subsidiaries (including any person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Reference Period, as if such Asset Sale or Asset Acquisition occurred on the first day of the Reference Period. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (i) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (ii) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Reference Period. If such person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third person, the above clause shall give effect to the incurrence of such guaranteed Indebtedness as if such person or such Restricted Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness. "Consolidated Fixed Charges" means, with respect to any person for any period, the sum of, without duplication, the amounts for such period of (i) Consolidated Interest Expense and (ii) the aggregate amount of dividends and other distributions paid or accrued during such period in respect of Preferred Stock and Redeemable Capital Stock of such person and its Restricted Subsidiaries on a consolidated basis, multiplied by a fraction, the numerator of which is one and the denominator of which is one minus the then current federal statutory income tax rate of such person. "Consolidated Income Tax Expense" means, with respect to any person for any period, the provision for federal, state, local and foreign income taxes of such person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, with respect to any person for any period, without duplication, the sum of (i) the interest expense (net of interest income) of such person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Rate Protection Obligations, (c) the interest portion of any deferred payment obligation, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and (e) all accrued interest and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any person, for any period, the consolidated net income (or loss) of such person and its Restricted Subsidiaries for such period as determined in 87 90 accordance with GAAP, adjusted, to the extent included in calculating such net income, by excluding, without duplication, (i) all extraordinary gains or losses, (ii) the portion of net income (but not losses) of such person and its Restricted Subsidiaries allocable to minority interests in unconsolidated persons to the extent that cash dividends or distributions have not actually been received by such person or one of its Restricted Subsidiaries, (iii) net income (or loss) of any person combined with such person or one of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (iv) any gain or loss realized upon the termination of any employee pension benefit plan, on an after-tax basis, (v) gains in respect of any Asset Sales by such person or one of its Restricted Subsidiaries and (vi) the net income of any Restricted Subsidiary of such person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders. "Consolidated Net Worth" means, with respect to any person at any date, the consolidated stockholders' equity of such person less the amount of such stockholders' equity attributable to Redeemable Capital Stock of such person and its Restricted Subsidiaries, as determined in accordance with GAAP. "Consolidated Non-cash Charges" means, with respect to any person for any period, the aggregate depreciation, amortization and other non-cash expenses of such person and its Restricted Subsidiaries reducing Consolidated Net Income of such person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge which required an accrual of or a reserve for cash charges for any future period). "Credit Agreement" means the Credit Agreement dated as of the Issue Date, among the Company, certain of its Subsidiaries, Comerica Bank, in its individual capacity and as agent, and the other banks which are or become parties from time to time thereto, and as it may be amended, restated, supplemented or otherwise modified from time to time, including all exhibits and schedules thereto, and any successor or replacement facility. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect any person or any of its Restricted Subsidiaries against fluctuations in currency values. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Event of Default" has the meaning set forth under "-- Events of Default" herein. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, with respect to any assets, the price, as determined by the Board of Directors of the Company, acting in good faith, which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under pressure or compulsion to complete the transaction; provided, however, that, with respect to any transaction which involves an asset or assets in excess of $250,000, such determination shall be evidenced by a resolution of the Board of Directors of the Company delivered to the Trustee. "Final Maturity Date" means July 15, 2005. 88 91 "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States of America, which are applicable from time to time and are consistently applied. "guarantee" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. "Guarantor" means (i) each of Walbro Automotive Corporation, a Delaware corporation, Walbro Engine Management Corporation, a Delaware corporation, Sharon Manufacturing Co., a Michigan corporation and Whitehead Engineered Products, Inc., a Delaware corporation, (ii) each Wholly-Owned Restricted Subsidiary of the Company which is incorporated under the laws of the United States or any state therein or the District of Columbia which incurs Indebtedness (other than to the Company or a Wholly-Owned Restricted Subsidiary) in an aggregate principal amount in excess of $5,000,000 for so long as such Wholly-Owned Restricted Subsidiary has Indebtedness outstanding in excess of $5,000,000 and (iii) any other Subsidiary that guarantees the Notes. "Indebtedness" means, with respect to any person, without duplication, (a) all liabilities of such person for borrowed money or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities incurred in the ordinary course of business and which are not overdue by more than 180 days, but including, without limitation, all obligations, contingent or otherwise, of such person in connection with any letters of credit, banker's acceptance or other similar credit transaction, (b) all obligations of such person evidenced by bonds, notes, debentures or other similar instruments, (c) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (d) all Capitalized Lease Obligations of such person, (e) all Indebtedness referred to in the preceding clauses of other persons and all dividends of other persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such person, even though such person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured), (f) all guarantees of Indebtedness referred to in this definition by such person, (g) all Redeemable Capital Stock of such person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends, (h) all obligations under or in respect of Currency Agreements and Interest Rate Protection Obligations of such person, and (i) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (a) through (h) above. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair Market Value. 89 92 "Independent Financial Advisor" means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company or any of its Subsidiaries and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "Interest Rate Protection Agreement" means any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Interest Rate Protection Obligations" means the obligations of any person pursuant to an Interest Rate Protection Agreement. "Investment" means, with respect to any person, any direct or indirect loan or other extension of credit or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other person. In addition, the Fair Market Value of the assets of any Subsidiary of the Company at the time that such Subsidiary is designated as an Unrestricted Subsidiary shall be deemed to be an Investment made by the Company in such Unrestricted Subsidiary at such time. "Investments" shall exclude extensions of trade credit by the Company and its Restricted Subsidiaries in the ordinary course of business in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. "Investment Grade" means, with respect to the Notes, (i) in the case of S&P, a rating of at least BBB-, (ii) in the case of Moody's, a rating of at least Baa3, and (iii) in the case of a Rating Agency other than S&P or Moody's, the equivalent rating, or in each case, any successor, replacement or equivalent definition as promulgated by S&P, Moody's or other Rating Agency, as the case may be; provided that a rating of BBB-, with respect to S&P, Baa3, with respect to Moody's, or the equivalent rating of another Rating Agency other than S&P or Moody's (or any such successor, replacement or equivalent definition) shall not be Investment Grade if any such Rating Agency shall have then placed the Notes on credit watch with negative implications. "Lien" means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind. A person shall be deemed to own subject to a Lien any property which such person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) net of (i) brokerage commissions and other fees and expenses (including, without limitation, fees and expenses of legal counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) amounts required to be paid to any person (other than the Company or any Restricted Subsidiary of the Company) owning a beneficial interest in the assets subject to the Asset Sale 90 93 and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary of the Company, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary of the Company, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an officers' certificate delivered to the Trustee. "Net Worth" means, with respect to any person at any date, the stockholders' equity of such person less the amount of such stockholders' equity attributable to Redeemable Capital Stock of such person, as determined in accordance with GAAP. "Note Agreement" means the Note Agreement dated as of October 1, 1994 by and among the Company and the Purchasers named on Schedule I thereto, relating to the $45,000,000 aggregate principal amount of 7.68% Senior Notes due October 1, 2004 of the Company. "Permitted Holder" means (i) each of Lambert E. Althaver, Robert H. Walpole, Gary L. Vollmar, Richard H. Whitehead, Michael A. Shope and Daniel L. Hittler; (ii) each spouse, lineal descendant and spouse of a lineal descendant of a person named in clause (i); and (iii) the estate or legal representative of a person named in clause (i) or (ii). "Permitted Investments" means any of the following: (i) Investments in any Wholly-Owned Restricted Subsidiary (including any person that pursuant to such Investment becomes a Wholly-Owned Restricted Subsidiary) and any person that is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to, the Company or any Wholly-Owned Restricted Subsidiary at the time such Investment is made; (ii) Investments in Cash Equivalents; (iii) Investments in deposits with respect to leases or utilities provided to third parties in the ordinary course of business; (iv) Investments in the Notes; (v) Investments in Currency Agreements on commercially reasonable terms entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in connection with the operations of the business of the Company or its Restricted Subsidiaries to hedge against fluctuations in foreign exchange rates; (vi) loans or advances to officers, employees or consultants of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes of the Company and its Restricted Subsidiaries (including travel and moving expenses) not in excess of $1,000,000 in the aggregate at any one time outstanding; (vii) Investments in evidences of Indebtedness, securities or other property received from another person by the Company or any of its Restricted Subsidiaries in connection with any bankruptcy proceeding or by reason of a composition or readjustment of debt or a reorganization of such person or as a result of foreclosure, perfection or enforcement of any Lien in exchange for evidences of Indebtedness, securities or other property of such person held by the Company or any of its Restricted Subsidiaries, or for other liabilities or obligations of such other person to the Company or any of its Restricted Subsidiaries that were created in accordance with the terms of the Indenture; (viii) Investments in Interest Rate Protection Agreements on commercially reasonably terms entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in connection with the operations of the business of the Company or its Restricted Subsidiaries to hedge against fluctuations in interest rates; and (ix) other Investments made after the Issue Date not to exceed $10,000,000 in the aggregate plus an amount equal to the lesser of the return of capital with respect to such Investment and the initial amount of such Investment, in either case, less the cost of the disposition of such Investment. "Permitted Liens" means the following types of Liens: 91 94 (a) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or any of its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (c) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, governmental contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (d) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (e) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (f) any interest or title of a lessor under any Capitalized Lease Obligation or operating lease; (g) purchase money Liens to finance the acquisition or construction of property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business; provided, however, that (i) the related purchase money Indebtedness shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets so acquired or construction, (ii) the amount of Indebtedness secured by any such Lien shall not exceed the purchase price of the property or assets acquired or constructed and (iii) the Lien securing such Indebtedness either (x) exists at the time of such acquisition or construction or (y) shall be created within 90 days of such acquisition or construction; (h) other purchase money Liens to finance the acquisition or construction of property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business securing Indebtedness of the Company and its Restricted Subsidiaries under industrial revenue bonds or other Indebtedness of the Company and its Restricted Subsidiaries for which a governmental entity or agency provides direct or indirect credit support not to exceed $20,000,000 in the aggregate at any one time outstanding; provided, however, that (i) the amount of Indebtedness secured by any such Lien shall not exceed 125% of the purchase price of the property or assets acquired or constructed and (ii) the Lien securing such Indebtedness either (x) exists at the time of such acquisition or construction or (y) shall be created within 90 days of such acquisition or construction; 92 95 (i) other Liens; provided that at the time any such Lien is to be incurred, all such Liens incurred pursuant to this clause (i) secure obligations of the Company and its Restricted Subsidiaries not to exceed 10% of the Consolidated Net Worth of the Company after giving pro forma effect to the Lien that is to be incurred; and (j) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods. "person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, charitable foundation, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of preferred or preference Capital Stock of such person. "Rating Agency" means a nationally recognized securities rating agency, selected by the Company and satisfactory to the Trustee. "Redeemable Capital Stock" means any shares of any class or series of Capital Stock that, either by the terms thereof, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is or upon the happening of an event or passage of time would be, required to be redeemed prior to the Stated Maturity with respect to the principal of any Note or is redeemable at the option of the holder thereof at any time prior to any such Stated Maturity, or is convertible into or exchangeable for debt securities at any time prior to any such Stated Maturity. "Restricted Subsidiary" means a Subsidiary of any person which is not an Unrestricted Subsidiary. "Sale-Leaseback Transaction" of any person means an arrangement with any lender or investor or to which such lender or investor is a party providing for the leasing by such person of any property or asset of such person which has been or is being sold or transferred by such person after the acquisition thereof or the completion of construction or commencement of operation thereof to such lender or investor or to any person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. The stated maturity of such arrangement shall be the date of the last payment of rent or any other amount due under such arrangement prior to the first date on which such arrangement may be terminated by the lessee without payment of a penalty. "Securities Act" means the Securities Act of 1933, as amended. "Significant Subsidiary" shall have the same meaning as in Rule 1.02(v) of Regulation S-X under the Securities Act. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors. "Stated Maturity" means, when used with respect to any Note or any installment of interest thereon, the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable, and when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest thereon, is due and payable. 93 96 "Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor which is expressly subordinated in right of payment to the Notes or the Guarantee of such Guarantor, as the case may be. "Subsidiary" means, with respect to any person, (i) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such person, by one or more Subsidiaries of such person or by such person and one or more Subsidiaries thereof and (ii) any other person (other than a corporation), including, without limitation, a joint venture, in which such person, one or more Subsidiaries thereof or such person and one or more Subsidiaries thereof, directly or indirectly, at the date of determination thereof, has at least majority ownership interest entitled to vote in the election of directors, managers or trustees thereof (or other person performing similar functions). For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. "Unrestricted Subsidiary" means a Subsidiary of the Company (i) none of whose properties or assets were owned by the Company or any of its Subsidiaries on or prior to the Issue Date, other than any such assets as are transferred to such Unrestricted Subsidiary in accordance with the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments", (ii) whose properties and assets, to the extent that they secure Indebtedness, secure only Non-Recourse Indebtedness and (iii) which has no Indebtedness other than Non-Recourse Indebtedness. As used above, "Non-Recourse Indebtedness" means Indebtedness as to which (i) neither the Company nor any of its Restricted Subsidiaries (1) provides credit support (including any undertaking, agreement or instrument which would constitute Indebtedness), (2) guarantees or is otherwise directly or indirectly liable or (3) constitutes the lender (in each case, other than pursuant to and in compliance with the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments") and (ii) no default with respect to such Indebtedness (including any rights which the holders thereof may have to take enforcement action against the relevant Unrestricted Subsidiary or its assets) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. The Company shall not be permitted to designate any Unrestricted Subsidiary as a Restricted Subsidiary unless, after giving pro forma effect to such designation, (i) the Company would be permitted to incur $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant described under "-- Certain Covenants -- Limitation on Indebtedness" above (assuming a market rate of interest with respect to such Indebtedness) and (ii) all Indebtedness and Liens of such Unrestricted Subsidiary would be permitted to be incurred by a Restricted Subsidiary of the Company under the Indenture. An Unrestricted Subsidiary shall not be designated as a Restricted Subsidiary unless the Company shall have provided written notice to the Trustee as to compliance with the Indenture. A designation of an Unrestricted Subsidiary as a Restricted Subsidiary may not thereafter be rescinded. "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any person (irrespective of whether or not, at the time, Capital Stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of the Company of which 100% of the outstanding Capital Stock is owned by the Company or one or more Wholly-Owned Restricted Subsidiaries or by the Company and one or more Wholly-Owned Restricted Subsidiaries. For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. 94 97 CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES The following summary of the material anticipated federal income tax consequences of the issuance of New Notes and the Exchange Offer is based upon the provisions of the Internal Revenue Code of 1986, as amended, the final, temporary and proposed regulations promulgated thereunder, and administrative rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. The following summary is not binding on the Internal Revenue Service ("IRS") and there can be no assurance that the IRS will take a similar view with respect to the tax consequences described below. No ruling has been or will be requested by the Company from the IRS on any tax matters relating to the New Notes or the Exchange Offer. This discussion is for general information only and does not purport to address all of the possible federal income tax consequences or any state, local or foreign tax consequences of the acquisition, ownership and disposition of the Old Notes, the New Notes or the Exchange Offer. It is limited to investors who will hold the Old Notes and the New Notes as capital assets and does not address the federal income tax consequences that may be relevant to particular investors in light of their unique circumstances or to certain types of investors (such as dealers in securities; insurance companies; financial institutions; foreign corporations; partnerships; trusts; nonresident individuals; and tax-exempt entities) who may be subject to special treatment under federal income tax laws. INDEBTEDNESS The Old Notes and the New Notes should be treated as indebtedness of the Company. In the unlikely event the Old Notes or the New Notes were treated as equity, the amount treated as a distribution on any such Old Note or New Note would first be taxable to the holder as dividend income to the extent of the Company's current and accumulated earnings and profits, and would next be treated as a return of capital to the extent of the holder's tax basis in the Old Notes or New Notes, with any remaining amount treated as a gain from the sale of an Old Note or a New Note. In addition, in the event of equity treatment, amounts received in retirement of an Old Note or a New Note might in certain circumstances be treated as a dividend, and the Company could not deduct amounts paid as interest on such Old Notes or New Notes. The remainder of this discussion assumes that the Old Notes and the New Notes will constitute indebtedness. EXCHANGE OFFER The exchange of the Old Notes for New Notes pursuant to the Exchange Offer should not be treated as an "exchange" because the New Notes should not be considered to differ materially in kind or extent from the Old Notes. Rather, the New Notes received by a holder of the Old Notes should be treated as a continuation of the Old Notes in the hands of such holder. As a result, there should be no federal income tax consequences to holders exchanging the Old Notes for the New Notes pursuant to the Exchange Offer. INTEREST A holder of an Old Note or a New Note will be required to report stated interest on the Old Note and the New Note as interest income in accordance with the holder's method of accounting for tax purposes. Because the Old Notes were issued at 99.65% of par there is no original issue discount pursuant to the de minimis exception to the "original issue discount" rules. TAX BASIS IN OLD NOTES AND NEW NOTES A holder's tax basis in an Old Note will be the holder's purchase price for the Old Note. If a holder of an Old Note exchanges the Old Note for a New Note pursuant to the Exchange Offer, the tax basis of the New Note immediately after such exchange should equal the holder's tax basis in the Old Note immediately prior to the exchange. 95 98 DISPOSITION OF OLD NOTES OR NEW NOTES The sale, exchange, redemption or other disposition of an Old Note or a New Note, except in the case of an exchange pursuant to the Exchange Offer (see the above discussion), generally will be a taxable event. A holder generally will recognize gain or loss equal to the difference between (i) the amount of cash plus the fair market value of any property received upon such sale, exchange, redemption or other taxable disposition of the Old Note or the New Note (except to the extent attributable to accrued interest) and (ii) the holder's adjusted tax basis in such debt instrument. Such gain or loss will be capital gain or loss, and will be long term if the Old Notes have been held for more than one year at the time of the sale or other disposition. PURCHASERS OF OLD NOTES AT OTHER THAN ORIGINAL ISSUANCE PRICE The foregoing does not discuss special rules which may affect the treatment of purchasers that acquired Old Notes other than at par, including those provisions of the Internal Revenue Code relating to the treatment of "market discount," and "amortizable bond premium." Any such purchaser should consult its tax advisor as to the consequences to him of the acquisition, ownership, and disposition of Old Notes. BACKUP WITHHOLDING Unless a holder provides its correct taxpayer identification number (employer identification number or social security number) to the Company and certifies that such number is correct, generally under the federal income tax backup withholding rules, 31% of (1) the interest paid on the Old Notes and the New Notes, and (2) proceeds of sale of the Old Notes and the New Notes, must be withheld and remitted to the United States Treasury. Therefore, each holder should complete and sign the Substitute Form W-9 included so as to provide the information and certification necessary to avoid backup withholding. However, certain holders (including, among others, certain foreign individuals) are not subject to these backup withholding and reporting requirements. For a foreign individual to qualify as an exempt foreign recipient, that exchanging holder must submit a statement, signed under penalties of perjury, attesting to that individual's exempt foreign status. Such statements can be obtained from the Company. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if the Old Notes are held in more than one name), contact the Company's secretary, 6242 Garfield Street, Cass City, Michigan 48726-1325 or telephone number (517) 872-2131. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. 96 99 OLD NOTES REGISTRATION RIGHTS Pursuant to the Registration Rights Agreement, the Company has agreed to file with the Commission a registration statement under the Securities Act with respect to an offer to exchange the Old Notes for the New Notes. Upon the effectiveness of the Exchange Offer registration statement, the Company will offer to the holders of Old Notes who are able to make certain representations the opportunity to exchange their Old Notes for New Notes. If (i) the Company is not permitted to file the Exchange Offer registration statement or to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy or (ii) any holder of Old Notes notifies the Company within the specified time period that (A) due to a change in law or policy it is not entitled to participate in the Exchange Offer, (B) due to a change in law or policy it may not resell the New Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer registration statement is not appropriate or available for such resales by such holder or (C) it is a broker-dealer and owns Old Notes acquired directly from the Company or an affiliate of the Company, the Company will file with the Commission the Shelf Registration Statement to cover resales of the "Transfer Restricted Notes" (as defined) by the holders thereof. The Company will use reasonable efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. For purposes of the foregoing, "Transfer Restricted Notes" means each Old Note until (i) the date on which such Old Note has been exchanged by a person other than a broker-dealer for a New Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer, of an Old Note for a New Note, the date on which such New Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of this Prospectus, (iii) the date on which such Old Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Old Note is distributed to the public pursuant to Rule 144 under the Securities Act. Under existing Commission interpretations, the Transfer Restricted Notes would, in general, be freely transferable after the Exchange Offer without further registration under the Securities Act; provided that in the case of broker-dealers participating in the Exchange Offer, a prospectus meeting the requirements of the Securities Act will be delivered upon resale by such broker-dealer in connection with resales of the New Notes. The Company has agreed, for a period of 180 days after consummation of the Exchange Offer, to make available a prospectus meeting the requirements of the Securities Act to any such broker-dealer for use in connection with any resale of any New Notes acquired in the Exchange Offer. A broker-dealer which delivers such a prospectus to purchasers in connection with such resales will be subject to certain of the civil liability provisions under the Securities Act and will be bound by the provisions of the Registration Rights Agreement (including certain indemnification rights and obligations). Each holder of the Old Notes who wishes to exchange such Old Notes for New Notes in the Exchange Offer will be required to make certain representations, including representations that (i) any New Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in the distribution of the New Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or, if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the holder if not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the New Notes. If the holder is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. 97 100 The Registration Rights Agreement provides that: (i) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company will file an Exchange Offer registration statement with the Commission on or prior to 60 days after the date of original issuance of the Old Notes (the "Closing Date"), (ii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company will use its best efforts to have the Exchange Offer registration statement declared effective by the Commission on or prior to 120 days after the Closing Date, (iii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company will commence the Exchange Offer and use reasonable efforts to issue, on or prior to 20 business days after the date on which the Exchange Offer registration statement was declared effective by the Commission, New Notes in exchange for all Old Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file the Shelf Registration Statement, the Company will file prior to the later of (x) 60 days after the Closing Date or (y) 30 days after such filing obligation arises and use its best efforts to cause the Shelf Registration Statement to be declared effective by the Commission on or prior to 90 days after such obligation arises; provided that if the Company has not consummated the Exchange Offer within 180 days of the Closing Date, then the Company will file the Shelf Registration Statement with the Commission on or prior to the 181st day after the Closing Date. The Company shall use its best efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended until the third anniversary of the Closing Date or such shorter period that will terminate when all the Transfer Restricted Notes covered by the Shelf Registration Statement have been sold pursuant thereto. If (a) the Company fails to file any of the registration statements required by the Registration Rights Agreement on or before the date specified for such filing, (b) any of such registration statements are not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"), (c) the Company fails to consummate the Exchange Offer within 20 business days of the Effectiveness Target Date with respect to the Exchange Offer registration statement, or (d) the Shelf Registration Statement or the Exchange Offer registration statement is declared effective but thereafter, subject to certain exceptions, ceases to be effective or usable in connection with the Exchange Offer or resales of Transfer Restricted Notes, as the case may be, during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (a) through (d) above, a "Registration Default"), then the interest rate on Transfer Restricted Notes will increase ("Additional Interest"), with respect to the first 90-day period immediately following the occurrence of such Registration Default by 0.50% per annum and will increase by an additional 0.50% per annum with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of 2% per annum. Following the cure of all Registration Defaults, the accrual of Additional Interest will cease and the Interest rate will revert to the original rate. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. BOOK ENTRY; DELIVERY AND FORM The New Notes initially will be represented by a single, permanent global certificate in definitive, fully registered form (the "Global Note"). The Global Note will be deposited on the Closing Date with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of a nominee of DTC. THE GLOBAL NOTE The Company expects that pursuant to procedures established by DTC (i) upon the issuance of the Global Note, DTC or its custodian will credit, on its internal system, the principal amount of Notes 98 101 of the individual beneficial interest represented by such Global Note to the respective accounts for persons who have accounts with DTC and (ii) ownership of beneficial interest in the Global Note will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Such accounts initially will be designated by or on behalf of the Initial Purchasers and ownership of beneficial interests in the Global Note will be limited to persons who have accounts with DTC ("participants") or persons who hold interest through participants. So long as DTC or its nominee is the registered owner or holder of the New Notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the New Notes represented by such Global Note for all purposes under the Indenture. No beneficial owner of an interest in any Global Note will be able to transfer that interest except in accordance with DTC's procedures, in addition to those provided for under the Indenture. Payments of the principal of, premium, if any, and interest (including Additional Interest) on, the Global Note will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of the Company, the Trustee or any paying agent of the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. The Company expects that DTC or its nominee, upon receipt of any payment of principal, premium, if any, or interest (including Additional Interest) in respect of the Global Note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Note as shown on the records of DTC or its nominee. The Company also expects that payments by participants to owners of beneficial interest in the Global Note held through such participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in clearinghouse funds. If a holder requires physical delivery of a Certificated Security for any reason, including to sell Notes to persons in states which require physical delivery of the Certificated Securities, or to pledge such securities, such holder must transfer its interest in the Global Note in accordance with the normal procedures of DTC and with the procedures set forth in the Indenture. DTC has advised the Company that it will take any action permitted to be taken by a holder of New Notes (including the presentation of New Notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in the Global Note are credited and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the Indenture, DTC will exchange the Global Note for Certificated Securities, which it will distribute to its participants. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book entry changes in accounts of its participants, thereby eliminating the need for physical movement 99 102 of certificates. Participants include securities brokers and dealers banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. None of the Company, the Initial Purchasers or the Trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. CERTIFICATED SECURITIES If DTC is at any time unwilling or unable to continue as a depositary for the Global Note and a successor depositary is not appointed by the Company within 90 days, Certificated Securities will be issued in exchange for the Global Note. PLAN OF DISTRIBUTION Based on interpretations by the Staff set forth in no-action letters issued to third parties, the Company believes that New Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired Notes directly from the Company or (iii) broker-dealers who acquired Notes as a result of market-making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such New Notes are acquired in the ordinary course of such holders' business, and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such New Notes; provided that broker-dealers ("Participating Broker-Dealers") receiving New Notes in the Exchange Offer will be subject to a prospectus delivery requirement with respect to resales of such New Notes. To date, the Staff has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to transactions involving an exchange of securities such as the exchange pursuant to the Exchange Offer (other than a resale of an unsold allotment from the sale of the Old Notes to the Initial Purchasers) with the Prospectus contained in the Exchange Offer Registration Statement. Pursuant to the Registration Rights Agreement, the Company has agreed to permit Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use this Prospectus in connection with the resale of such New Notes. The Company and the Guarantors have agreed that, for a period of 180 days after the Expiration Date, they will make this Prospectus, and any amendment or supplement to this Prospectus, available to any broker-dealer that requests such documents in the Letter of Transmittal. Each holder of the Old Notes who wishes to exchange its Old Notes for New Notes in the Exchange Offer will be required to make certain representations to the Company as set forth in "The Exchange Offer -- Terms and Conditions of the Letter of Transmittal." In addition, each holder who is a broker-dealer and who receives New Notes for its own account in exchange for Old Notes that were acquired by it as a result of market-making activities or other trading activities, will be required to acknowledge that it will deliver a prospectus in connection with any resale by it of such New Notes. The Company will not receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, 100 103 through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the Exchange offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has agreed to pay all expenses incidental to the Exchange Offer other than commissions and concessions of any brokers or dealers and will indemnify holders of the Old Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act, as set forth in the Registration Rights Agreement. Pursuant to the Registration Rights Agreement, the Company has agreed to use its best efforts to cause the New Notes to be listed on the New York Stock Exchange. LEGAL MATTERS Certain legal matters regarding the validity of the New Notes offered hereby will be passed upon for the Company by Katten Muchin & Zavis, a partnership including professional corporations, Chicago, Illinois. INDEPENDENT PUBLIC ACCOUNTANTS The audited consolidated financial statements of the Company (excluding Dyno) at December 31, 1994, 1993 and 1992, and for each of the three years in the period ended December 31, 1994, included in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as stated in its report appearing herein. The audited combined financial statements of Dyno at December 31, 1994 and for the period then ended included in this Prospectus have been audited by Arthur Andersen & Co. GmbH, independent public accountants, as stated in its report appearing herein. In addition, the combined financial statements of Dyno at December 31, 1993, for the period ended December 31, 1993, and the combined statement of revenues and direct costs and expenses for the period ended December 31, 1992, included in this Prospectus have been audited by Deloitte & Touche, independent public accountants, as stated in their reports appearing herein. 101 104 INDEX TO FINANCIAL STATEMENTS WALBRO CORPORATION As of December 31, 1994, 1993 and 1992 and for the years ended December 31, 1994, 1993 and 1992 Report of Independent Public Accountants............................................. F-2 Consolidated Balance Sheets.......................................................... F-3 Consolidated Statements of Income.................................................... F-4 Consolidated Statements of Stockholders' Equity...................................... F-5 Consolidated Statements of Cash Flows................................................ F-6 Notes to Consolidated Financial Statements........................................... F-7
As of June 30, 1995 and for the six months ended June 30, 1995 and 1994 Unaudited Consolidated Balance Sheet as of June 30, 1995 and Audited Consolidated Balance Sheet as of December 31, 1994......................... F-37 Consolidated Statements of Income (Unaudited)........................................ F-38 Consolidated Statements of Cash Flows (Unaudited).................................... F-39 Notes to Consolidated Financial Statements (Unaudited)............................... F-40
THE FUEL SYSTEMS BUSINESS OF DYNO INDUSTRIER A.S As of December 31, 1994 and 1993 and for the years ended December 31, 1994 and 1993 Report of Independent Public Accountants............................................. F-47 Combined Balance Sheets.............................................................. F-49 Combined Income Statements........................................................... F-50 Combined Statements of Cash Flows.................................................... F-51 Notes to the Combined Financial Statements........................................... F-52
For the year ended December 31, 1992 Report of Independent Public Accountants............................................. F-62 Combined Statement of Revenues and Direct Costs and Expenses......................... F-63 Notes to the Financial Statements.................................................... F-64
As of June 30, 1995 and for the six months ended June 30, 1995 and 1994 Unaudited Combined Balance Sheets as of June 30, 1995 and 1994....................... F-66 Combined Income Statements (Unaudited)............................................... F-67 Combined Statements of Cash Flows (Unaudited)........................................ F-68 Notes to the Combined Financial Statements (Unaudited)............................... F-69
F-1 105 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors and Stockholders of Walbro Corporation: We have audited the accompanying consolidated balance sheets of Walbro Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994, 1993 and 1992, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Walbro Corporation and subsidiaries as of December 31, 1994, 1993 and 1992, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Note 3 to the consolidated financial statements, effective January 1, 1994, the Company changed its method of accounting for investments in debt and equity securities. In addition, as discussed in Note 10 to the consolidated financial statements, effective January 1, 1993, the Company changed its method of accounting for postretirement benefits other than pensions. ARTHUR ANDERSEN LLP Detroit, Michigan, February 14, 1995 (Except with respect to the matters discussed in Notes 20 and 21, as to which the date is June 30, 1995). F-2 106 WALBRO CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 -------- -------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current Assets: Cash............................................................ $ 4,540 $ 4,605 $ 8,248 Accounts receivable, net........................................ 66,333 44,676 40,369 Inventories..................................................... 31,439 26,898 23,938 Prepaid expenses and other...................................... 4,001 7,266 4,544 Deferred and refundable income taxes............................ 3,663 4,871 3,115 -------- -------- -------- Total Current Assets.......................................... 109,976 88,316 80,214 -------- -------- -------- Plant and Equipment, at cost: Land............................................................ 1,234 426 678 Buildings and improvements...................................... 44,668 43,689 34,385 Machinery and equipment......................................... 93,127 71,727 65,128 -------- -------- -------- 139,029 115,842 100,191 Less -- Accumulated depreciation................................ 50,737 41,666 34,635 -------- -------- -------- Net Plant and Equipment....................................... 88,292 74,176 65,556 -------- -------- -------- Other Assets: Funds held for construction..................................... 1,061 2,710 -- Joint ventures.................................................. 16,518 11,278 10,095 Investments..................................................... 10,797 8,057 5,988 Goodwill, net................................................... 16,905 16,937 16,620 Plant and equipment held for resale............................. 80 80 248 Notes receivable................................................ 4,366 3,616 1,974 Deferred income taxes........................................... 871 41 -- Other........................................................... 8,500 10,084 12,325 -------- -------- -------- Total Other Assets............................................ 59,098 52,803 47,250 -------- -------- -------- Total Assets.................................................. $257,366 $215,295 $193,020 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt............................... $ 8,442 $ 408 $ 7,069 Bank and other borrowings....................................... 6,970 5,375 2,642 Accounts payable................................................ 23,252 19,991 17,070 Accrued liabilities............................................. 12,077 11,500 8,881 Dividends payable............................................... 857 855 810 -------- -------- -------- Total Current Liabilities..................................... 51,598 38,129 36,472 -------- -------- -------- Long-Term Liabilities: Long-term debt, less current portion............................ 66,136 52,392 49,638 Pension obligations and other................................... 8,153 8,071 3,157 Deferred income taxes........................................... 2,439 2,557 3,843 Minority interest............................................... 1,125 -- -- -------- -------- -------- Total Long-Term Liabilities................................... 77,853 63,020 56,638 -------- -------- -------- Stockholders' Equity Common stock, $.50 par value; authorized 15,000,000; outstanding 8,564,576 in 1994, 8,551,782 in 1993, and 8,098,242 in 1992... 4,282 4,276 4,049 Paid-in capital................................................. 64,221 63,997 57,139 Retained earnings............................................... 55,855 44,686 38,422 Deferred compensation........................................... (1,225) (1,634) (2,042) Minimum pension liability adjustment............................ -- (520) (371) Unrealized gain on securities available for sale................ 1,428 -- -- Cumulative translation adjustments.............................. 3,354 3,341 2,713 -------- -------- -------- Total Stockholders' Equity.................................... 127,915 114,146 99,910 -------- -------- -------- Total Liabilities and Stockholders' Equity.................... $257,366 $215,295 $193,020 ======== ======== ========
The accompanying notes are an integral part of these statements. F-3 107 WALBRO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net Sales................................................... $325,205 $273,463 $241,416 Costs and Expenses: Cost of sales............................................. 261,501 216,804 185,712 Selling and administrative expenses....................... 39,318 33,043 33,614 Reorganization and restructuring charges.................. -- 1,760 -- -------- -------- -------- Operating Income............................................ 24,386 21,856 22,090 Other Expense (Income): Unrealized loss on marketable equity security............. -- -- 1,050 Interest expense.......................................... 3,862 2,594 3,704 Interest income........................................... (91) (35) (591) Foreign currency exchange loss............................ 2,602 1,495 566 Other..................................................... 111 572 350 -------- -------- -------- Income before provision for income taxes, minority interest, equity in (income) loss of joint ventures and cumulative effect of accounting change................. 17,902 17,230 17,011 Provision for income taxes.................................. 5,824 4,574 4,664 Minority interest........................................... 92 -- -- Equity in (income) loss of joint ventures................... (2,609) 89 (179) -------- -------- -------- Income before cumulative effect of accounting change........ 14,595 12,567 12,526 Cumulative effect of accounting change, net of tax benefit of $1,494 in 1993......................................... -- 2,900 -- -------- -------- -------- Net income............................................. $ 14,595 $ 9,667 $ 12,526 ======== ======== ======== Primary Income Per Share: Income before cumulative effect of accounting change...... $ 1.70 $ 1.47 $ 1.63 Cumulative effect of accounting change, net of tax benefit................................................ -- (.34) -- -------- -------- -------- Net income............................................. $ 1.70 $ 1.13 $ 1.63 ======== ======== ======== Fully Diluted Income Per Share: Income before cumulative effect of accounting change...... $ 1.70 $ 1.47 $ 1.58 Cumulative effect of accounting change, net of tax benefit................................................ -- (.34) -- -------- -------- -------- Net income............................................. $ 1.70 $ 1.13 $ 1.58 ======== ======== ========
The accompanying notes are an integral part of these statements. F-4 108 WALBRO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
UNREALIZED GAIN ON MINIMUM SECURITIES CUMULATIVE COMMON PAID-IN RETAINED DEFERRED PENSION AVAILABLE TRANSLATION STOCK CAPITAL EARNINGS COMPENSATION LIABILITY FOR SALE ADJUSTMENTS ------ ------- -------- ------------ --------- ---------- ----------- (IN THOUSANDS) Balance -- December 31, 1991............. $3,049 $17,355 $29,088 $ (2,450) $ -- $ -- $ 3,297 Net proceeds from public offering of 1,112,135 shares of common stock............. 556 25,720 -- -- -- -- -- Conversion of convertible subordinated notes into 827,086 shares of common stock....................... 414 12,794 -- -- -- -- -- Conversion of Series C redeemable preferred stock....................... 15 930 -- -- -- -- -- Exercise of stock options..... 15 340 -- -- -- -- -- ESOP debt payments............ -- -- -- 408 -- -- -- Net income.................... -- -- 12,526 -- -- -- -- Additional minimum pension liability................... -- -- -- -- (371) -- -- Cash dividends ($.40 per share)............ -- -- (3,192) -- -- -- -- Translation adjustments....... -- -- -- -- -- -- (584) ------ ------- ------- -------- ------- ------- ------- Balance -- December 31, 1992............. 4,049 57,139 38,422 (2,042) (371) -- 2,713 Conversion of convertible subordinated notes into 404,429 shares of common stock....................... 202 6,273 -- -- -- -- -- Exercise of stock options..... 25 585 -- -- -- -- -- ESOP debt payments............ -- -- -- 408 -- -- -- Net income.................... -- -- 9,667 -- -- -- -- Additional minimum pension liability................... -- -- -- -- (149) -- -- Cash dividends ($.40 per share)............ -- -- (3,403) -- -- -- -- Translation adjustments....... -- -- -- -- -- -- 628 ------ ------- ------- -------- ------- ------- ------- Balance -- December 31, 1993............. 4,276 63,997 44,686 (1,634) (520) -- 3,341 Change in accounting for securities available for sale -- January 1, 1994..... -- -- -- -- -- 2,096 -- Exercise of stock options..... 6 224 -- -- -- -- -- ESOP debt payments............ -- -- -- 409 -- -- -- Net income.................... -- -- 14,595 -- -- -- -- Additional minimum pension liability................... -- -- -- -- 520 -- -- Cash dividends ($.40 per share)............ -- -- (3,426) -- -- -- -- Change in market value of securities available for sale........................ -- -- -- -- -- (668) -- Translation adjustments....... -- -- -- -- -- -- 13 ------ ------- ------- -------- ------- ------ ------- Balance -- December 31, 1994............. $4,282 $64,221 $55,855 $ (1,225) $ -- $1,428 $3,354 ====== ======= ======= ======== ======= ====== ======
The accompanying notes are an integral part of these statements. F-5 109 WALBRO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 -------- -------- -------- (IN THOUSANDS) Cash Flows From Operating Activities: Net income.................................................. $ 14,595 $ 9,667 $ 12,526 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization.......................... 14,672 11,339 10,339 Cumulative effect of accounting change................. -- 2,900 -- Loss on disposition of assets.......................... 449 372 870 Minority interest...................................... 92 -- -- (Income) loss of joint ventures........................ (2,609) 89 (179) Reorganization and restructuring charges............... -- 754 -- Unrealized loss on marketable equity security.......... -- -- 1,050 Change in assets and liabilities, net of effects of acquisitions: Deferred income taxes............................... (681) (1,324) (1,117) Deferred pension obligations and other.............. 519 544 659 Accounts payable and accrued liabilities............ 704 4,220 (1,436) Accounts receivable, net............................ (18,463) (3,449) (8,078) Inventories......................................... (3,752) (2,752) (3,297) Prepaid expenses and other.......................... 4,951 (6,979) (3,767) -------- -------- -------- Total adjustments................................. (4,118) 5,714 (4,956) -------- -------- -------- Net cash provided by operating activities.............. 10,477 15,381 7,570 -------- -------- -------- Cash Flows From Investing Activities: Purchase of plant and equipment............................. (18,844) (20,260) (14,681) Acquisitions, net of cash acquired.......................... (1,480) 1,312 -- Purchase of other assets.................................... (2,615) (2,047) (3,455) Investment in joint ventures and other...................... (1,508) (1,333) (4,206) Proceeds from disposal of assets............................ 1,463 3,149 276 -------- -------- -------- Net cash used in investing activities.................. (22,984) (19,179) (22,066) -------- -------- -------- Cash Flows From Financing Activities: Net borrowings (repayments) under revolving line-of-credit agreements............................................... (27,739) (3,691) 8,834 Debt repayments............................................. (824) (2,617) (13,247) Proceeds from issuance of long-term debt.................... 45,000 9,000 6,300 Proceeds from issuance of common stock and options.......... 230 610 26,629 Retirement of redeemable preferred stock.................... -- -- (6,500) Cash dividends paid......................................... (3,424) (3,359) (2,992) -------- -------- -------- Net cash provided by (used in) financing activities.... 13,243 (57) 19,024 -------- -------- -------- Effect of exchange rate changes on cash..................... (801) 212 (513) -------- -------- -------- Net increase (decrease) in cash............................. (65) (3,643) 4,015 Cash at beginning of year................................... 4,605 8,248 4,233 -------- -------- -------- Cash at end of year......................................... $ 4,540 $ 4,605 $ 8,248 ======== ======== ========
The accompanying notes are an integral part of these statements. F-6 110 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. Principles of Consolidation: The consolidated financial statements include the accounts of Walbro Corporation and its wholly-owned and majority owned subsidiaries (the Company). Investments in joint ventures are generally accounted for under the equity method (Note 2). Significant transactions and balances among the Company and its subsidiaries have been eliminated in the consolidated financial statements. Foreign Currency Translation: The assets and liabilities of the Company's foreign operations are generally translated into U.S. dollars at current exchange rates, and revenues and expenses are translated at average exchange rates for the year. Resulting translation adjustments are reflected as a separate component of stockholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency, except those transactions which operate as a hedge of an identifiable foreign currency commitment or as a hedge of a foreign currency investment position, are included in the results of operations as incurred. Accounts Receivable: Accounts receivable are net of allowances for doubtful accounts of $732,000, $413,000 and $340,000 as of December 31, 1994, 1993 and 1992, respectively. Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories include raw materials and component parts, work-in-process and finished products. Work-in-process and finished products inventories include material, labor and manufacturing overhead costs. Inventory at December 31, 1994 consisted of the following (in thousands):
1994 ------- Raw materials and components.................................... $19,310 Work-in-process................................................. 6,915 Finished products............................................... 5,214 ------- $31,439 =======
Amounts included in work-in-process and finished products in 1993 and 1992 were not material. Plant and Equipment: The Company provides for depreciation of plant and equipment based upon the acquisition costs and the estimated service lives of depreciable assets. The straight-line method is the principal method used to compute depreciation for financial reporting purposes. However, the units-of-production method is used to compute depreciation of certain equipment. Estimated service lives of depreciable assets are as follows: buildings and improvements -- 30 years, machinery and equipment -- 5 to 10 years. Marketable Equity Securities: Effective January 1, 1994, the carrying value of marketable equity securities is market value (Note 3). During 1993 and 1992, the carrying value of marketable equity securities was based on the lower of cost or F-7 111 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) quoted market value. Net unrealized losses on non-current marketable equity securities that were deemed to be other than temporary were reflected in income. Realized gains and losses on the sale of marketable equity securities are recognized in income on the specific identification basis. Goodwill: Goodwill consists of purchase price and related acquisition costs in excess of the fair value of the identifiable net assets acquired. Goodwill is amortized on a straight-line basis over 15 to 40 years. The Company evaluates the carrying value of goodwill for potential impairment on an ongoing basis. Such evaluations compare operating income before amortization of goodwill of the operations to which goodwill relates to the amortization recorded. The Company also considers future anticipated operating results, trends and other circumstances in making such evaluations. Goodwill consisted of the following at December 31 (in thousands):
1994 1993 1992 ------- ------- ------- Goodwill...................................... $19,367 $18,943 $18,137 Less: Accumulated amortization................ (2,462) (2,006) (1,517) ------- ------- ------- $16,905 $16,937 $16,620 ======= ======= =======
Income Taxes: The consolidated financial statements for 1994 and 1993 have been prepared in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The adoption of SFAS No. 109 as of January 1, 1993 did not have a material impact on the consolidated financial statements of the Company. The consolidated financial statements for 1992 have been prepared in accordance with the provisions of SFAS No. 96, which was superseded by SFAS No. 109. The 1992 consolidated financial statements have not been restated to conform to the 1994 and 1993 presentation. Deferred income taxes represent the effect of cumulative temporary differences between income and expense items reported for financial statement and tax purposes, and between the bases of various assets and liabilities for financial statement and tax purposes. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence, it is deemed more likely than not that the asset will not be realized. Research and Development Costs: Research and development costs are charged to operations as incurred and amounted to $12,199,000, $9,484,000 and $9,040,000 for 1994, 1993 and 1992, respectively. Financial Instruments: The Company enters into interest rate swap agreements. The differential to be paid or received is accrued as interest rates change and is recognized over the life of the agreements. In order to manage exposure to fluctuations in foreign currency exchange rates, the Company regularly enters into forward currency exchange contracts. Gains and losses on contracts that hedge specific foreign currency commitments are deferred and recognized in net income in the period in which the related transaction is consummated. Gains and losses on contracts that hedge net investments in foreign joint ventures or subsidiaries are recognized as cumulative translation adjustments in stockholders' equity. Gains and losses on forward currency exchange contracts that do not qualify as hedges are recognized as other income or expense. F-8 112 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Per Share Information: Primary income per share is based on the weighted average number of shares outstanding during each period. Shares used in the per share calculations were 8,602,077 in 1994, 8,537,375 in 1993 and 7,675,974 in 1992. Fully diluted income per share is calculated by dividing income, after deducting interest on the subordinated debt, by the weighted average common shares outstanding during the period under the treasury stock method. Shares used in the per share calculations were 8,602,077 in 1994, 8,537,375 in 1993 and 8,160,472 in 1992. Reclassifications: Certain amounts in prior years' consolidated financial statements have been reclassified to conform with the presentation used in 1994. NOTE 2. JOINT VENTURES. The investments in joint ventures as of December 31 are as follows:
PERCENT BENEFICIAL OWNERSHIP ---------------------------- 1994 1993 1992 -------- -------- ---- Marwal Systems, S.A. ......................... 49% 49% 49% Walbro Korea Ltd. ............................ (Note 4) (Note 4) 50% Mitsuba-Walbro, Inc. ......................... 50% 50% 50% Marwal do Brasil, Ltda. ...................... 49% 49% -- Korea Automotive Fuel Systems, Ltd. .......... 49% -- --
The above joint ventures are generally involved in the design and manufacture of precision fuel systems products for the global automotive market. All of the above investments in joint ventures are accounted for using the equity method, except Walbro Korea Ltd. in 1994 and 1993 (Note 4). Certain adjustments are made to the joint ventures' income so that recorded income is stated in accordance with United States generally accepted accounting principles. At December 31, 1994, the cumulative effect of these adjustments was to increase the Company's equity in its joint ventures by approximately $1,300,000. At December 31, 1994, the amount included in retained earnings as undistributed earnings of foreign joint ventures was approximately $918,000. In December 1994, the Company entered into a joint venture (Korea Automotive Fuel Systems, Ltd.) with Daewoo Precision Industries in Korea. Korea Automotive Fuel Systems, Ltd. manufactures fuel sending units for the Korean automotive market. In February 1993, the Company entered into a joint venture (Marwal do Brasil, Ltda.) with Magneti Marelli, S.p.A. in Brazil. Marwal do Brasil, Ltda. manufactures and markets fuel system components to customers in South America. During 1992, the Company exercised an exchange option and liquidated its 50% investment in a former joint venture, Orbital-Walbro Corporation. As a result of this exchange transaction, the Company received $5.5 million in cash and approximately 3,746,600 shares of Orbital Engine Company Pty. Ltd., the parent company of the joint venture partner and a public company listed on the Australian stock exchange. The shares of stock received by the Company have been recorded at an amount equal to the Company's investment in the joint venture at the time the option was exercised. F-9 113 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Summarized combined financial information for joint ventures accounted for under the equity method is as follows (unaudited, in thousands):
AS OF DECEMBER 31, ------------------------------ 1994 1993 1992 -------- ------- ------- Balance sheet data: Current assets............................. $53,160 $35,773 $32,851 Non-current assets......................... 26,069 20,140 16,248 Current liabilities........................ 48,160 36,672 28,959 Non-current liabilities.................... 786 882 1,885
YEAR ENDED DECEMBER 31, ------------------------------ 1994 1993 1992 -------- ------- ------- Income statement data: Net sales.................................. $137,873 $80,722 $72,431 Gross profit............................... 29,283 15,063 14,671 Income before provision for income taxes... 8,136 962 291 Net income (loss).......................... 5,164 466 (362)
Dividends from joint ventures of approximately $38,000, $45,000 and $40,000 were received by the Company during 1994, 1993 and 1992, respectively. The Company has sales to joint ventures of approximately $20,407,000, $20,456,000 and $15,942,000 for 1994, 1993 and 1992, respectively. Included in accounts receivable are trade receivables from joint ventures of approximately $7,349,000, $1,882,000 and $5,064,000 for 1994, 1993 and 1992, respectively. The Company had purchases from joint ventures of approximately $15,329,000, $11,820,000 and $9,791,000 for 1994, 1993 and 1992, respectively. Included in accounts payable are trade payables to joint ventures of approximately $782,000 and $1,120,000 for 1994 and 1993, respectively. Trade payables to joint ventures were not material for 1992. NOTE 3. INVESTMENTS. Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This Statement requires that certain investments be classified into three separate categories: "held-to-maturity", "available-for-sale", and "trading", each with different accounting treatment. The Company has classified its investments in common stock securities as "available-for-sale" which requires the Company to record these investments at fair market value and record the gross unrealized holding gains and losses, after-tax, as a separate component of stockholders' equity. The impact of adoption at January 1, 1994 was to increase investments by approximately $3,225,000 and to increase stockholders' equity by $2,096,000, net of income taxes. As of December 31, 1994, the fair market value of the Company's investments was approximately $10,797,000, including gross unrealized holding gains of approximately $2,167,000 ($1,428,000 after-tax). During the year ended December 31, 1994, the gross unrealized holding gains decreased by approximately $1,058,000 ($668,000 after-tax), which was reflected as a change in stockholders' equity. At December 31, 1993 and 1992, the portfolio of noncurrent marketable equity securities includes gross unrealized gains of approximately $3,240,000 and $5,458,000, respectively. In 1990, the Company acquired 207,000 shares of common stock of Mitsuba Electric Company, its joint venture partner in Mitsuba-Walbro, Inc. The investment is treated as a noncurrent marketable equity security for financial statement presentation. Prior to 1992, any decrease in the market value of the Mitsuba Electric stock was determined to be temporary in nature. With the deterioration of the Japanese economy, the losses suffered by the Japanese automakers and their component suppliers along with the strengthening of the Yen in F-10 114 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1992, it was determined that the decline in value was deemed to be other than temporary in nature and a charge to earnings of $1,050,000 was recorded in the fourth quarter of 1992. NOTE 4. ACQUISITIONS. In January 1994, the Company acquired a 60% interest in Fujian Hualong Carburetor Co., Ltd. (Fujian), which manufactures and markets carburetors for two-wheeled vehicles in China. In connection with the acquisition, the Company exchanged approximately $1,500,000 for a 60% ownership interest in Fujian. This acquisition was accounted for as a purchase. The purchase price approximated the fair value of the net assets acquired. As a result, Fujian's balance sheet as of December 31, 1994 and its results of operations for the period then ended have been included in the Company's consolidated financial statements. In May 1994, the Company acquired a 100% ownership interest in an engineering firm in Canada (Walbro Canada) for an aggregate purchase price of $352,000. This acquisition was accounted for as a purchase. The excess of the purchase price over the fair value of the net assets acquired was approximately $424,000 and will be amortized over 15 years. As a result, Walbro Canada's balance sheet as of December 31, 1994 and its results of operations for the period since the date of acquisition have been included in the Company's consolidated financial statements. In April 1993, the Company purchased the interests of its joint venture partners in Walbro Korea Ltd. for a purchase price of approximately $640,000, including related expenses. As a result, the Company now has 100% ownership. Prior to this purchase, the Company owned 50% of Walbro Korea Ltd.'s common stock and accounted for its investment under the equity method of accounting. This acquisition was accounted for as a purchase. The excess of the purchase price over the fair value of net assets acquired was approximately $800,000. Walbro Korea Ltd. has been included in the Company's consolidated financial statements from the date of purchase. Pro forma results of these acquisitions, assuming they had taken place at the beginning of each year presented, would not be materially different from the results reported. NOTE 5. REORGANIZATION AND RESTRUCTURING CHARGES. During 1993, the Company recorded a pretax charge of $1,760,000 for employee separation costs in connection with a management reorganization, of which $1,006,000 was paid during the year. The remaining amount of $754,000 was paid during 1994. F-11 115 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6. LONG-TERM DEBT AND LINES OF CREDIT. Long-term debt consisted of the following at December 31 (in thousands):
1994 1993 1992 ------- ------- ------- 2004 Notes, unsecured, interest at 7.68%, payable in annual amounts from 1998 to 2004...................................... $45,000 $ -- $ -- Revolving credit loan, interest rate from LIBOR plus 5/8% to prime, unsecured............................................... -- 28,750 35,050 Industrial revenue bond, issued by Town of Ossian, Indiana, interest at a variable municipal bond rate, due in 2023........ 9,000 9,000 -- Industrial revenue bond, issued by City of Ligonier, Indiana, interest at a variable municipal bond rate plus 1%, payable in annual amounts from 2003 to 2007............................... 6,300 6,300 6,300 Convertible subordinated promissory notes, 8%, callable in April 1993, convertible into shares of common stock at a rate of one share for each $16.24 of principal............................. -- -- 6,568 Foreign bank note, payable in Japanese yen, interest at Japanese prime, due in May 1995......................................... 7,519 6,708 6,014 Foreign bank note, payable in Chinese Renminbi, interest at 9.8%, due in 1997.................................................... 348 -- -- ESOP credit agreement, secured, interest rate which approximates 86% of prime, payable in annual installments of $408,000....... 1,634 2,042 2,451 Capital lease obligations, interest at 7.5%, payable in monthly installments through February 2002............................. 4,710 -- -- Other............................................................ 67 -- 324 ------- ------- ------- 74,578 52,800 56,707 Less -- current portion.......................................... 8,442 408 7,069 ------- ------- ------- $66,136 $52,392 $49,638 ======= ======= =======
In October 1994, the Company sold $45,000,000 of 7.68% senior notes (2004 Notes). The 2004 Notes require quarterly interest payments due January 1, April 1, July 1 and October 1. The agreement requires the Company to maintain consolidated adjusted net worth of $85 million plus 25% of cumulative net income for each year beginning in 1995 and a funded debt to total capital ratio not greater than .65 to 1. In January 1993, the Company amended its revolving credit agreement increasing the Company's borrowing capacity under the agreement up to $80 million. The amended revolving credit agreement is subject to a commitment fee of 1/8% to 3/8% on the unused portion, bears interest at rates varying from LIBOR plus 5/8% to prime and expires in January 1996. The agreement requires the Company to maintain working capital of $20 million, a fixed charge coverage ratio of 2 to 1, a current ratio of not less than 1.5 to 1, consolidated tangible net worth of $65 million plus 50% of cumulative net income for each year beginning in 1993 and a leverage ratio of not more than 2 to 1. During 1994, the Company entered into an agreement to lease certain machinery under terms which qualified as a capital lease. As of December 31, 1994, assets recorded under this capital lease were approximately $5,109,000, net of accumulated amortization of approximately $18,000. Aggregate minimum principal payment requirements on long-term debt, including capital lease obligations, in each of the five years subsequent to December 31, 1994 are as follows: 1995 -- $8,442,000; 1996 -- $963,000; 1997 -- $1,421,000; 1998 -- $7,503,000; 1999 -- $7,144,000, and thereafter -- $49,105,000. F-12 116 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In addition to long-term debt, the Company and its subsidiaries have line of credit arrangements with foreign banks for short-term borrowings of approximately $11,919,000, $7,200,000 and $2,500,000 at December 31, 1994, 1993 and 1992, respectively. The weighted average interest rate on short-term bank borrowings outstanding under these arrangements was 6.7%, 5.6% and 3.9% as of December 31, 1994, 1993 and 1992, respectively. Certain of these borrowings are secured by certain plant and equipment. NOTE 7. COMMITMENTS AND CONTINGENCIES. The manufacture of automotive components entails the risk that a customer or governmental authority may require the recall of one of the Company's products or a product in which one of the Company's products has been installed. The Company has taken and will continue to take all reasonable precautions to avoid the risk of exposure to a recall or warranty claim that would have a material effect on the financial position of the Company. The Company does not believe that any insurance is available to protect against potential product recall/warranty liability. The Company provides for warranty claims on its products on an ongoing basis. Management believes that any liability resulting from these matters will not have a material impact on the financial position or future results of operations of the Company. NOTE 8. INCOME TAXES. The provisions of SFAS No. 109, "Accounting for Income Taxes" have been applied in the consolidated financial statements for the years ended December 31, 1994 and 1993. The provisions of SFAS No. 96, "Accounting for Income Taxes" have been applied in the consolidated financial statements for the year ended December 31, 1992. A summary of income before provision for income taxes, minority interest, equity in (income) loss of joint ventures, and cumulative effect of accounting change, and components of the provision are as follows (in thousands):
1994 1993 1992 ------- ------- ------- Income before provision for income taxes, minority interest, equity in (income) loss of joint ventures and cumulative effect of accounting change: Domestic................................. $12,873 $12,765 $13,749 Foreign.................................. 5,029 4,465 3,262 ------- ------- ------- $17,902 $17,230 $17,011 ======= ======= ======= Provision for income taxes: Currently payable -- Domestic................................. $ 3,313 $ 4,923 $ 4,042 Foreign.................................. 1,674 1,931 1,397 Utilization of tax credits............... (605) (1,075) -- ------- ------- ------- 4,382 5,779 5,439 ------- ------- ------- Deferred -- Domestic................................. 1,067 (1,161) (699) Foreign.................................. (14) (309) (76) Effect of change in U.S. statutory rate................................... -- (90) -- Change in beginning of year valuation allowance.............................. 389 355 -- ------- ------- ------- 1,442 (1,205) (775) ------- ------- ------- $ 5,824 $ 4,574 $ 4,664 ======= ======= =======
F-13 117 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Reconciliations of the U.S. Federal statutory income tax rates to the Company's consolidated effective income tax rates applicable to continuing operations are as follows:
1994 1993 1992 ---- ---- ---- U.S. Federal statutory income tax rate.............. 35.0% 35.0% 34.0% Increase (decrease) in effective income tax rate resulting from -- Differences between U.S. and foreign income tax rates................................. (1.2) .3 .4 Utilization of tax credits................... (3.4) (6.3) (8.7) Increase in valuation allowance.............. 2.2 -- -- Goodwill amortization........................ .9 .9 .9 Other, net................................... (1.0) (3.4) .8 ---- ---- ---- Effective income tax rates.......................... 32.5% 26.5% 27.4% ==== ==== ====
The components of the net deferred income tax (asset) liability at December 31, 1994 and 1993 are summarized as follows (in thousands):
1994 1993 ------- ------- Deferred income tax liabilities: Depreciation and basis difference.................... $ 5,342 $ 4,958 Employee benefits.................................... 1,470 1,535 Income on joint ventures............................. -- 556 Basis difference on foreign currency contracts....... 910 999 Unrealized gain on securities available for sale..... 739 -- Other................................................ 483 660 ------- ------- 8,944 8,708 ------- ------- Deferred income tax assets: Estimated net operating loss carryforwards........... (585) (585) Employee benefits.................................... (3,552) (3,135) Accruals............................................. (238) (1,276) Minimum pension liability adjustment................. -- (274) Inventory............................................ (613) (611) Accounts and notes receivable reserve................ (159) (179) Write-down of investment............................. (368) (368) Loss on joint ventures............................... (2,072) (2,646) Other................................................ (207) (150) ------- ------- (7,794) (9,224) ------- ------- Valuation allowance.................................. 744 355 ------- ------- (7,050) (8,869) ------- ------- Net deferred income tax (asset) liability.............. $ 1,894 $ (161) ======= =======
The net change in the valuation allowance during 1994 and 1993 was an increase of $389,000 and $355,000, respectively. F-14 118 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The sources of the timing differences and the related income tax effects which compose the deferred income tax provision for 1992 are as follows (in thousands):
1992 ---- Depreciation............................................... $ 143 Inventory cost capitalization for tax purposes............. (103) Reserve for restructuring costs............................ 68 ESOP contribution.......................................... (9) Gain on machinery and equipment............................ 5 Inventory reserve.......................................... (179) Employee benefits and bonuses.............................. (135) Account and note reserves.................................. (128) Plant closing reserve...................................... 388 Other...................................................... (825) ------ $ (775) ======
At December 31, 1994, the cumulative amount of undistributed earnings of foreign subsidiaries was approximately $16,500,000. No deferred U.S. income taxes have been provided on these earnings as such amounts are deemed to be permanently reinvested. If such earnings were remitted, the impact of foreign withholding taxes would not be significant. The Company has net operating loss carryforwards available from one of its subsidiaries of approximately $1,670,000. These carryforwards expire in the year 2003. Provisions for state income taxes are included in selling and administrative expenses and amounted to $1,203,000 in 1994, $722,000 in 1993 and $1,035,000 in 1992. NOTE 9. STOCK OPTION PLANS AND LONG-TERM INCENTIVE PLANS. The Company has a stock option plan, the Walbro Corporation 1983 Incentive Stock Option Plan (1983 Plan), under which 155,850 shares of common stock are reserved for issuance to officers and key employees. Options may be granted for periods of up to ten years at prices greater than or equal to the market value at the date of grant. In addition, during 1991, the Board of Directors authorized the Walbro Corporation Equity Based Long Term Incentive Plan, under which 428,900 shares of common stock are reserved for issuance to officers and key employees. During 1992, the stockholders of the Company approved approximately an additional 330,400 shares of common stock reserved for issuance to officers and key employees, bringing the total shares of common stock reserved for issuance to approximately 759,300. Options are granted yearly based on certain financial performance criteria as compared to the annual business plan. In addition, grants are awarded yearly which, when exercised, result in a cash bonus equal to the price of the common stock. If the Company's common stock price appreciates at a 17% compounded rate over a five year term, the number of grants awarded, valued at the common stock price, will equal the dollar amount necessary to exercise the stock options. Participants will receive a greater or lesser number of grants based on the actual market performance of the stock over the term of the plan. The number of grants outstanding was 30,915, 31,912 and 43,012 as of December 31, 1994, 1993 and 1992, respectively. F-15 119 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the stock option transactions of the 1983 Plan and the Equity Based Long Term Incentive Plan for the years ended December 31, 1992, 1993 and 1994 is as follows:
NUMBER OF OPTION PRICE SHARES (PER SHARE) --------- -------------- Outstanding and exercisable, December 31, 1991.................... 169,232 $ 9.25 -- 26.00 Granted......................................................... 49,599 26.00 Exercised....................................................... (29,972) 9.25 -- 15.25 Canceled........................................................ (1,000) 10.88 ------- Outstanding and exercisable, December 31, 1992.................... 187,859 9.25 -- 26.00 Granted......................................................... 73,380 27.13 -- 33.25 Exercised....................................................... (49,111) 9.25 -- 26.00 Canceled........................................................ (9,116) 26.00 ------- Outstanding and exercisable, December 31, 1993.................... 203,012 9.25 -- 33.25 Granted......................................................... 88,701 17.00 Exercised....................................................... (12,794) 10.88 -- 26.00 Canceled........................................................ (5,808) 10.88 -- 33.25 ------- Outstanding and exercisable, December 31, 1994.................... 273,111 $ 9.25 -- 33.25 =======
In 1991, the Company approved the Walbro Engine Management Corporation (EMC) Incentive Compensation Plan which covers selected officers and key employees of EMC. The purpose of the plan is to increase the proportion of officer and key employee compensation tied to the profitability and cash flow of EMC, a wholly-owned subsidiary of the Company. The plan requires EMC management to amortize over a seven-year period, in annual installments of interest and principal, an amount approximating the fair market value (FMV) of EMC at July 1, 1991. If all required payments have been made at the end of the fifth plan year, the participants will receive an amount equal to 15% of the FMV of EMC. At that time, if the payments made are less than 100% but greater than 70% of the required amortization amount, the participants are eligible to receive a pro-rata share of the 15% of FMV of EMC based on the actual repayment percentage achieved. The Company has accrued approximately $3,100,000, $1,480,000 and $180,000 as of December 31, 1994, 1993 and 1992, respectively, under this plan. NOTE 10. POSTRETIREMENT HEALTH BENEFITS. The Company provides postretirement health care, dental benefit and prescription drug coverage to a limited number of current retirees. The cost of these benefits was recognized as expense as premiums were paid and such amounts were not significant for the year ended December 31, 1992. Postretirement benefits are not available for active employees. Effective January 1, 1993, the Company changed its method of accounting for the cost of these benefits from a pay-as-you-go (cash) method to an accrual method as required by SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," and recognized the unfunded transition obligation of $4,394,000 ($2,900,000 after-tax) as a one-time cumulative effect of change in accounting. F-16 120 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table reconciles the status of the accrued postretirement benefits obligation at December 31 (in thousands):
1994 1993 ------ ------- Retirees................................................ $4,687 $ 5,572 Fully eligible active plan participants................. -- -- Other active plan participants.......................... -- -- ------ ------- 4,687 5,572 Plan assets at fair value............................... -- -- ------ ------- Accumulated postretirement benefit obligation in excess of plan assets........................................ 4,687 5,572 Unrecognized net loss................................... (190) (1,120) ------ ------- Accrued postretirement benefits obligation.............. $4,497 $ 4,452 ====== =======
Net periodic postretirement benefit cost consisted of the following for the years ended December 31, 1994 and 1993 (in thousands):
1994 1993 ------- ------- Interest cost............................................ $ 378 $ 321 Amortization of unrecognized net loss.................... 35 -- ----- ----- $ 413 $ 321 ===== =====
The unrecognized net loss in 1993 results from a change in the discount rate from 7.5% to 7.0%. The discount rate used in 1994 was 8.5%. For measurement purposes, an 11.3% annual rate of increase was assumed in per capita cost of covered health and dental care benefits for 1994. The rate was assumed to gradually decrease to 5% by the year 2003 and remain at that level thereafter. The health care cost trend rate assumption has a significant impact on the accumulated postretirement benefit obligation and on future amounts accrued. A one percentage point increase each year in the assumed health care cost would increase the accumulated postretirement benefit obligation at December 31, 1994 by $417,000 and the interest cost component of net periodic postretirement benefit cost for the year ended December 31, 1995 by $37,000. Effective January 1, 1994, the Company adopted the provisions of SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This Statement requires that employers accrue the cost of postemployment benefits during the employees' active service. The adoption of this Statement did not have a material effect on the Company's financial position or results of operations. NOTE 11. PENSION PLANS. The Company sponsors pension plans covering substantially all domestic collectively bargained and certain foreign employees. The plan covering domestic collectively bargained employees provides benefits of stated amounts for each year of service. Plans covering certain foreign employees provide payments at termination which are based upon length of service, compensation rate and whether termination was voluntary or involuntary. The Company annually contributes to the plan covering domestic employees amounts which are actuarially determined to provide the plan with sufficient assets to meet future benefit payment requirements. The plans covering foreign employees are generally not funded. Total pension expense amounted to $239,000 in 1994, $280,000 in 1993 and $526,000 in 1992. The Company recognizes currently the amount which would be payable if all employees covered by its foreign plan F-17 121 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) terminated voluntarily. Pension expense for the plan covering domestic employees is comprised of the following (in thousands):
1994 1993 1992 ----- ----- ----- Service cost...................................... $ 165 $ 157 $ 318 Interest on projected benefit obligation.......... 219 197 263 Actual return on assets........................... (182) (297) (219) Net amortization and deferral..................... 16 171 11 ----- ----- ----- $ 218 $ 228 $ 373 ===== ===== =====
The following table summarizes the funded status of the Company's domestic defined benefit pension plan and the related amounts recognized in the Company's consolidated balance sheets as of December 31, 1994, 1993 and 1992 (in thousands):
1994 1993 1992 ------- ------- ------- Actuarial present value of benefit obligation -- Vested......................................................... $(2,319) $(3,134) $(3,182) Nonvested...................................................... (314) (282) (252) ------- ------- ------- Accumulated benefit obligation................................. (2,633) (3,416) (3,434) Effects of salary progression.................................. -- -- -- ------- ------- ------- Projected benefit obligation................................... (2,633) (3,416) (3,434) ------- ------- ------- Plan assets -- Cash equivalents............................................... 321 344 444 Equity securities.............................................. 2,438 2,350 -- Fixed income securities........................................ -- -- 2,475 ------- ------- ------- 2,759 2,694 2,919 ------- ------- ------- Projected benefit obligation under (over) plan assets............ 126 (722) (515) Unamortized net asset at transition............................ (75) (97) (152) Unamortized net (gain) loss.................................... (74) 891 736 Adjustment to recognize minimum liability...................... -- (1,108) (892) Unrecognized prior service cost................................ 498 314 259 ------- ------- ------- Pension asset (liability) recorded in the consolidated balance sheets......................................................... $ 475 $ (722) $ (564) ======= ======= =======
SFAS No. 87, "Employers' Accounting for Pensions," required the Company to record a minimum liability as of December 31, 1993 and 1992. The assumption used in determining the funded status information shown above were as follows:
1994 1993 1992 ---- ---- ---- Discount rate........................................ 8.5% 6.5% 6.5% Long-term rate of return on assets................... 8.5% 6.5% 6.5%
The Company also sponsors a defined contribution plan under which the Company will make matching contributions of 50% of each participant's before-tax contribution (up to 6% of the participant's annual income) and retirement contribution of up to 3% (subject to change on an annual basis) of a participant's annual income. The cost of defined contributions charged to earnings during 1994, 1993 and 1992 was approximately $1,431,000, $1,416,000 and $1,361,000, respectively. F-18 122 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Certain non-union employees, excluding officers, are eligible to participate in the Walbro Corporation Employee Stock Ownership Plan (ESOP). The Company will make annual contributions to a trust in the form of either cash or common stock of the Company. The amount of the annual contribution is discretionary, except that it must be sufficient to enable the trust to meet its current obligations. The Company has guaranteed the ESOP's loan and is obligated to contribute sufficient cash to the trust to repay the loan. Contribution expense related to the ESOP amounted to $365,000, $302,000 and $321,000 in 1994, 1993 and 1992, respectively. Contribution expense is net of dividends of $210,000, $106,000 and $106,000 in 1994, 1993 and 1992, respectively. As of December 31, 1994, 1993 and 1992, the following are held by the ESOP: 170,000, 152,000 and 127,000 allocated shares, respectively and 82,000, 109,000 and 136,000 suspense (unallocated) shares, respectively, which are all committed-to-be-released. NOTE 12. DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to help meet financing needs and to reduce exposure to fluctuating foreign currency exchange rates. The Company is exposed to credit loss in the event of nonperformance by the other parties to the financial instruments described below. However, the Company does not anticipate nonperformance by the other parties. The Company does not engage in trading activities with these financial instruments and does not generally require collateral or other security to support these financial instruments. The notional amounts of derivatives summarized below do not represent the amounts exchanged by the parties and, thus, are not a measure of the exposure of the Company through its use of derivatives. The amounts exchanged are calculated on the basis of the notional amounts and the other terms of the derivatives. Financial Instruments with Off-Balance Sheet Risk The Company enters into various types of contracts to manage its foreign currency exchange risk and interest rate risk. A summary of these contracts (notional amounts) as of December 31 is as follows (in thousands):
1994 1993 1992 ------- ------- ------- Forward currency exchange contracts........... $14,000 $30,000 $31,000 Interest rate swaps........................... -- -- $15,000
The Company enters into forward currency exchange contracts to manage its exposure against foreign currency fluctuations related to firm commitments. As of December 31, 1994, the Company has one forward currency exchange contract maturing in 1995 which exchanges 86,332,000 French Francs. Total losses on this contract of approximately $1,800,000 were recorded as a deferred asset. This asset is being recognized based on actual purchases of the related foreign currency transaction. The amounts included in the equity in (income) loss of joint ventures in the accompanying consolidated statements of income related to this contract for the year ending December 31, 1994 was approximately $600,000. The Company enters into forward currency exchange contracts to hedge its equity investments in certain foreign joint ventures. During 1994, the Company had one forward currency exchange contract, which matured during 1994, which exchanged 44,100,000 French Francs. At December 31, 1994, losses of $1,020,000 on a hedge of a net investment in a foreign joint venture are included in stockholders' equity. The Company enters into forward currency exchange contracts to reduce its exposure against fluctuations in foreign currency exchange rates. During 1994, the Company had twenty-one forward currency exchange contracts which matured during 1994, which exchanged 1,133,000,000 Japanese Yen, 20,100,000 Deutsche Marks, and 15,100,000 Singapore Dollars. The amounts included in foreign currency exchange loss in the accompanying consolidated statements of income related to these contracts for the year ending December 31, 1994 were approximately $1,200,000. F-19 123 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company enters into interest rate swaps to manage its interest rate risk. As of December 31, 1992, these agreements effectively converted an aggregate principal amount of $15,000,000 of variable rate borrowings into fixed rate borrowings with interest rates ranging from 9.50% to 9.75%. These agreements matured during 1993. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and short-term financial instruments The fair values are estimated to be equal to carrying values because of the short-term, highly liquid nature of these instruments. Notes receivable The fair value is estimated using the expected future cash flows discounted at current interest rates. Marketable equity securities The fair value of marketable equity securities is estimated by quoted market prices when the investment is traded on a public stock exchange. For investments not publicly traded, a combination of book value and fair market value of assets is used (Note 3). Long-term debt The fair value of the Company's long-term debt is estimated using the expected future cash flows discounted at the current interest rates offered to the Company for debt of the same remaining maturities. Forward currency exchange contracts The fair value of forward currency exchange contracts is estimated by obtaining quotes from brokers. The estimated fair values of the Company's financial instruments are as follows (in thousands):
1994 1993 1992 ------------------- ------------------- ------------------- CARRYING FAIR CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE VALUE VALUE -------- ------- -------- ------- -------- ------- Notes receivable...................... $ 4,366 $ 4,860 $ 3,616 $ 4,049 $ 1,974 $ 1,974 Long-term debt........................ 74,578 73,513 52,800 52,542 56,707 56,422 Forward currency exchange contracts... (1,800) (1,800) -- (73) -- (150)
NOTE 13. LEASES. The Company has leased certain of its buildings, equipment and vehicles under operating leases. The leases involving buildings contain options enabling the Company to renew the leases at the end of the respective lease terms. Rent expense was approximately $3,324,000, $2,655,000 and $2,808,000 in 1994, 1993 and 1992, respectively. F-20 124 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Aggregate minimum future rentals under noncancellable leases are as follows (in thousands):
CAPITAL OPERATING LEASES LEASES ------- --------- 1995................................................... $ 850 $ 2,823 1996................................................... 850 2,046 1997................................................... 850 1,425 1998................................................... 850 833 1999................................................... 850 782 Thereafter............................................. 1,851 53 ------- -------- Total minimum lease payments........................... 6,101 $ 7,962 ======= Amount representing interest........................... 1,391 ------- Present value of net future minimum lease payments..... $ 4,710 =======
NOTE 14. ACCRUED LIABILITIES. Accrued liabilities consisted of the following at December 31 (in thousands):
1994 1993 1992 ------- ------- ------ Compensation................................... $ 5,123 $ 3,941 $3,957 Income taxes................................... 2,239 1,498 -- Reorganization and restructuring............... -- 754 360 Interest....................................... 147 407 413 Other.......................................... 4,568 4,900 4,151 ------- ------- ------ $12,077 $11,500 $8,881 ======= ======= ======
NOTE 15. STOCKHOLDERS' EQUITY. The Company has a stock rights plan which entitles the holder of each right, upon the occurrence of certain events, to purchase one one-hundredth of a share of a new series of preferred stock for $75. Furthermore, if the Company is involved in a merger or other business combination at any time after the rights become exercisable, the rights will entitle the holder to buy the number of shares of common stock of the acquiring company having a market value of twice the then current exercise price of each right. Alternatively, if a 15% or more shareholder acquires the Company by means of a reverse merger in which the Company and its stock survives, or engages in self-dealing transactions with the Company, or if any person acquires 50% or more of the Company's common stock, then each right not owned by a 15% or more shareholder will become exercisable for the number of shares of common stock of the Company having a market value of twice the then current exercise price of each right. The rights, which do not have voting rights, expire in December 1998 and may be redeemed by the Company at a price of $.01 per right at any time prior to their expiration or the time they become exercisable. The Company has authorized 1,000,000 shares of $1.00 par value preferred stock. NOTE 16. REDEEMABLE PREFERRED STOCK. In connection with the acquisition of the Whitehead Engineered Products Group (Whitehead) in 1988, the Company reserved 75,000 shares of preferred stock as Series C Non-Voting Participating Cumulative Preferred Stock. These shares were released from escrow in 1991 due to the attainment of certain performance targets by the Company's Whitehead operation. The preferred stock has a $1.00 par value and was redeemable F-21 125 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) in twelve semi-annual installments commencing January 1993. This $7,500,000 of preferred stock represents additional purchase price in connection with Whitehead and, as a result, the Company recorded $7,500,000 of additional goodwill in connection with the acquisition. During 1992, the Company redeemed the preferred stock at a redemption price of $6,500,000 in cash and 30,888 shares of common stock. NOTE 17. BUSINESS SEGMENT INFORMATION. The Company operates through its subsidiaries in the following industry segments: 1. Automotive, which designs, develops and manufactures fuel storage and delivery products for a broad range of U.S. and foreign manufacturers of passenger automobiles and light trucks (including minivans), and 2. Small engine, which designs, develops and manufactures diaphragm carburetors for portable engines, float feed carburetors for ground supported engines and ignition systems and other components for a variety of small engine products. The Company includes aftermarket operations for both the automotive and small engine markets within its small engine business segment. Selected financial information about the Company's business and geographic segments are as follows (in thousands):
1994 1993 1992 -------- -------- -------- Financial Information by Business Segment Net sales to customers: Automotive.................................. $204,563 $173,510 $156,172 Small engine................................ 135,505 114,116 95,285 -------- -------- -------- 340,068 287,626 251,457 Eliminations.................................. (14,863) (14,163) (10,041) -------- -------- -------- Total net sales............................... $325,205 $273,463 $241,416 ======== ======== ======== Operating profit (loss): Automotive.................................. $ 24,883 $ 20,416 $ 26,000 Small engine................................ 18,522 16,025 11,121 Corporate................................... (22,986) (19,300) (19,931) -------- -------- -------- Income before provision for income taxes and cumulative effect of accounting change...................................... $ 20,419 $ 17,141 $ 17,190 ======== ======== ======== Identifiable assets: Automotive.................................. $155,006 $122,440 $106,253 Small engine................................ 64,494 58,121 52,547 Corporate................................... 37,866 34,734 34,220 -------- -------- -------- Total identifiable assets..................... $257,366 $215,295 $193,020 ======== ======== ======== Depreciation and amortization: Automotive.................................. $ 6,320 $ 5,652 $ 4,326 Small engine................................ 5,841 4,908 4,872 Corporate................................... 2,511 779 1,141 -------- -------- -------- Total depreciation and amortization........... $ 14,672 $ 11,339 $ 10,339 ======== ======== ======== Capital expenditures: Automotive.................................. $ 10,101 $ 15,439 $ 10,854 Small engine................................ 5,113 4,508 3,673 Corporate................................... 3,630 313 154 -------- -------- -------- Total capital expenditures.................... $ 18,844 $ 20,260 $ 14,681 ======== ======== ========
F-22 126 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994 1993 1992 -------- -------- -------- Financial Information by Geographic Segment Net sales to customers: Domestic.................................... $260,710 $215,149 $194,568 Foreign..................................... 64,495 58,314 46,848 -------- -------- -------- 325,205 273,463 241,416 Net sales between geographic areas.......... 31,094 28,842 28,478 -------- -------- -------- 356,299 302,305 269,894 Eliminations.................................. (31,094) (28,842) (28,478) -------- -------- -------- Total net sales............................... $325,205 $273,463 $241,416 ======== ======== ======== Operating profit (loss): Domestic.................................... $ 37,040 $ 31,791 $ 32,545 Foreign..................................... 6,365 4,650 4,576 -------- -------- -------- 43,405 36,441 37,121 Corporate, net................................ (22,986) (19,300) (19,931) -------- -------- -------- Income before provision for income taxes and cumulative effect of accounting change...................................... $ 20,419 $ 17,141 $ 17,190 ======== ======== ======== Identifiable assets: Domestic.................................... $224,369 $191,999 $172,974 Foreign..................................... 32,997 23,296 20,046 -------- -------- -------- Total identifiable assets..................... $257,366 $215,295 $193,020 ======== ======== ========
The Company's foreign operations are located in East Asia (Japan, Singapore, South Korea and The People's Republic of China), Canada and Mexico. Sales between geographic areas are accounted for at cost plus a margin for profit. Operating profit consists of total sales less operating expenses, interest expense, research and development expense and income taxes. Identifiable assets are those assets used in the operations in each geographic area. Export sales from domestic locations were approximately $36,881,000, $47,876,000 and $30,174,000 for 1994, 1993 and 1992, respectively. The net assets of the Company's foreign operations were $24,598,000, $17,240,000 and $12,744,000 at December 31, 1994, 1993 and 1992, respectively. The Company's share of foreign net income was $3,369,000, $2,843,000 and $1,941,000, in 1994, 1993 and 1992, respectively. A majority of the Company's sales are to automobile manufacturing companies. Sales to certain major customers which exceeded 10% of consolidated sales are as follows. Sales to one such customer amounted to 30%, 30% and 33% of consolidated sales in 1994, 1993 and 1992, respectively. Sales to another such customer amounted to 23%, 21% and 20% of consolidated sales in 1994, 1993 and 1992, respectively. The Company's operations are in one business segment, the development, manufacture and sale of fuel systems and components. NOTE 18. SUPPLEMENTAL CASH FLOW INFORMATION. In 1994, 1993 and 1992, the Company paid $6,749,000, $4,458,000 and $6,078,000 for income taxes and $4,122,000, $2,591,000 and $3,487,000 for interest, respectively. F-23 127 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED). Selected quarterly financial information for the years ended December 31, 1994 and 1993, is as follows:
QUARTER ---------------------------------------- FIRST SECOND THIRD FOURTH TOTAL ------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 -- Net sales................................... $82,205 $83,976 $75,251 $83,773 $325,205 Cost of sales............................... 64,973 66,335 62,130 68,063 261,501 ------- ------- ------- ------- -------- Gross profit............................. $17,232 $17,641 $13,121 $15,710 $ 63,704 ======= ======= ======= ======= ======== Net income............................... $ 4,499 $ 4,461 $ 2,974 $ 2,661 $ 14,595 ======= ======= ======= ======= ======== Net income per share..................... $ .52 $ .52 $ .35 $ .31 $ 1.70 ======= ======= ======= ======= ======== 1993 -- Net sales................................... $66,903 $71,471 $64,374 $70,715 $273,463 Cost of sales............................... 51,435 55,516 50,604 59,249 216,804 ------- ------- ------- ------- -------- Gross profit............................. $15,468 $15,955 $13,770 $11,466 $ 56,659 ======= ======= ======= ======= ======== Income before cumulative effect of accounting change...................... $ 3,746 $ 3,889 $ 3,112 $ 1,820 $ 12,567 ======= ======= ======= ======= ======== Net income............................... $ 846 $ 3,889 $ 3,112 $ 1,820 $ 9,667 ======= ======= ======= ======= ======== Income per share before cumulative effect of accounting change................... $ .44 $ .45 $ .36 $ .21 $ 1.47 ======= ======= ======= ======= ======== Net income per share..................... $ .10 $ .45 $ .36 $ .21 $ 1.13 ======= ======= ======= ======= ========
F-24 128 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
DECEMBER 31, 1994 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS CURRENT ASSETS: Cash..................................... $ 75 $ 2,525 $ 1,940 $ -- $ 4,540 Accounts receivable, net................. 40,316 20,311 18,495 (12,789) 66,333 Inventories.............................. 24,732 6,120 587 -- 31,439 Prepaid expenses and other............... 3,728 733 701 (1,161) 4,001 Deferred and refundable income taxes..... 5,656 (1,169) (824) -- 3,663 -------- -------- -------- --------- -------- Total current assets................... 74,507 28,520 20,899 (13,950) 109,976 -------- -------- -------- --------- -------- PLANT AND EQUIPMENT, NET................... 64,044 14,292 9,848 108 88,292 -------- -------- -------- --------- -------- OTHER ASSETS: Funds held for construction.............. 1,061 -- -- -- 1,061 Joint ventures........................... 6,598 9,920 -- -- 16,518 Investments.............................. 4,395 239 89,092 (82,929) 10,797 Goodwill, net............................ 15,710 1,195 -- -- 16,905 Plant and equipment held for resale...... -- -- 80 -- 80 Notes receivable......................... -- -- 55,916 (51,550) 4,366 Deferred income taxes.................... -- 871 -- -- 871 Other.................................... 2,399 721 5,380 -- 8,500 -------- -------- -------- --------- -------- Total other assets..................... 30,163 12,946 150,468 (134,479) 59,098 -------- -------- -------- --------- -------- Total assets............................. $168,714 $ 55,758 $181,215 $(148,321) $257,366 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt........ $ 515 $ 7,519 $ 408 $ -- $ 8,442 Bank and other borrowings................ -- 6,970 -- -- 6,970 Accounts payable......................... 28,322 6,868 472 (12,410) 23,252 Accrued liabilities...................... 10,218 4,152 (775) (1,518) 12,077 Dividends payable........................ -- -- 857 -- 857 -------- -------- -------- --------- -------- Total current liabilities.............. 39,055 25,509 962 (13,928) 51,598 -------- -------- -------- --------- -------- LONG-TERM LIABILITIES: Long-term debt, less current portion..... 71,112 348 46,226 (51,550) 66,136 Pension obligations and other............ 648 949 6,556 -- 8,153 Deferred income taxes.................... 2,120 763 (444) -- 2,439 Minority interest........................ -- 1,125 -- -- 1,125 -------- -------- -------- --------- -------- Total long-term liabilities............ 73,880 3,185 52,338 (51,550) 77,853 -------- -------- -------- --------- -------- STOCKHOLDERS' EQUITY: Common stock, $.50 par value; authorized 15,000,000; outstanding 8,564,576 in 1994...................... -- 1,999 4,282 (1,999) 4,282 Paid-in capital.......................... -- 3,632 64,221 (3,632) 64,221 Retained earnings........................ 55,416 18,934 55,855 (74,350) 55,855 Deferred compensation.................... -- -- (1,225) -- (1,225) Unrealized gain on securities available for sale............................... -- -- 1,428 -- 1,428 Cumulative translation adjustments....... 363 2,499 3,354 (2,862) 3,354 -------- -------- -------- --------- -------- Total stockholders' equity............. 55,779 27,064 127,915 (82,843) 127,915 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity............................... $168,714 $ 55,758 $181,215 $(148,321) $257,366 ======== ======== ======== ========= ========
F-25 129 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS CURRENT ASSETS: Cash..................................... $ 431 $ 1,732 $ 2,442 $ -- $ 4,605 Accounts receivable, net................. 44,729 13,826 (3,208) (10,671) 44,676 Inventories.............................. 21,887 4,621 390 -- 26,898 Prepaid expenses and other............... 2,910 985 4,991 (1,620) 7,266 Deferred and refundable income taxes..... 983 188 3,700 -- 4,871 -------- -------- -------- --------- -------- Total current assets................... 70,940 21,352 8,315 (12,291) 88,316 -------- -------- -------- --------- -------- PLANT AND EQUIPMENT, NET: 54,415 11,971 7,682 108 74,176 -------- -------- -------- --------- -------- OTHER ASSETS: Funds held for construction.............. 2,710 -- -- -- 2,710 Joint ventures........................... 2,793 8,485 -- -- 11,278 Investments.............................. 2,479 -- 62,086 (56,508) 8,057 Goodwill, net............................ 16,166 771 -- -- 16,937 Plant and equipment held for resale...... -- -- 80 -- 80 Notes receivable......................... -- -- 63,666 (60,050) 3,616 Deferred income taxes.................... -- 41 -- -- 41 Other.................................... 2,615 1,432 6,037 -- 10,084 -------- -------- -------- --------- -------- Total other assets..................... 26,763 10,729 131,869 (116,558) 52,803 -------- -------- -------- --------- -------- Total assets............................... $152,118 $ 44,052 $147,866 $(128,741) $215,295 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt........ $ -- $ -- $ 408 $ -- $ 408 Bank and other borrowings................ -- 5,375 -- -- 5,375 Accounts payable......................... 22,567 8,931 418 (11,925) 19,991 Accrued liabilities...................... 16,630 1,754 (6,439) (445) 11,500 Dividends payable........................ -- -- 855 -- 855 -------- -------- -------- --------- -------- Total current liabilities.............. 39,197 16,060 (4,758) (12,370) 38,129 -------- -------- -------- --------- -------- LONG-TERM LIABILITIES: Long-term debt, less current portion..... 75,350 6,709 30,383 (60,050) 52,392 Pension obligations and other............ 45 783 7,243 -- 8,071 Deferred income taxes.................... 1,015 690 852 -- 2,557 -------- -------- -------- --------- -------- Total long-term liabilities............ 76,410 8,182 38,478 (60,050) 63,020 -------- -------- -------- --------- -------- STOCKHOLDERS' EQUITY: Common stock, $.50 par value; authorized 15,000,000; outstanding 8,551,782 in 1993................................... -- 1,985 4,276 (1,985) 4,276 Paid-in capital.......................... -- 1,770 63,997 (1,770) 63,997 Retained earnings........................ 36,511 14,328 44,686 (50,839) 44,686 Deferred compensation.................... -- -- (1,634) -- (1,634) Minimum pension liability adjustment..... -- -- (520) -- (520) Cumulative translation adjustments....... -- 1,727 3,341 (1,727) 3,341 -------- -------- -------- --------- -------- Total stockholders' equity............. 36,511 19,810 114,146 (56,321) 114,146 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity............................ $152,118 $ 44,052 $147,866 $(128,741) $215,295 ======== ======== ======== ========= ========
F-26 130 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS CURRENT ASSETS: Cash..................................... $ 3,116 $ 379 $ 4,753 $ -- $ 8,248 Accounts receivable, net................. 41,701 13,861 (2,138) (13,055) 40,369 Inventories.............................. 20,020 3,679 239 -- 23,938 Prepaid expenses and other............... 4,278 464 (198) -- 4,544 Deferred and refundable income taxes..... (3,834) 280 6,669 -- 3,115 -------- -------- -------- --------- -------- Total current assets................... 65,281 18,663 9,325 (13,055) 80,214 -------- -------- -------- --------- -------- PLANT AND EQUIPMENT, NET................... 44,514 13,051 7,991 -- 65,556 -------- -------- -------- --------- -------- OTHER ASSETS: Joint ventures........................... 1,803 8,292 -- -- 10,095 Investments.............................. (2,917) -- 51,275 (42,370) 5,988 Goodwill, net............................ 16,620 -- -- -- 16,620 Plant and equipment held for resale...... -- -- 248 -- 248 Notes receivable......................... -- -- 65,024 (63,050) 1,974 Other.................................... 2,977 953 8,395 -- 12,325 -------- -------- -------- --------- -------- Total other assets....................... 18,483 9,245 124,942 (105,420) 47,250 -------- -------- -------- --------- -------- Total assets............................... $128,278 $ 40,959 $142,258 $(118,475) $193,020 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt........ $ -- $ -- $ 7,069 $ -- $ 7,069 Bank and other borrowings................ -- 2,642 -- -- 2,642 Accounts payable......................... 19,945 5,400 527 (8,802) 17,070 Accrued liabilities...................... 15,973 1,390 (8,443) (39) 8,881 Dividends payable........................ -- -- 810 -- 810 -------- -------- -------- --------- -------- Total current liabilities.............. 35,918 9,432 (37) (8,841) 36,472 -------- -------- -------- --------- -------- LONG-TERM LIABILITIES: Long-term debt, less current portion..... 69,350 6,338 37,000 (63,050) 49,638 Pension obligations and other............ 644 576 1,937 -- 3,157 Deferred income taxes.................... (217) 612 3,448 -- 3,843 -------- -------- -------- --------- -------- Total long-term liabilities............ 69,777 7,526 42,385 (63,050) 56,638 -------- -------- -------- --------- -------- STOCKHOLDERS' EQUITY: Common stock, $.50 par value; authorized 15,000,000; outstanding 8,098,242 in 1992...................... -- 771 4,049 (771) 4,049 Paid-in capital.......................... -- 1,597 57,139 (1,597) 57,139 Retained earnings........................ 22,583 18,207 38,422 (40,790) 38,422 Deferred compensation.................... -- -- (2,042) -- (2,042) Minimum pension liability adjustment..... -- -- (371) -- (371) Cumulative translation adjustments....... -- 3,426 2,713 (3,426) 2,713 -------- -------- -------- --------- -------- Total stockholders' equity............. 22,583 24,001 99,910 (46,584) 99,910 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity............................... $128,278 $ 40,959 $142,258 $(118,475) $193,020 ======== ======== ======== ========= ========
F-27 131 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1994 ---------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------- (IN THOUSANDS) NET SALES............................. $296,779 $ 58,903 $ 1,021 $ (31,498) $ 325,205 COSTS AND EXPENSES: Cost of sales....................... 242,155 49,910 934 (31,498) 261,501 Selling and administrative expenses......................... 26,765 3,576 8,977 -- 39,318 -------- -------- -------- --------- --------- OPERATING INCOME (LOSS)............... 27,859 5,417 (8,890) -- 24,386 OTHER EXPENSE (INCOME): Interest expense.................... 4,911 1,366 2,428 (4,843) 3,862 Interest income..................... -- (4) (4,930) 4,843 (91) Foreign currency exchange loss (gain)........................... 260 (42) 2,384 -- 2,602 Other............................... (2) 18 95 -- 111 -------- -------- -------- --------- --------- Income before provision for income taxes, minority interest, equity in (income) loss of joint ventures and subsidiaries........................ 22,690 4,079 (8,867) -- 17,902 Provision (credit) for income taxes... 7,741 1,213 (3,130) -- 5,824 Minority interest..................... -- 92 -- -- 92 Equity in (income) loss of joint ventures............................ (1,509) (1,491) 391 -- (2,609) Equity in (income) of subsidiaries.... (4,265) -- (20,723) 24,988 -- -------- -------- -------- --------- --------- Net income............................ $ 20,723 $ 4,265 $ 14,595 $ (24,988) $ 14,595 ======== ======== ======== ========= =========
F-28 132 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1993 ------------------------------------------------------------------------------ WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ----------- --------------- ------------ (IN THOUSANDS) NET SALES.......................... $249,866 $ 51,647 $ 1,478 $ (29,528) $273,463 COSTS AND EXPENSES: Cost of sales.................... 201,092 43,372 1,868 (29,528) 216,804 Selling and administrative expenses...................... 24,445 3,587 5,011 -- 33,043 Reorganization and restructuring charges....................... -- -- 1,760 -- 1,760 -------- -------- --------- ---------- -------- OPERATING INCOME (LOSS)............ 24,329 4,688 (7,161) -- 21,856 OTHER EXPENSE (INCOME): Interest expense................. 5,282 482 1,833 (5,003) 2,594 Interest income.................. (8) (4) (5,026) 5,003 (35) Foreign currency exchange loss... 567 211 717 -- 1,495 Other............................ 255 123 194 -- 572 -------- -------- --------- ---------- -------- Income before provision for income taxes, equity in (income) loss of joint ventures and subsidiaries and cumulative effect of accounting change................ 18,233 3,876 (4,879) -- 17,230 Provision (credit) for income taxes............................ 5,411 1,412 (2,249) -- 4,574 Equity in (income) loss of joint ventures......................... 303 (214) -- -- 89 Equity in (income) of subsidiaries..................... (2,678) -- (15,197) 17,875 -- -------- -------- --------- ---------- -------- Income before cumulative effect of accounting change................ 15,197 2,678 12,567 (17,875) 12,567 Cumulative effect of accounting change, net of tax benefit of $1,494........................... -- -- 2,900 -- 2,900 -------- -------- --------- ---------- -------- Net income......................... $ 15,197 $ 2,678 $ 9,667 $ (17,875) $ 9,667 ======== ======== ========= ========= ========
F-29 133 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1992 ------------------------------------------------------------------------------ WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ----------- --------------- ------------ (IN THOUSANDS) NET SALES......................... $223,372 $ 40,636 $ 1,043 $ (23,635) $241,416 COSTS AND EXPENSES: Cost of sales................... 174,062 33,837 1,448 (23,635) 185,712 Selling and administrative expenses..................... 22,247 3,554 7,813 -- 33,614 -------- -------- --------- --------- -------- OPERATING INCOME (LOSS)........... 27,063 3,245 (8,218) -- 22,090 OTHER EXPENSE (INCOME): Interest expense................ 5,299 1,086 3,147 (5,828) 3,704 Interest income................. (529) (5) (5,885) 5,828 (591) Foreign currency exchange loss......................... 567 25 (26) -- 566 Other........................... -- -- 1,400 -- 1,400 -------- -------- --------- --------- -------- Income before provision for income taxes, equity in (income) loss of joint ventures and subsidiaries.................... 21,726 2,139 (6,854) -- 17,011 Provision (credit) for income taxes........................... 7,165 648 (3,149) -- 4,664 Equity in (income) loss of joint ventures........................ (255) 76 -- -- (179) Equity in (income) of subsidiaries.................... (1,415) -- (16,231) 17,646 -- -------- -------- --------- --------- -------- Net income........................ $ 16,231 $ 1,415 $ 12,526 $ (17,646) $ 12,526 ======== ======== ========= ========= ========
F-30 134 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1994 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS) Net cash provided by (used in) operating activities.............. $ 25,141 $ 2,323 $(16,987) $ -- $ 10,477 -------- -------- -------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment.................... (12,428) (2,729) (3,687) -- (18,844) Acquisitions, net of cash acquired..................... (1,480) -- -- -- (1,480) Purchase of other assets....... (985) -- (1,630) -- (2,615) Investment in joint ventures and other.................... (1,508) -- -- -- (1,508) Proceeds/(payments) of intercompany note receivable................... (8,500) -- 8,500 -- -- Proceeds from disposal of assets....................... 402 407 654 -- 1,463 -------- -------- -------- ------- -------- Net cash provided by (used in) investing activities.............. (24,499) (2,322) 3,837 -- (22,984) -------- -------- -------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under revolving line-of-credit agreements................... -- 1,011 (28,750) -- (27,739) Debt repayments................ (416) -- (408) -- (824) Proceeds from issuance of long-term debt............... -- -- 45,000 -- 45,000 Proceeds from issuance of common stock and options..... -- -- 230 -- 230 Cash dividends paid............ -- -- (3,424) -- (3,424) -------- -------- -------- ------- -------- Net cash provided by (used in) financing activities.............. (416) 1,011 12,648 -- 13,243 -------- -------- -------- ------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH.............................. (582) (219) -- -- (801) -------- -------- -------- ------- -------- NET INCREASE (DECREASE) IN CASH..... (356) 793 (502) -- (65) CASH AT BEGINNING OF YEAR........... 431 1,732 2,442 -- 4,605 -------- -------- -------- ------- -------- CASH AT END OF YEAR................. $ 75 $ 2,525 $ 1,940 $ -- $ 4,540 ======== ======== ======== ======= ========
F-31 135 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1993 -------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ----------- --------------- ------------ (IN THOUSANDS) Net cash provided by operating activities......................... $ 7,836 $ 1,220 $ 6,325 $ -- $ 15,381 -------- -------- ------- ----- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment..................... (17,688) (2,259) (313) -- (20,260) Acquisitions, net of cash acquired...................... 1,312 -- -- -- 1,312 Purchase of other assets........ (66) -- (1,981) -- (2,047) Investment in joint ventures and other......................... (1,333) -- -- -- (1,333) Proceeds/(payments) of intercompany note receivable.................... (3,000) -- 3,000 -- -- Proceeds from disposal of assets........................ 1,254 1,780 115 -- 3,149 -------- -------- ------- ----- -------- Net cash provided by (used in) investing activities............... (19,521) (479) 821 -- (19,179) -------- -------- ------- ----- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under revolving line-of-credit agreements.................... -- 2,609 (6,300) -- (3,691) Debt repayments................. -- (2,209) (408) -- (2,617) Proceeds from issuance of long-term debt................ 9,000 -- -- -- 9,000 Proceeds from issuance of common stock and options............. -- -- 610 -- 610 Cash dividends paid............. -- -- (3,359) -- (3,359) -------- -------- ------- ----- -------- Net cash provided by (used in) financing activities............... 9,000 400 (9,457) -- (57) -------- -------- ------- ----- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH............................... -- 212 -- -- 212 -------- -------- ------- ----- -------- NET INCREASE (DECREASE) IN CASH...... (2,685) 1,353 (2,311) -- (3,643) CASH AT BEGINNING OF YEAR............ 3,116 379 4,753 -- 8,248 -------- -------- ------- ----- -------- CASH AT END OF YEAR.................. $ 431 $ 1,732 $ 2,442 $ -- $ 4,605 ======== ======== ======= ====== ========
F-32 136 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1992 ----------------------------------------------------------------------------- WALBRO CONSOLIDATION CORPORATION AND GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ ------------- ------------ (IN THOUSANDS) Net cash provided by (used in) operating activities............ $ 19,057 $ 786 $(12,273) $ -- $ 7,570 Cash Flows From Investing Activities: Purchase of plant and equipment.................... (12,809) (1,607) (265) -- (14,681) Acquisitions, net of cash acquired..................... Purchase of other assets........ (715) (23) (2,717) -- (3,455) Investment in joint ventures and other........................ (4,206) -- -- -- (4,206) Proceeds/(payments) of intercompany note receivable................... (4,573) -- 4,573 -- -- Proceeds from disposal of assets....................... 35 194 47 -- 276 ---------- ---------- ---------- -------- ---------- Net cash provided by (used in) investing activities............ (22,268) (1,436) 1,638 -- (22,066) ---------- ---------- ---------- -------- ---------- Cash Flows from Financing Activities: Net borrowings (repayments) under revolving line-of-credit agreements................... -- 1,551 7,283 -- 8,834 Debt repayments................. -- (339) (12,908) -- (13,247) Proceeds from issuance of long term debt.................... 6,300 -- -- -- 6,300 Proceeds from issuance of common stock and options............ -- -- 26,629 -- 26,629 Retirement of Redeemable Preferred Stock.............. -- -- (6,500) -- (6,500) Cash dividends paid............. -- -- (2,992) -- (2,992) ---------- ---------- ---------- -------- ---------- Net cash provided by (used in) financing activities............ 6,300 1,212 11,512 -- 19,024 ---------- ---------- ---------- -------- ---------- Effect of Exchange Rate Changes on Cash............................ 22 (206) (329) -- (513) ---------- ---------- ---------- -------- ---------- Net Increase (Decrease) in Cash... 3,111 356 548 -- 4,015 Cash at Beginning of Year......... 5 23 4,205 -- 4,233 ---------- ---------- ---------- -------- ---------- Cash at End of Year............... $ 3,116 $ 379 $ 4,753 $ -- $ 8,248 ========== ========== ========== ======== ==========
F-33 137 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) Basis of Presentation -- In connection with the acquisition (the Dyno Acquisition) by the Company of the fuel systems business of Dyno Industrier A.S (Dyno) and the execution of a new $135,000,000 credit facility, the Company is offering $110,000,000 in aggregate principal amount of Senior Notes due in 2005 (the Notes) (See Note 21). The Notes will be guaranteed on a senior unsecured basis, jointly and severally, by each of the Company's principal wholly-owned domestic operating subsidiaries and certain of its indirect wholly-owned subsidiaries (the Guarantors). The Guarantors include Walbro Automotive Corporation, Walbro Engine Management Corporation, Whitehead Engineered Products, Inc. and Sharon Manufacturing Co. The condensed consolidating financial statements of the Guarantors are presented on pages F-25 through F-32 and should be read in connection with the consolidated financial statements of the Company. Separate financial statements of the Guarantors are not presented because the Guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes the condensed consolidating financial statements presented are more meaningful in understanding the financial position of the Guarantor Subsidiaries. Distributions -- There are no significant restrictions on the ability of the Guarantor Subsidiaries to make distributions to Walbro Corporation. Postretirement Health Benefits -- The Company provides postretirement health care, dental benefit and prescription drug coverage to a limited number of current retirees. Effective January 1, 1993, the Company changed its method of accounting for the cost of these benefits from a pay-as-you-go (cash) method to an accrual method as required by SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," and recognized the unfunded transition obligation of $4,394,000 ($2,900,000 after-tax) as a one-time cumulative effect of change in accounting in 1993. The net periodic postretirement benefit cost amounted to $413,000 in 1994 and $321,000 in 1993. These amounts are recorded under Parent Corporation in the accompanying Supplemental Guarantor Condensed Consolidating Financial Statements. As these costs relate to existing retirees, they have not been allocated to the guarantor subsidiaries. F-34 138 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) Combined Long-Term Debt of the Parent Corporation and Guarantor Subsidiaries -- Long-term debt of the Issuer and the Guarantor subsidiaries consisted of the following at December 31 (in thousands):
1994 1993 1992 ------- ------- ------- Senior notes, unsecured, interest at 7.68%, payable in annual amounts from 1998 to 2004...................................... $45,000 $ -- $ -- Revolving credit loan, interest rate from LIBOR plus 5/8% to prime, unsecured............................................... -- 28,750 35,050 Industrial revenue bond, issued by Town of Ossian, Indiana, interest at a variable municipal bond rate, due in 2023........ 9,000 9,000 -- Industrial revenue bond, issued by City of Ligonier, Indiana, interest at a variable municipal bond rate plus 1%, payable in annual amounts from 2003 to 2007............................... 6,300 6,300 6,300 Convertible subordinated promissory notes, 8%, callable in April 1993, convertible into shares of common stock at a rate of one share for each $16.24 of principal............................. -- -- 6,568 ESOP credit agreement, interest rate which approximates 86% of prime, payable in annual installments of $408,000.............. 1,634 2,042 2,451 Capital lease obligations, interest at 7.5%, payable in monthly installments through February 2002............................. 4,710 -- -- Other............................................................ 67 -- -- ------- ------- ------- 66,711 46,092 50,369 Less -- Current portion.......................................... 923 408 7,069 ------- ------- ------- $65,788 $45,684 $43,300 ======= ======= =======
For a more detailed description of the above indebtedness, see Note 6 of Notes to Consolidated Financial Statements. Aggregate minimum principal payment requirements on long-term debt, including capital lease obligations, in each of the five years subsequent to December 31, 1994 are as follows: 1995 - $923,000; 1996 - $963,000; 1997 - $1,073,000; 1998 - $7,503,000; 1999 - $7,144,000, and thereafter - $49,105,000. NOTE 21. SUBSEQUENT EVENTS. On April 7, 1995, the Company signed a definitive agreement to acquire the fuel systems business of Dyno Industrier A.S of Oslo, Norway (the Dyno Acquisition) for $130,000,000 in cash, which includes provisions for estimated closing adjustments and fees and expenses estimated at $6,000,000. Dyno is a leading designer, manufacturer and marketer of plastic mono-layer fuel tank systems and components to many European vehicle manufacturers, and has operations in France, Norway, Germany, Great Britain, Spain and Belgium. Consummation of the Dyno Acquisition is subject to certain conditions, including the consent of certain governmental bodies. In connection with the Dyno Acquisition, the Company is offering (the Offering) $110,000,000 in aggregate principal amount of 9 7/8% Senior Notes due 2005 (the Notes) and executing a new $135,000,000 credit facility (the New Credit Facility). Proceeds from the Offering and the New Credit Facility will be used to (i) finance the Dyno Acquisition; (ii) retire certain existing credit facilities and (iii) finance capital expenditures, working capital and other needs. F-35 139 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 21. SUBSEQUENT EVENTS (CONTINUED) The Notes will be general unsecured obligations of the Company with interest payable semi-annually. The Notes will be guaranteed by each of the Guarantors pursuant to the guarantees described in Note 20. Except as noted below, the Notes are not redeemable at the Company's option prior to July 15, 2000. Thereafter, the Notes will be redeemable, in whole or part, at the option of the Company at various redemption prices as set forth in the Note Indenture, plus accrued and unpaid interest thereon to the redemption date. In addition, prior to July 15, 1998, the Company may, at its option, redeem up to an aggregate of 30% of the principal amount of the Notes originally issued with the net proceeds from one or more public equity offerings at the redemption price specified in the Note Indenture plus accrued interest to the date of redemption. Also, in the event of a change in control, the Company will be obligated to make an offer to purchase all of the outstanding Notes at a redemption price of 101% of the principal amount thereof plus accrued interest to the date of repurchase. Also, in certain circumstances, the Company will be required to make an offer to repurchase the Notes at a price equal to 100% of the principal amount thereof, plus accrued interest to the date of repurchase, with the net cash proceeds of certain asset sales. The New Credit Facility consists of a $135,000,000 multi-currency revolving loan facility for the Company and certain of its wholly-owned domestic and foreign subsidiaries, including a $5,000,000 swing line facility and a $17,000,000 letter of credit facility. The New Credit Facility will have an initial term of five years, with annual one year extensions of the revolving credit portion of the facility available in the lender's discretion. At any time within three years after closing of the New Credit Facility, the Company may convert up to $70,000,000 of revolving credit loans under the New Credit Facility to term loans in minimum amounts of $15,000,000 with maturities not exceeding seven years from the closing of the New Credit Facility. Borrowings under the New Credit Facility will bear interest at a per annum rate equal to the agent's base rate or the prevailing interbank offered rate in the applicable offshore currency market, plus an additional margin ranging from 0.5% to 1.75% based on certain financial ratios of the Company. The annual letter of credit fee will range from 0.5% to 1.5% based on the same financial ratios. The Company will also be required to pay a quarterly unused facility fee. Borrowings under the New Credit Facility will be secured by first liens on the inventory, accounts receivable and certain intangibles of the Company and its wholly-owned domestic subsidiaries and by a pledge of 100% of the stock of wholly-owned domestic subsidiaries, and up to 65% of the stock of wholly-owned foreign subsidiaries. Collateral for the New Credit Facility will secure the 2004 Notes on an equal and ratable basis. The Company and its wholly-owned domestic subsidiaries will guarantee payment of domestic and foreign borrowings under the New Credit Facility. The Company's wholly-owned foreign subsidiaries will guarantee payment of foreign borrowings under the New Credit Facility. The Note Indenture and the New Credit Facility will contain numerous restrictive covenants including, but not limited to, the following matters: (i) maintenance of certain financial ratios and compliance with certain financial tests and limitations; (ii) limitations on payment of dividends, incurrence of additional indebtedness and granting of certain liens; (iii) restrictions on mergers, acquisitions, asset sales, sales of subsidiary stock, capital expenditures and investments; (iv) issuance of preferred stock by subsidiaries and (v) sale and leaseback transactions. See "Business -- Dyno Acquisition" and "Description of Other Indebtedness" elsewhere in this Offering Memorandum for further discussion. F-36 140 WALBRO CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
6/30/95 12/31/94 ----------- -------- (UNAUDITED) ASSETS Current Assets: Cash................................................................. $ 3,419 $ 4,540 Accounts receivable (net)............................................ 69,928 66,333 Inventories.......................................................... 33,939 31,439 Other current assets................................................. 8,688 7,664 --------- -------- Total Current Assets.............................................. 115,974 109,976 ---------- -------- Property, Plant & Equipment: Land, buildings & improvements....................................... 47,010 45,902 Machinery & equipment................................................ 116,682 93,127 ---------- -------- Subtotal.......................................................... 163,692 139,029 Less: Accumulated depreciation....................................... (57,209) (50,737) ---------- -------- Net Property, Plant & Equipment................................... 106,483 88,292 ---------- -------- Other Assets: Goodwill (net)....................................................... 19,025 16,905 Joint ventures, investments & other.................................. 46,007 42,193 ---------- -------- Total Other Assets................................................ 65,032 59,098 ---------- -------- Total Assets...................................................... $ 287,489 $257,366 ========= ======== LIABILITIES Current Liabilities: Current portion long-term debt....................................... $ 923 $ 8,442 Notes payable -- Banks............................................... 7,109 6,970 Accounts payable..................................................... 25,861 23,252 Accrued liabilities.................................................. 17,411 12,934 ---------- -------- Total Current Liabilities......................................... 51,304 51,598 ---------- -------- Long-term debt, net of current......................................... 86,322 66,136 Other long-term liabilities.......................................... 13,633 11,717 ---------- -------- Total Long-Term Liabilities....................................... 99,955 77,853 ---------- -------- Stockholders' Equity: Common stock, $.50 par value; authorized 25,000,000; outstanding 8,564,576 in 1995 and 1994........................................ 4,282 4,282 Paid-in capital...................................................... 64,221 64,221 Retained earnings.................................................... 63,050 55,855 Other Stockholders' Equity........................................... 4,677 3,557 ---------- -------- Total Stockholders' Equity........................................ 136,230 127,915 ---------- -------- Total Liabilities & Stockholders' Equity.......................... $ 287,489 $257,366 ========= ========
The accompanying notes are an integral part of these consolidated balance sheets. F-37 141 WALBRO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED ---------------------- 6/30/95 6/30/94 --------- --------- (UNAUDITED) Net Sales.............................................................. $ 188,291 $ 166,181 Cost of Sales & Expenses: Cost of sales........................................................ 150,585 131,308 Selling and administrative expenses.................................. 24,152 19,353 Interest expense, net................................................ 2,538 1,537 Other expense........................................................ 416 662 --------- --------- Total............................................................. 177,691 152,860 --------- --------- Income before income taxes and joint ventures.......................... 10,600 13,321 Provision for income taxes............................................. 3,751 4,953 Equity in (income) of joint ventures................................... (2,074) (592) --------- --------- Net income........................................................ $ 8,923 $ 8,960 ========= ========= Net income per share.............................................. $ 1.04 $ 1.04 ========= ========= Average shares outstanding............................................. 8,599,490 8,608,474
The accompanying notes are an integral part of these consolidated statements. F-38 142 WALBRO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED -------------------- 6/30/95 6/30/94 -------- -------- (UNAUDITED) Cash Flows From Operating Activities: Net income............................................................ $ 8,923 $ 8,960 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization.................................... 7,838 6,935 (Gain) loss on disposition of assets............................. 144 55 (Income) of joint ventures....................................... (2,074) (592) Changes in assets and liabilities: Deferred income taxes......................................... (1,800) 0 Deferred pension and other.................................... 2,442 1,368 Accounts payable and accrued liabilities...................... 6,108 1,294 Accounts receivable, net...................................... (197) (15,815) Inventories................................................... (1,634) (1,395) Prepaid expenses and other.................................... (1,729) (545) -------- -------- Total adjustments........................................... 9,098 (8,695) -------- -------- Net cash provided by operating activities........................ 18,021 265 -------- -------- Cash Flows From Investing Activities: Purchase of fixed assets.............................................. (20,730) (7,280) Acquisitions, net of cash acquired.................................... 105 0 Increase of other assets.............................................. (3,767) (1,332) Investment in joint ventures and other................................ (2,232) (1,611) Proceeds from disposal of assets...................................... 309 115 -------- -------- Net cash used in investing activities............................ (26,315) (10,108) -------- -------- Cash Flows From Financing Activities: Net borrowings under line-of-credit agreements........................ 10,787 7,611 Debt repayments....................................................... (634) 0 Proceeds from issuance of debt........................................ 0 153 Proceeds from issuance of common stock................................ 0 219 Cash dividends paid................................................... (1,713) (1,711) -------- -------- Net cash provided by (used in) financing activities.............. 8,440 6,272 -------- -------- Effect of exchange rate changes on cash............................... (1,267) (1,013) -------- -------- Net decrease in cash.................................................. (1,121) (4,584) Cash beginning balance................................................ 4,540 4,605 -------- -------- Cash ending balance................................................... $ 3,419 $ 21 ======== ========
The accompanying notes are an integral part of these consolidated statements. F-39 143 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUBSEQUENT EVENT On July 27, 1995, the Company, through certain of its wholly-owned subsidiaries, acquired the plastic fuel tank business of Dyno Industrier AS, (Dyno) Oslo, Norway. The plastic fuel tank division of Dyno supplies plastic fuel tank systems to most European vehicle manufacturers through its operations in France, Spain, Norway, Great Britain, Germany, and Belgium. Dyno Fuel Systems Business sales approximated $147 million in 1994. The net purchase price for the acquisition of Dyno's Fuel Systems Business was approximately $124 million (approximately $138 million less approximately $14 million in cash acquired by the Company), exclusive of expenses of the transaction. The purchase price is subject to certain post-closing adjustments. The Company financed the acquisition through a combination of a private placement of $110 million of 9 7/8% Senior Notes due 2005 (the Notes) and a new $135 million credit facility (the New Credit Facility) with a group of Commercial Banks. The Notes are general unsecured obligations of the Company with interest payable semi-annually. The Notes are guaranteed by each of the significant domestic wholly-owned subsidiaries. Except as noted below, the Notes are not redeemable at the Company's option prior to July 15, 2000. Thereafter, the Notes will be redeemable, in whole or in part, at the option of the Company at various redemption prices as set forth in the Note Indenture, plus accrued and unpaid interest thereon to the redemption date. In addition, prior to July 15, 1998, the Company may, at its option, redeem up to an aggregate of 30% of the principal amount of the Notes originally issued with the net proceeds from one or more public equity offerings at the redemption price specified in the Note Indenture plus accrued interest to the date of redemption. Also, in the event of a change in control, the Company will be obligated to make an offer to purchase all of the outstanding Notes at a redemption price of 101% of the principal amount thereof plus accrued interest to the date of repurchase. Also, in certain circumstances, the Company will be required to make an offer to repurchase the Notes at a price equal to 100% of the principal amount thereof, plus accrued interest to the date of repurchase, with the net cash proceeds of certain asset sales. The New Credit Facility consists of a $135,000,000 multi-currency revolving loan facility for the Company and certain of its wholly-owned domestic and foreign subsidiaries, including a $5,000,000 swing line facility and a $17,000,000 letter of credit facility. The New Credit Facility has an initial term of five years, with annual one year extensions of the revolving credit portion of the facility available in the lender's discretion. At any time within three years after closing of the New Credit Facility, the Company may convert up to $70,000,000 of revolving credit loans under the New Credit Facility to term loans in minimum amounts of $15,000,000 with maturities not exceeding seven years from the closing of the New Credit Facility. Borrowings under the New Credit Facility bear interest at a per annum rate equal to the agent's base rate or the prevailing interbank offered rate in the applicable offshore currency market, plus an additional margin ranging from 0.5% to 1.75% based on certain financial ratios of the Company. The annual letter of credit fee will range from 0.5% to 1.5% based on the same financial ratios. The Company will also be required to pay a quarterly unused facility fee. Borrowings under the New Credit Facility are secured by first liens on the inventory, accounts receivable and certain intangibles of the Company and its wholly-owned domestic subsidiaries and by a pledge of 100% of the stock of wholly-owned domestic subsidiaries, and 65% of the stock of whollyowned foreign subsidiaries. Collateral for the New Credit Facility secures the 2004 Notes on an equal and ratable basis. The Company and its wholly-owned domestic subsidiaries guarantee payment of domestic and foreign borrowings under the New Credit Facility. The Company's wholly-owned foreign subsidiaries guarantee payment of foreign borrowings under the New Credit Facility. F-40 144 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUBSEQUENT EVENT (CONTINUED) The Note Indenture and the New Credit Facility contain numerous restrictive covenants including, but not limited to, the following matters: (i) maintenance of certain financial ratios and compliance with certain financial tests and limitations; (ii) limitations on payment of dividends, incurrence of additional indebtedness and granting of certain liens; (iii) restrictions on mergers, acquisitions, asset sales, sales of subsidiary stock, capital expenditures and investments; (iv) issuance of preferred stock by subsidiaries and (v) sale and leaseback transactions. F-41 145 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
JUNE 30, 1995 ---------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ ---------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current Assets: Cash................................ $ 134 $ 2,667 $ 618 $ -- $ 3,419 Accounts receivable -- net:......... 28,651 18,709 36,800 (14,232) 69,928 Inventories......................... 24,851 7,162 1,926 -- 33,939 Prepaid expenses and other.......... 3,076 1,874 734 (674) 5,010 Deferred and refundable income taxes............................ 5,935 (1,153) (1,104) -- 3,678 -------- -------- -------- ---------- -------- Total Current Assets........... 62,647 29,259 38,974 (14,906) 115,974 -------- -------- -------- ---------- -------- Plant and Equipment -- Net:........... 77,358 15,828 13,297 -- 106,483 -------- -------- -------- ---------- -------- Other Assets: Funds held for construction......... 1,061 -- -- -- 1,061 Joint ventures...................... 10,765 12,543 -- -- 23,308 Investments......................... 6,275 271 98,953 (97,011) 8,488 Goodwill, net....................... 15,482 1,205 2,338 -- 19,025 Plant and equipment held for resale........................... -- -- 80 -- 80 Notes receivable.................... -- -- 52,117 (51,550) 567 Deferred income taxes............... -- -- -- -- -- Other............................... 5,885 854 5,764 -- 12,503 -------- -------- -------- ---------- -------- Total other assets............. 39,468 14,873 159,252 (148,561) 65,032 -------- -------- -------- ---------- -------- Total assets................... $179,473 $ 59,960 $211,523 $ (163,467) $287,489 ======== ======== ======== ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long term debt... $ 515 $ -- $ 408 $ -- $ 923 Bank and other borrowings........... -- 7,109 -- -- 7,109 Accounts payable.................... 25,843 8,148 5,293 (13,423) 25,861 Accrued liabilities................. 9,031 5,731 2,626 (834) 16,554 Dividends payable................... -- -- 857 -- 857 -------- -------- -------- ---------- -------- Total Current Liabilities...... 35,389 20,988 9,184 (14,257) 51,304 -------- -------- -------- ---------- -------- Long Term Liabilities: Long Term Debt -- Less current portion.......................... 70,825 8,920 58,127 (51,550) 86,322 Pension obligations and other....... 932 1,097 8,098 -- 10,127 Deferred income taxes............... 1,944 318 (225) -- 2,037 Minority interest................... -- 1,469 -- -- 1,469 -------- -------- -------- ---------- -------- Total Long Term Liabilities.... 73,701 11,804 66,000 (51,550) 99,955 -------- -------- -------- ---------- -------- Stockholders' Equity: Common stock, $.50 par value; authorized 15,000,000; outstanding 8,564,576............ -- 1,999 4,282 (1,999) 4,282 Paid-in capital..................... -- 3,632 64,221 (3,632) 64,221 Retained earnings................... 68,465 18,125 63,155 (86,695) 63,050 Deferred compensation............... -- -- (975) -- (975) Unrealized gain on securities available for sale............... -- -- 625 -- 625 Cumulative translation adjustments...................... 1,918 3,412 5,031 (5,334) 5,027 -------- -------- -------- ---------- -------- Total Stockholders' Equity..... 70,383 27,168 136,339 (97,660) 136,230 -------- -------- -------- ---------- -------- Total Liabilities and Stockholders' Equity........ $179,473 $ 59,960 $211,523 $ (163,467) $287,489 ======== ======== ======== ========== ========
F-42 146 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 ----------------------------------------------------------------------------- WALBRO CONSOLIDATION CORPORATION AND GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ ------------- ------------ (IN THOUSANDS) Net Sales......................... $168,563 $ 37,888 $ 1,814 $ (19,974) $188,291 Costs and Expenses: Cost of sales................... 137,805 31,562 1,192 (19,974) 150,585 Selling and administrative expenses..................... 9,962 1,703 5,825 -- 17,490 Research and development expenses..................... 4,948 763 951 -- 6,662 -------- ------- -------- -------- -------- Operating Income.................. 15,848 3,860 (6,154) -- 13,554 -------- ------- -------- -------- -------- Other Expense (Income): Interest expense................ 2,697 242 1,884 (2,165) 2,658 Interest income................. (556) 524 (2,253) 2,165 (120) Other, net...................... (84) 5 495 -- 416 -------- ------- -------- -------- -------- Income before provision for income taxes, minority interest, equity in (income) loss of joint ventures and subsidiaries....... 13,791 3,089 (6,280) -- 10,600 Provision for income taxes........ 4,754 1,143 (2,146) -- 3,751 Equity in (income) loss of joint ventures........................ (497) (1,577) -- -- (2,074) Equity in income of subsidiaries.................... (3,523) -- (13,057) 16,580 -- -------- ------- -------- -------- -------- Net income........................ $ 13,057 $ 3,523 $ 8,923 $ (16,580) $ 8,923 ======== ======= ======== ======== ========
F-43 147 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1994 ----------------------------------------------------------------------------- WALBRO CONSOLIDATION CORPORATION AND GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ ------------- ------------ (IN THOUSANDS) Net Sales......................... $153,155 $ 28,909 $ 243 $ (16,126) $166,181 Costs and Expenses: Cost of sales................... 123,126 24,130 178 (16,126) 131,308 Selling and administrative expenses..................... 8,554 1,642 3,342 -- 13,538 Research and development expenses..................... 4,782 233 800 -- 5,815 -------- ------- -------- -------- -------- Operating Income.................. 16,693 2,904 (4,077) -- 15,520 Other Expense (Income): Interest expense................ 2,891 232 902 (2,484) 1,541 Interest income................. -- (2) (2,486) 2,484 (4) Other, net...................... 53 10 599 -- 662 -------- ------- -------- -------- -------- Income before provision for income taxes, minority interest, equity in (income) loss of joint ventures and subsidiaries....... 13,749 2,664 (3,092) -- 13,321 Provision for income taxes........ 4,935 1,069 (1,051) -- 4,953 Equity in (income) loss of joint ventures........................ 274 (866) -- -- (592) Equity in income of subsidiaries.................... (2,461) -- (11,001) 13,462 -- -------- ------- -------- -------- -------- Net income........................ $ 11,001 $ 2,461 $ 8,960 $ (13,462) $ 8,960 ======== ======= ======== ======== ========
F-44 148 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 -------------------------------------------------------------- WALBRO CORPORATION COMBINED GUARANTOR (PARENT ELIMINATION ISSUER AND SUBSIDIARIES CORPORATION) ENTRIES GUARANTOR TOTAL ------------ ------------ ----------- --------------- (IN THOUSANDS) Net cash provided by (used in) operating activities................................. $ 28,755 $(10,656) $ -- $ 18,099 -------- -------- ---- --------- Cash Flows from Investing Activities: Purchase of plant and equipment............ (18,315) (960) -- (19,275) Acquisitions, net of cash acquired......... -- 105 -- 105 Purchase of other assets................... (3,362) (368) -- (3,730) Investment in joint ventures and other..... (6,862) 1,108 -- (5,754) Proceeds from disposal of assets........... 89 198 -- 287 -------- -------- ---- --------- Net cash provided by (used in) investing activities................................. (28,450) 83 -- (28,367) -------- -------- ---- --------- Cash Flows from Financing Activities: Net borrowings (repayments) under revolving line-of-credit agreements............... -- 11,000 -- 11,000 Debt repayments............................ (253) (36) -- (289) Cash dividends paid........................ -- (1,713) -- (1,713) -------- -------- ---- --------- Net cash provided by (used in) financing activities................................. (253) 9,251 -- 8,998 -------- -------- ---- --------- Effect of Exchange Rate Changes on Cash...... 7 -- -- 7 -------- -------- ---- --------- Net Increase (Decrease) in Cash.............. 59 (1,322) -- (1,263) Cash at Beginning of Year.................... 75 1,940 -- 2,015 -------- -------- ---- --------- Cash at End of Period........................ $ 134 $ 618 $ -- $ 752 ======== ======== ==== =========
F-45 149 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1994 -------------------------------------------------------------- WALBRO CORPORATION COMBINED GUARANTOR (PARENT ELIMINATION ISSUER AND SUBSIDIARIES CORPORATION) ENTRIES GUARANTOR TOTAL ------------ ------------ ----------- --------------- (IN THOUSANDS) Net cash provided by (used in) operating activities................................. $ 15,116 $(15,315) $-- $ (199) -------- -------- --- --------- Cash Flows from Investing Activities: Purchase of plant and equipment............ (6,458) (108) -- (6,566) Purchase of other assets................... (579) (761) -- (1,340) Investment in joint ventures and other..... (3,289) -- -- (3,289) Proceeds from disposal of assets........... 117 6 -- 123 -------- -------- --- --------- Net cash provided by (used in) investing activities................................. (10,209) (863) -- (11,072) -------- -------- --- --------- Cash Flows from Financing Activities: Net borrowings (repayments) under revolving line-of-credit agreements............... -- 7,180 -- 7,180 Debt repayments............................ (5,500) 5,500 -- -- Proceeds from issuance of long term debt... 153 -- -- 153 Proceeds from issuance of common stock and options................................. -- 219 -- 219 Cash dividends paid........................ -- (1,711) -- (1,711) -------- -------- --- --------- Net cash provided by (used in) financing activities................................. (5,347) 11,188 -- 5,841 -------- -------- --- --------- Effect of Exchange Rate Changes on Cash...... -- -- -- -- -------- -------- --- --------- Net Increase (Decrease) in Cash.............. (440) (4,990) -- (5,430) Cash at Beginning of Year.................... 431 2,442 -- 2,873 -------- -------- --- --------- Cash at End of Period........................ $ (9) $ (2,548) $-- $ (2,557) ======== ======== === =========
F-46 150 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Dyno Industrier A.S Oslo, Norway: We have audited the accompanying combined balance sheet of the Fuel Tank System Division (the "Division") of Dyno Industrier A.S ("Dyno") as of December 31, 1994, and the related combined statements of income, stockholders' and divisional equity, and cash flows for the year then ended. These financial statements are the responsibility of the Division and Dyno's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 audit provides a reasonable basis for our opinion. In our opinion, such 1994 financial statements present fairly, in all material respects, the combined financial position of the Division as of December 31, 1994, and the combined results of operations and its combined cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN & CO. GmbH Stuttgart, Germany May 12, 1995 F-47 151 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors of Dyno Industrier A.S: We have audited the accompanying combined balance sheet of the Fuel Tank System Division of Dyno Industrier A.S (the "Division") as of December 31, 1993, and the related combined statements of income, and cash flow for the year then ended. These combined financial statements are the responsibility of the Division's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 audit provides a reasonable basis for our opinion. In our opinion, such 1993 combined financial statements present fairly, in all material respects, the combined financial position of the Division as of December 31, 1993, and the combined results of operations and its combined cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. DELOITTE & TOUCHE Oslo, Norway May 12, 1995 F-48 152 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION COMBINED BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1993
1994 1993 ------- ------- (AMOUNTS IN NOK 1,000) ASSETS Current Assets: Cash and cash equivalents -- (Note 1)................................ 24,136 25,285 Notes receivable -- (Note 4)......................................... 32,622 34,384 Accounts receivable (less allowance for doubtful accounts of 1,612 and 3,591 in 1994 and 1993 respectively) -- (Note 4).............. 181,792 116,863 Amounts receivable from related entities -- (Note 11)................ 28,980 2,591 Inventories: -- (Note 1) Raw materials........................................................ 37,036 31,337 Work in progress..................................................... 22,005 36,374 Finished goods....................................................... 26,569 19,494 ------- ------- Total Inventories............................................ 85,610 87,205 ------- ------- Prepaid expenses and other current assets............................ 43,532 43,838 ------- ------- Total Current Assets......................................... 396,672 310,166 ======= ======= Property, Plant and Equipment -- Net -- (Note 1 and 5)................. 396,665 420,601 Other Assets: Long term receivables................................................ 16,602 33,278 Intangible assets -- Net -- (Note 6)................................. 14,801 13,338 Deferred taxes -- (Notes 1 and 3).................................... 11,130 12,793 Other................................................................ 3,605 3,738 ------- ------- Total Other Assets........................................... 46,138 63,147 ------- ------- Total Assets................................................. 839,475 793,914 ======= ======= LIABILITIES AND SHAREHOLDERS' AND DIVISIONAL EQUITY: Current Liabilities: Bank overdraft....................................................... -- 3,826 Accounts payable..................................................... 147,465 108,826 Accrued liabilities -- (Note 12)..................................... 79,919 124,043 Current portion of long term debt -- (Note 7)........................ 102,388 32,679 Amounts payable to related entities -- (Note 11)..................... 36,788 108,570 Notes payable........................................................ 30,792 26,390 Income Taxes payable................................................. 1,596 246 ------- ------- Total Current Liabilities.................................... 398,948 404,580 ======= ======= Deferred Revenue....................................................... 9,876 4,842 Accrued Pension Liabilities -- (Notes 1 and 9)......................... 10,655 9,488 Deferred Taxes -- (Notes 1 and 3)...................................... 22,777 16,469 Long Term Debt -- Less current portion -- (Note 7)..................... 100,050 156,258 Subordinated Loan -- (Note 7).......................................... 9,511 124,890 Commitments and Contingencies -- (Note 12) Shareholders' and Divisional Equity -- (Note 10)....................... 287,658 77,387 ------- ------- Total Liabilities and Shareholders' and Divisional Equity.... 839,475 793,914 ======= =======
F-49 153 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION COMBINED INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993 --------- ------- (AMOUNTS IN NOK 1,000) Revenues -- (Note 2)................................................... 1,037,571 617,955 Cost of Goods Sold..................................................... 793,364 485,030 --------- ------- Gross Profit........................................................... 244,207 132,925 --------- ------- Selling, General, and Administrative Expenses -- (Notes 1, 8, 9, and 11).................................................................. 208,303 170,590 --------- ------- Operating Income (Loss)................................................ 35,904 (37,665) --------- ------- Other Income (Expense): Interest expense..................................................... (25,446) (19,052) Interest income...................................................... 5,757 1,213 Other expense -- net................................................. (6,940) 1,106 --------- ------- Total other income (expense)................................. (26,629) (16,733) --------- ------- Income (Loss) Before Taxes and Extraordinary Item...................... 9,275 (54,398) --------- ------- Income Taxes -- (Note 3)............................................... 16,421 349 --------- ------- Loss Before Extraordinary Item......................................... (7,146) (54,747) --------- ------- Extraordinary Item -- Gain on forgiveness on debt -- (Note 7).......... 33,078 -- --------- ------- Net income (loss)............................................ 25,932 (54,747) ======== =======
F-50 154 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993 -------- -------- (AMOUNTS IN NOK 1,000) Cash Flows From Operating Activities: Net income (loss).................................................... 25,932 (54,747) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................... 62,956 45,110 Change in deferred income taxes................................. 7,971 (1,424) Gain on sale of property, plant and equipment................... (1,899) (2,039) Gain on forgiveness of debt..................................... (33,078) -- Changes in operating assets and liabilities (Increase) decrease: Accounts and notes receivable................................ (63,167) (31,791) Inventories.................................................. 1,595 (8,437) Prepaid expenses and other current assets.................... 306 (17,987) Long-term receivables and other assets....................... 15,346 (29,323) Increase (decrease): Accounts payable............................................. 38,639 17,729 Accrued and other liabilities................................ (45,433) 71,355 Deferred revenue............................................. 5,034 4,492 -------- -------- Net cash provided by operating activities....................... 14,202 (7,062) ======== ======== Cash Flows From Investing Activities: Purchases of property, plant and equipment........................... (61,376) (182,061) Proceeds from sale of property, plant and equipment.................. 25,523 28,932 (Advances to) repayments from related entities -- net................ (98,171) 54,157 -------- -------- Net cash used in investing activities................................ (134,024) (98,972) -------- -------- Cash Flows From Financing Activities: Borrowings of long-term debt......................................... 43,145 37,220 Repayments of long-term debt......................................... (5,434) (1,097) Net repayment of related party long-term debt........................ (19,808) (18,334) Borrowings of subordinated loans..................................... -- 42,612 Repayments of subordinated loans..................................... (82,301) -- Contributed equity................................................... 185,656 65,560 -------- -------- Net cash provided by financing activities.............................. 121,258 125,961 -------- -------- Foreign currency effects on cash flows................................. (2,585) 2,640 Net increase (decrease) in cash and cash equivalents................... (1,149) 22,567 -------- -------- Cash and cash equivalents at beginning of year......................... 25,285 2,718 -------- -------- Cash and cash equivalents at end of year............................... 24,136 25,285 ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest............................................... 24,150 27,722 Income taxes deemed to be paid....................................... 7,100 1,527
F-51 155 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE COMBINED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED 31 DECEMBER 1994 AND 1993 1 ACCOUNTING POLICIES Principles of Combination The combined historical financial statements include the accounts of the Fuel Tank System Division (the Division) of Dyno Industrier A.S (Dyno), a Norwegian company. This division comprises production units in Norway, Great Britain, Germany, France, Belgium, and Spain which are involved in the development and manufacture of plastic automotive fuel tank systems. All significant accounts and transactions between the division's units have been eliminated in combination. The financial statements of the Division's operating units have been combined and prepared as a result of the Purchase and Sale Agreement between Dyno and Walbro Corporation dated April 7, 1995. Walbro Corporation is purchasing certain divisional assets of the entities in Norway, Great Britain, Germany and Belgium, and the shares of the entities in France and Spain. The combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States. During the periods covered by the combined income statement the Division's business was conducted as an integral part of Dyno's overall operations. The financial statements include sales to and purchases of materials to and from other Dyno business units at established prices. These amounts are not necessarily indicative of the costs that will prevail for the Division subsequent to the closing of the transaction described in the purchase agreement. The financial statements also include various allocated costs and expenses (see Note 8) which are not necessarily indicative of the costs and expenses which would have resulted had the Division been operated as a separate company. All of the allocations and estimates reflected in the financial statements are based on assumptions that the production units' and Dyno's management believes are reasonable. In preparing the combined accounts, the results are translated into Norwegian kroner (NOK) at annual average rates of exchange. The combined balance sheet is translated at year-end rates of exchange. The effects of exchange rate changes during the year on net assets are included in Divisional equity. Cash and cash equivalents Cash and cash equivalents include cash, bank deposits and all other monetary instruments with a maturity of less than three months at the date of purchase. Financial instruments The Division's activities in derivative financial instruments are not significant and generally consist of agreements with Dyno and its affiliates to manage foreign currency and interest rate exposure. The estimated fair values of Dyno's financial instruments approximate the carrying values. Discounts/premiums on foreign exchange contracts and cost/income on other hedging contracts (interest rate swaps, interest rate caps, etc.) have been recognized as other income or expense over the life of the contracts. Inventories Inventories are valued at the lower of cost using the 'first-in-first-out' method or at net realizable value. Cost for goods purchased is the purchase price. Cost for goods in production and internally produced goods is the direct manufacturing cost plus the appropriate portion of production overhead costs. F-52 156 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Property, Plant and Equipment Property, plant and equipment are carried on the balance sheet at original cost, less straight-line depreciation. The rates for calculating straight-line depreciation have been determined based on an evaluation of the individual fixed asset's economic lifetime as follows: machinery and equipment................................ 3 - 20 years buildings.............................................. 20 - 33 years
Intangible Assets Intangible assets include organization costs and goodwill, and are amortized on a straight-line basis over five to twenty years. Research and Development Research and development costs are expensed as they are incurred. Pensions and Pension Liabilities Pension costs are calculated in accordance with the Statement of Financial Accounting Standards No. 87. Pension liabilities (directly financed and funded plans) have been valued at the present value of future pension payments as of December 31, 1994. Future pension payments are calculated on the basis of the expected salary at the time of retirement. Pension plan assets are valued at market value on December 31, 1994. Net pension liabilities (pension liabilities less pension plan assets) are accounted for as long term obligations after correction for net actuarial differences. Income Taxes The Division has been included in Dyno's consolidated income tax returns in the various countries. The recorded provision for income taxes approximates the tax effect which would have been recorded had the Division operated on a stand-alone basis. Deferred income tax expense has been calculated using the liability method in accordance with Statement of Financial Accounting Standards No. 109. Under this method, deferred tax assets and liabilities are measured based upon "temporary differences" which are differences between the carrying values of assets and liabilities for financial reporting and their tax basis. Deferred income tax expense is the change during the year in the deferred tax assets and liabilities. Deferred Revenues Deferred revenues consist of investment grants from governments and certain subsidies received from customers. Grants are recognized as income when conditions for receipt are met, and subsidies are recognized as an offset to cost of goods sold over the term of the agreement. F-53 157 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 2 REVENUES BY COUNTRY OF CUSTOMER
1994 1993 --------- ------- NOK 1,000 Europe: United Kingdom....................................... 88,466 68,208 Netherlands.......................................... 5,575 4,679 Germany.............................................. 343,161 167,691 France............................................... 211,873 213,136 Belgium.............................................. 151,066 23,204 Spain................................................ 51,551 7 Finland.............................................. 301 3,889 Sweden............................................... 144,727 111,100 Other EU countries................................... -- 766 --------- ------- Total EU..................................... 996,720 592,680 Norway................................................. 8,083 6,109 Rest of Europe......................................... 18,730 16,460 --------- ------- Total Europe................................. 1,023,533 615,249 Outside Europe: North America........................................ 115 1 Africa............................................... -- 310 Asia................................................. 13,923 2,395 --------- ------- TOTAL........................................ 1,037,571 617,955 ========= =======
3 TAXES The provision for income taxes included in the combined statements of income consist of the following (in NOK 1,000):
1994 1993 ------ ------ Current taxes............................................. 8,450 1,773 Deferred taxes............................................ 7,971 (1,424) ------ ------ Provision for income tax.................................. 16,421 349 ====== ======
A reconciliation between income taxes at the statutory rates in Norway (28% for 1994 and 1993) and the provision for income taxes for the years ended 1994 and 1993 is as follows (in NOK 1,000):
1994 1993 ------ ------- Income tax provison (benefit) at Norwegian statutory rate.................................................... 2,597 (15,231) International rate differences............................ 2,870 -- Losses for which no tax benefit was provided.............. 8,282 15,478 Utilization of loss carry forwards........................ (3,004) -- Other..................................................... 5,676 102 ------ ------- Provision for income tax.................................. 16,421 349 ====== =======
F-54 158 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Significant components of deferred tax balances as of December 31 are as follows:
1994 1993 ------- ------- NOK 1,000 Deferred tax assets: Accrued costs of pension plans......................... 1,493 1,243 Net operating loss carry forwards...................... 33,448 44,706 Other.................................................. 1,498 408 ------- ------- Total deferred tax assets................................ 36,439 46,357 Valuation allowance...................................... (25,309) (33,564) ------- ------- Net deferred tax assets.................................. 11,130 12,793 ------- ------- Deferred tax liabilities Property, plant and equipment.......................... 22,548 16,303 Other.................................................. 229 166 ------- ------- Total Deferred tax liabilities........................... 22,777 16,469 ======= =======
The valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. The Division has established a valuation allowance for certain net operating loss carryforwards. At the end of 1994, total deductible losses carried forward in Dynoplast S.A France and Dynoplast S.A Spain (the entities where stock is being acquired) amounted to NOK 90.4 million. Losses carried forward expire as follows (in NOK 1,000): 1997................................................................ 18,185 1998................................................................ 28,948 1999................................................................ 11,986 Without expiration.................................................. 31,271 ------- TOTAL..................................................... 90,390 ======
4 GEOGRAPHIC AND CREDIT RISK Accounts receivable by geographical area as of December 31, are:
1994 1993 -------- -------- NOK 1,000 Norway................................................. 3,026 -- The EU................................................. 178,887 119,718 Rest of Europe......................................... 284 58 ------- ------- Total Europe...................................... 182,197 119,776 North America.......................................... 96 3 Asia................................................... 1,111 675 ------- ------- TOTAL GROSS ACCOUNTS RECEIVABLE........................ 183,404 120,454 Less allowance for doubtful accounts................... 1,612 3,591 ------- ------- TOTAL NET ACCOUNTS RECEIVABLE..................... 181,792 116,863 ======= =======
In addition the French and Spanish entities had notes receivables of (NOK 1,000) 32,449 and 173 in 1994 and 34,377 and 7 in 1993, respectively. These notes are created in the normal course of business in these countries and are generally collected under similar terms to accounts receivable. F-55 159 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 5 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following at December 31:
1994 1993 ------- ------- NOK 1,000 Land.................................................... 12,012 14,067 Assets under construction............................... 23,337 35,354 Buildings............................................... 62,257 41,045 Machinery and equipment................................. 534,229 531,103 ------- ------- Total.............................................. 631,835 621,569 Less accumulated depreciation...................... 235,170 200,968 ------- ------- Property, plant and equipment -- net............... 396,665 420,601 ======= =======
6 INTANGIBLE ASSETS Intangible assets consist of the following at December 31:
1994 1993 ------ ------ NOK 1,000 Organizational costs (less accumulated amortization of 2,102 and 1,401 in 1994 and 1993, respectively)........ 4,961 2,945 Goodwill (less accumulated amortization of 1,168 and 810 in 1994 and 1993, respectively)........................ 9,840 10,393 ------- ------- Intangible assets -- net................................. 14,801 13,338 ======= =======
7 NOTES PAYABLE AND LONG-TERM DEBT Notes payable include a short term facility with a bank in Spain. This facility was renewed in 1994. It bears interest at 9.6% and matures in December 1995. Long-term debt agreements are generally entered into by the legal entities in the various locations. To present the financial position of the division, these amounts have been allocated between divisions operating within the legal entities. Depending on the type of loan, various allocation bases have been utilized including relative investment, level of operations, and working capital. Long-term debt consists of the following at December 31:
1994 1993 -------- ------- NOK 1,000 Mortgage loans.......................................... 6,661 4,389 Bank loans and other long-term debt..................... 45,300 14,263 Loans from Dyno and affiliated companies................ 150,477 170,285 -------- ------- Total.............................................. 202,438 188,937 Less Current portion.................................... (102,388) (32,679) -------- ------- Total long-term debt............................... 100,050 156,258 ======== =======
F-56 160 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Long-term debt at December 31, 1994, matures as follows (in NOK 1,000): 1995............................................................... 102,388 1996............................................................... 5,973 1997............................................................... 26,380 1998............................................................... 3,464 1999............................................................... 3,464 Thereafter......................................................... 60,769 ------- TOTAL.................................................... 202,438 =======
Long-term debt including first year's installments are payable in the following currencies:
CURRENCY VALUE NOK 1,000 CURRENCY VALUE NOK 1,000 CURRENCY DEC 31 1994 DEC 31 1994 DEC 31 1993 DEC 31 1993 ------------------------ -------------- ----------- -------------- ----------- NOK..................... 43,460 43,460 16,693 16,693 GBP..................... 2,077 21,950 2,597 28,850 DEM..................... 21,542 94,039 27,139 117,597 ESB..................... 47,383 2,432 89,131 4,704 FRF..................... -- -- 13,000 16,579 BEF..................... 190,955 40,557 21,683 4,514 ------- ------- TOTAL......... 202,438 188,937 ======= =======
The mortgage loans relate to the building in Belgium, and are secured by property, plant and equipment with a total net book value of approximately 97 NOK million at December 31, 1994. The loans bear interest at fixed rates ranging from 8.09 to 10.45% and require monthly principal and interest payments. The loans mature between 1995 and 1997. Bank loans and other long-term debt at December 31, 1994 includes loans from banks and other financial institutions in Belgium, Great Britain and Spain. These loans are unsecured, generally require monthly principal payments and bear interest at rates ranging from 6.92 to 10.8%. These loans mature in 2005, 1997, and 1995, respectively. Loans from Dyno and affiliated companies consists of agreements in Norway, Germany, France and Great Britain to finance the operations and investing strategies of the entities. These agreements are with the legal entities and balances included in the combined financial statements are allocations of the total outstanding balance. The agreements include both short term facilities and long term notes depending on the cash and capital requirements of the various entities. The agreements generally bear interest at the libor rate plus 0.5 to 0.6875%, and mature at dates ranging from 1995 to 1999. Generally the related party loans are unsecured but contain negative pledge clauses. The loan agreements do not contain clauses restrictive to the freedom of action of the entities. Subordinated Loans The subordinated loans are all agreements with related parties that the Division is normally consolidated with. These agreements do not bear interest and no interest has been imputed. The legal entity in Great Britain has a non-interest bearing GBP 2,700,000 (NOK 28,500,000) subordinated loan facility with a related party company in Great Britain. Outstanding borrowings allocated to the Division were NOK 9,511,000 and NOK 9,998,000 at December 31, 1994 and 1993, respectively. The facility matures August 27, 1996. F-57 161 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The legal entity in France had a non-interest bearing FFR 60,000,000 (NOK 76,519,000) subordinated loan from Dyno as of December 31, 1993, of which FFR 34,000,000 was repaid in 1994 and FFR 26,000,000 was forgiven in accordance with an agreement between Dyno and Dynoplast S.A. in France. The legal entity in Germany had a non-interest bearing DEM 10,800,000 (NOK 46,797,000) subordinated loan from Dyno of which NOK 38,373,000 was allocated to the Division as of December 31, 1993, and repaid during 1994. 8 GENERAL, ADMINISTRATIVE AND OTHER ALLOCATED EXPENSES General, administrative and other expenses are allocated to the Division using procedures deemed appropriate for the nature of the expenses involved. The procedures utilize various allocation bases such as relative investment, working capital, number of employees and related payroll costs, and direct effort expended. Management of Dyno believes the allocations are reasonable, but they are not necessarily indicative of the costs that would have been incurred had the Division been a stand-alone company. Additionally certain management and overhead costs incurred by Dyno related to the Division have been included in the combined financial statements. Such amounts totalled 10.7 NOK million in 1994 and 2.9 NOK million in 1993. These amounts have not been charged to the production units, but have been included for presentation purposes. Total research and development expense was (NOK 1,000) 11,414 and 13,030 in 1994 and 1993, respectively. 9 PENSION PLANS In Norway, employees' retirement arrangements are provided by funded defined benefit plans. The pension entitlements normally are based on years of service and final salary. Entities in other countries have pension plans in line with local rules and practice. Pension plans are either defined benefit plans or defined contribution plans, where the employer pays a defined contribution which is independently administered. The pension assets in Norway are managed by an affiliated company and are primarily invested in fixed interest securities, property and listed shares. Net periodic pension cost
1994 1993 ----- ----- NOK 1,000 Defined benefit plans Benefits earned during the year.......................... 870 628 Interest cost on accrued benefit......................... 1,672 1,081 Expected return on pension assets........................ (684) (567) ----- ----- Net pension cost benefit plans........................... 1,858 1,142 ----- ----- Early retirement and other............................... 35 -- ----- ----- Total net periodic pension cost.................. 1,893 1,142 ===== =====
This expense represents an allocation of Dyno's total pension expense based on the ratio of the number of eligible Division employees to the total number of eligible employees. F-58 162 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Status of pension plans reconciled to the combined balance sheet:
1994 1993 -------------------- ------------------- FUNDED UNFUNDED FUNDED UNFUNDED PLANS PLANS PLANS PLANS ------- -------- ------ -------- NOK 1,000 Projected benefit obligation (PBO)........................... (10,469) (9,783) (8,979) (9,216) Plan assets at fair value......... 8,765 -- 8,707 -- PBO in excess of plan assets...... (1,704) (9,783) (272) (9,216) Unrecognized net actuarial loss... 812 55 Early retirement plans and other........................... (35) ------- ------ ------ ------ Total accrued pension liability............. (892) (9,763) (272) (9,216) ======= ====== ====== ====== Economic assumptions: Discount rate................... 7.0% 7.0% 7.0% 7.0% Rate of return -- plan assets... 8.0% -- 8.0% -- Salary increase................. 3.3% 3-3.5% 3.3% 3-3.5% Pension increase................ 2.5% 2.5-3.0% 2.5% 2.5-3.0%
10 SHAREHOLDER'S AND DIVISIONAL EQUITY Combined shareholder's and divisional equity consists of the following (in NOK 1,000) at December 31:
DECEMBER 31, DECEMBER 31, 1994 1993 ------------ ------------ COMMON STOCK: Dynoplast S.A., France: 980,000 in 1993 and 1,189,996 in 1994 shares issued at par FRF 100.................................. 150,523 29,750 Dynoplast S.A., Spain: 749,990,225 shares issued at par ESP 1............. 38,490 39,584 ------- ------- Total Common Stock................................... 189,013 69,334 ------- ------- Other Divisional Equity.............................. 98,645 8,053 ------- ------- Total Stockholder's and Divisional Equity............ 287,658 77,387 ------- ------- Balance as of beginning of year...................... 77,387 66,941 Net Income(Loss)..................................... 25,932 (54,747) Contributed Equity................................... 185,656 65,560 Currency translation................................. (1,317) (367) ------- ------- Balance as of end of year............................ 287,658 77,387 ======= =======
Contributed equity includes Dyno management and overhead costs that have been included in the combined financial statements for presentation purposes (see Note 8). 11 RELATED PARTIES As described in Note 1, the Division is an integral part of Dyno and is normally consolidated in the Dyno financial statements. Many of the Division's production units share facilities with other Divisions of Dyno. F-59 163 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Dyno affiliates provide certain treasury, insurance, and pension fund management services to the Division at varying degrees. Amounts receivable from and payable to related entities comprises balances between the Division and other Divisions in the same legal entity as well as balances with Dyno and it's affiliates for various non-operating charges and expenses. In conjunction with certain financing arrangements (see Note 7), Dyno and it's affiliates have issued letters of comfort on behalf of fuel tank business units in favor of other lenders of approximately NOK 8,972,000 as of December 31, 1994. The combined financial statements include sales and purchases of various products and services to and from Dyno and its affiliates in the normal course of business of approximately (NOK 1,000) 2,889 and 29,678 in 1994 and (NOK 1,000) 3,148 and 23,028 in 1993, respectively. Amounts due from and due to these affiliated entities related to these transactions were approximately (NOK 1,000) 182 and 5,723 and (NOK 1,000) 810 and 4,615 as of December 31, 1994 and 1993, respectively. These amounts are included in trade accounts receivable and payable. The production unit in France leased certain equipment from an affiliated company during 1993 and 1994. This arrangement has been accounted for as a capital lease. The equipment was purchased when the lease expired in 1994. The capital lease obligation is included in bank loans and other long term debt at December 31, 1993. Total payments under this arrangement were (NOK 1,000) 4,944 and 5,597 in 1994 and 1993, respectively. 12 CONTINGENCIES, GUARANTEES AND LEASE COMMITMENTS Minimum commitments under non-cancelable leases having a remaining lease term in excess of one year at December 31, 1994 will fall due for payment as follows (in NOK 1,000): 1995................................................................ 14,948 1996................................................................ 15,294 1997................................................................ 11,424 1998................................................................ 10,935 1999................................................................ 10,825 Thereafter.......................................................... 6,960 ------ Total..................................................... 70,386 ======
Total lease expense was approximately (NOK 1,000) 22,739 and 23,739 in 1994 and 1993, respectively. The operating unit in Norway has issued a performance bond of NOK 352,000 as of December 31, 1994. In 1994 a former agent of the division filed a 19 FFR million (approximately 24 NOK million) claim against Dyno Industrier A.S for breach of the agent agreement related to procurement of materials for the production unit in France. The litigation is still pending and Dyno intends to vigorously defend its position. Although the final outcome cannot presently be determined, Dyno has accrued a liability of approximately 6.7 NOK million which has been included in the combined statements in 1994 as it relates to the operations of the Division. In accordance with the purchase agreement (see Note 1), Dyno will retain any obligations related to this claim. F-60 164 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 13 FINANCIAL INSTRUMENTS The financial hedging agreements as of December 31 are as follows: 1993: 1. FORWARD CONTRACTS
CONTRACT SUM (THOUSANDS) - -------------------------- BOUGHT SOLD FORWARD RATE DATE DUE CONTRACT PARTNER - ---------- ------------ ------------ --------- ---------------- DEM 1,496 ESB 122,807 82.09 Jan 1994 Dyno Finans A.S DEM 5,583 FRF 19,477 0.2867 Jan 1994 Dresdner Bank
1994: 1. FORWARD CONTRACT
CONTRACT SUM (THOUSANDS) - ----------------------- BOUGHT SOLD FORWARD RATE DATE DUE CONTRACT PARTNER - -------- ----------- ------------ --------- ---------------- DEM 883 ESB 73,858 83.65 Jan 1995 Dyno Finans A.S
2. INTEREST RATE CAPS
CURR. AMOUNT INTEREST RATE PERIOD CONTRACT PARTNER - ------------ ------------- ------------------- ---------------- (THOUSANDS) ESB 500,000 11% 1995 - August 1997 Dyno Finans A.S
F-61 165 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors of Dyno Industrier A.S: We have audited the accompanying combined statement of revenues and direct costs and expenses of the Fuel Tank System Division (the "Division") of Dyno Industrier A.S for the year ended December 31, 1992. This financial statement is the responsibility of the Division's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statement presents fairly, in all material respects, the combined revenues and direct costs and expenses of the Division for the year ended December 31, 1992, in conformity with accounting principles generally accepted in the United States. DELOITTE & TOUCHE Oslo, Norway May 30, 1995 F-62 166 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION COMBINED STATEMENT OF REVENUES AND DIRECT COSTS AND EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1992
1992 ---------- (AMOUNTS IN NOK 1,000) Revenues -- (Note 3)............................................................. 406,503 Cost of Goods Sold............................................................... 277,229 Gross Profit..................................................................... 129,274 Selling, General, and Administrative Expenses.................................... 177,524 ---------- Operating Income (Loss).......................................................... (48,250) =========
F-63 167 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 1992 1 BASIS OF PRESENTATION The financial statements includes the combined accounts of the Fuel Tank System Division (the Division) of Dyno Industrier A.S (Dyno), a Norwegian company. This division comprises production units in Norway, Great Britain, Germany, France, Belgium and Spain which are involved in the development and manufacture of plastic automotive fuel tank systems. All significant transactions between the division's production units have been eliminated in combination. The financial statements of the Division's operating units have been combined and prepared as a result of the Purchase and Sale Agreement between Dyno and Walbro Corporation dated April 7, 1995. Walbro Corporation is purchasing certain divisional assets of the entities in Norway, Great Britain, Germany and Belgium, and the shares of the entities in France and Spain. During the period covered by the combined financial statement the Division's business was conducted as an integral part of Dyno's overall operations. The financial statements include sales to and purchases of materials to and from other Dyno business units at established prices. These amounts are not necessarily indicative of the costs that will prevail for the Division subsequent to the closing of the transaction described in the purchase agreement. The combined financial statement includes all revenues and costs and expenses directly incurred by, or related to, the Division, including depreciation and rental cost related to facilities used in the business. The cost of administrative and marketing personnel and facilities in certain locations are shared with, and allocated between, other Dyno divisions. The financial statement does not reflect any Dyno corporate management or overhead costs, or any provision for income taxes. The accompanying combined statement of revenues and direct costs and expenses has been prepared in conformity with general accepted accounting principles in the United States. 2 ACCOUNTING POLICIES Cost of Goods Sold Inventories are valued at the lower of cost using the 'first-in-first-out' method or at net realizable value. Cost for goods purchased is the purchase price. Cost for goods in production and internally produced goods is the direct manufacturing cost plus the appropriate portion of production overhead costs. Depreciation Property, plant and equipment are depreciated using the straight-line method. The rates for calculating straight-line depreciation have been determined based on an evaluation of the individual fixed asset's economic lifetime as follows: machinery and equipment....................................... 3 - 20 years buildings..................................................... 20 - 33 years
F-64 168 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 3 REVENUES BY COUNTRY OF CUSTOMER
(IN NOK 1000) United Kingdom................................................. 81,474 Germany........................................................ 73,029 France......................................................... 105,684 Belgium........................................................ 3,322 Sweden......................................................... 111,568 Other.......................................................... 31,426 ------- Total................................................ 406,503 =======
4 RELATED PARTY TRANSACTIONS As described in Note 1, the Division is an integral part of Dyno and is normally consolidated in the Dyno financial statements. Many of the Division's production units share facilities with other divisions of Dyno. The combined financial statement includes sales and purchases of various products and services to and from Dyno and its affiliates in the normal course of business totalling approximately (NOK 1,000) 2,177 and 24,274. The production units in France and Germany leased certain equipment from an affiliated company during the year. Total payments for the year under these arrangements were (NOK 1,000) 9,917. 5 COMMITMENTS The Division has various leases for certain facilities and machinery and equipment. Total rental expense for the year was approximately (NOK 1,000) 22,922. F-65 169 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION COMBINED BALANCE SHEETS
6/30/95 12/31/94 ------- ------- (AMOUNTS IN NOK 1,000) (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents............................................ 54,923 24,136 Notes receivable..................................................... 43,029 32,622 Accounts receivable -- Net........................................... 177,595 181,792 Amounts receivable from related entities............................. 10,381 28,980 Inventories: Raw materials........................................................ 42,444 37,036 Work in progress..................................................... 32,671 22,005 Finished goods....................................................... 22,920 26,569 ------- ------- Total Inventories............................................ 98,035 85,610 ------- ------- Prepaid expenses and other current assets............................ 43,252 43,532 ------- ------- Total Current Assets......................................... 427,215 396,672 ======= ======= Property, Plant and Equipment -- Net................................... 396,147 396,665 Other Assets: Long term receivables................................................ 3,905 16,602 Intangible assets -- Net............................................. 14,516 14,801 Deferred taxes....................................................... 7,566 11,130 Other................................................................ 3,299 3,605 ------- ------- Total Other Assets........................................... 29,286 46,138 ------- ------- Total Assets................................................. 852,648 839,475 ======= ======= LIABILITIES AND SHAREHOLDERS' AND DIVISIONAL EQUITY Current Liabilities: Accounts payable..................................................... 179,262 147,465 Accrued liabilities.................................................. 59,151 79,919 Current portion of long term debt.................................... 63,862 102,388 Amounts payable to related entities.................................. 44,364 36,788 Notes payable........................................................ 30,516 30,792 Income taxes payable................................................. 4,743 1,596 ------- ------- Total Current Liabilities.................................... 381,898 398,948 ======= ======= Long Term Debt -- Less current portion................................. 110,833 100,050 Subordinated Loan...................................................... 8,845 9,511 Deferred Taxes......................................................... 26,841 22,777 Other Long Term Liabilities............................................ 16,445 20,531 Shareholders' and Divisional Equity.................................... 307,786 287,658 ------- ------- Total Liabilities and Shareholders' and Divisional Equity.... 852,648 839,475 ======= =======
F-66 170 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION COMBINED INCOME STATEMENTS
SIX MONTHS ENDED --------------------- 6/30/95 6/30/94 ------- ------- (AMOUNTS IN NOK 1,000) (UNAUDITED) Revenues.............................................................. 688,013 490,334 Cost of Goods Sold.................................................... 542,747 380,989 ------- ------- Gross Profit.......................................................... 145,266 109,345 ------- ------- Selling, General, and Administrative Expenses -- (Note 1)............. 110,752 101,572 ------- ------- Operating Income...................................................... 34,514 7,773 ------- ------- Other Income (Expense): Interest expense.................................................... (10,106) (12,645) Interest income..................................................... 3,496 2,888 Other expense -- Net................................................ (1,819) (1,473) ------- ------- Total Other Income (Expense)................................ (8,429) (11,230) ------- ------- Income (Loss) Before Taxes............................................ 26,085 (3,458) ------- ------- Income Taxes.......................................................... 9,929 8,636 ------- ------- Net Income (Loss)........................................... 16,156 (12,094) ======= =======
F-67 171 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED --------------------- 6/30/95 6/30/94 ------- -------- (AMOUNTS IN NOK 1,000) (UNAUDITED) Cash Flows From Operating Activities: Net income (loss)................................................... 16,156 (12,094) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................. 35,018 30,877 Change in deferred income taxes................................ 7,629 1,158 (Gain) loss on sale of property, plant and equipment........... (290) 1,328 Changes in operating assets and liabilities: (Increase) decrease: Accounts and notes receivable............................... (6,210) (58,445) Inventories................................................. (12,425) (14,930) Prepaid expenses and other current assets................... 280 20,334 Long-term receivables and other assets...................... 12,970 9,010 Increase (decrease): Accounts payable............................................ 31,797 107,202 Accrued and other liabilities............................... (21,707) (31,800) ------- -------- Net cash provided by operating activities...................... 63,218 52,640 ======= ======== Cash Flows From Investing Activities: Purchases of property, plant and equipment.......................... (39,121) (36,061) Proceeds from sale of property, plant and equipment................. 5,454 21,439 (Advances to) repayments from related entities -- net............... 26,175 (90,989) ------- -------- Net cash used in investing activities:.............................. (7,492) (105,611) ------- -------- Cash Flows From Financing Activities: Borrowings of long-term debt........................................ 13,732 35,428 Repayments of long-term debt........................................ (6,661) (3,910) Net change in related party long-term debt.......................... (33,585) (10,951) Repayments of subordinated loans.................................... -- (39,676) Contributed equity.................................................. 6,293 72,298 ------- -------- Net cash provided by financing activities............................. (20,221) 53,189 ------- -------- Foreign currency effects on cash flows................................ (4,718) (2,665) Net increase (decrease) in cash and cash equivalents.................. 30,787 (2,447) ------- -------- Cash and cash equivalents at beginning of period...................... 24,136 25,285 ------- -------- Cash and cash equivalents at end of period............................ 54,923 22,838 ======= ========
F-68 172 DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION NOTES TO THE COMBINED FINANCIAL STATEMENTS 1 ACCOUNTING POLICIES AND PRINCIPLES OF COMBINATION The condensed combined interim financial statements and notes should be read in conjunction with the combined financial statements and notes for the fuel tank system division for the year ended December 31, 1994. The condensed combined financial statements have been prepared in accordance with United States generally accepted accounting principles. The interim combined financial statements are unaudited and reflect all adjustments which are, in the opinion of management, necessary to present fairly the results of operation for the periods presented. During the periods covered by the combined income statements the Division's business was conducted as an integral part of Dyno Industrier A.S's overall operations. The combined financial statements include sales to and purchases of materials to and from other Dyno business units at established prices. They also include various allocated costs and expenses which are not necessarily indicative of the costs and expenses which would have resulted had the Division been operated as a separate company. All of the allocations and estimates reflected in the combined financial statements are based on assumptions that the production units' and Dyno's management believes are reasonable. Additionally certain management and overhead costs incurred by Dyno related to the Division have been included in the combined financial statements. Such amounts totaled 4.0 and 1.9 NOK million for the three months ended June 30, 1995 and 1994, respectively. These amounts have not been charged to the production units, but have been included for presentation purposes. Total research and development expense was 2.9 and 2.8 NOK million for the three months ended June 30, 1995 and 1994, respectively. 2 CONTINGENCIES In 1994 a former agent of the Division filed a 19 FFR million (approximately 24 NOK million) claim against Dyno Industrier A.S for breach of the agent agreement related to procurement of materials for the production unit in France. The litigation is still pending and Dyno intends to vigorously defend its position. Although the final outcome cannot presently be determined, Dyno has accrued a liability of approximately 6.7 NOK million which has been included in the combined statements as it relates to the operations of the Division. In accordance with the purchase and sale agreement (see Note 3), Dyno will retain any obligations related to this claim. 3 SUBSEQUENT EVENT In April 1995, Dyno signed a purchase and sale agreement with Walbro Corporation. Walbro is purchasing certain divisional assets of the entities in Norway, Great Britain, Germany and Belgium, and the shares of the entities in France and Spain. The price of the acquisition will be approximately USD 124 million, subject to certain adjustments. The transaction is expected to close in the summer of 1995. F-69 173 ============================================================ ======================================================== No dealer, salesperson or other individual has been authorized to give any information or make any representation not contained in this Prospectus in connection with the offering covered by this Prospectus. If given or made, such information or representations must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer, or a solicitation in any jurisdiction where, or to any person to whom, it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus, nor any distribution of securities made hereunder shall, under any [LOGO] circumstances, create any implication that there has not been any change in the facts set forth in this Prospectus or in the affairs of the Company since the date hereof. WALBRO CORPORATION Due 2005, Series B TABLE OF CONTENTS 9 7/8% Senior Notes PAGE ---- Prospectus Summary . . . . . . . . . . . . . . . . . . 5 The Company . . . . . . . . . . . . . . . . . . . . . . 5 Investment Considerations . . . . . . . . . . . . . . . 13 Use of Proceeds of New Notes . . . . . . . . . . . . . 18 ------------------- Capitalization . . . . . . . . . . . . . . . . . . . . 18 P R O S P E C T U S The Exchange Offer . . . . . . . . . . . . . . . . . . 19 ------------------- The Company . . . . . . . . . . . . . . . . . . . . . . 28 Pro Forma Unaudited Condensed Consolidated Financial Data . . . . . . . . 30 Selected Financial and Operating Data - Walbro Corporation . . . . . . . . . . . . . . . . . . . . . 34 Management's Discussion and Analysis of Financial Condition and Results of Operations - Walbro Corporation . . . . . . . . . 35 Selected Financial and Operating Data - Dyno . . . . . 43 Management's Discussion and Analysis of Results of Operations - Dyno. . . . . . . . . . . . . 44 Business . . . . . . . . . . . . . . . . . . . . . . . 46 Management . . . . . . . . . . . . . . . . . . . . . . 59 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . 66 Certain Transactions . . . . . . . . . . . . . . . . . 67 Description of Other Indebtedness . . . . . . . . . . . 68 Description of the New Notes . . . . . . . . . . . . . 69 Certain U.S. Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . 95 , 1995 Old Notes Registration Rights . . . . . . . . . . . . . 97 Book Entry; Delivery and Form . . . . . . . . . . . . . 98 Plan of Distribution . . . . . . . . . . . . . . . . . 100 Legal Matters . . . . . . . . . . . . . . . . . . . . . 101 Independent Public Accountants . . . . . . . . . . . . 101 Index to Financial Statements . . . . . . . . . . . . . F-1 ============================================================ ========================================================
174 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Set forth below is an estimate of the approximate amount of fees and expenses (other than underwriting commissions and discounts) payable by the Company in connection with the issuance and distribution of the New Notes pursuant to the Prospectus contained in this Registration Statement. The Company will pay all of these expenses.
Approximate Amount ----------- Securities and Exchange Commission registration fee . . . . . . . . . . . $37,931 Accountants fees and expenses . . . . . . . . . . . . . . . . . . . . . . * Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 Exchange Agents fees and expenses . . . . . . . . . . . . . . . . . . . . * Printing and engraving . . . . . . . . . . . . . . . . . . . . . . . . . * Miscellaneous expenses . . . . . . . . . . . . . . . . . . . . . . . . . * ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ * ============
- ------------------------ *To be filed by Amendment Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify any persons, including directors and officers, who are (or are threatened to be made) parties to any threatened, pending or completed legal action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of their being directors or officers of the corporation. The indemnity may include expenses, attorneys' fees, judgments, fines and amounts paid in settlement, provided such sums were actually and reasonably incurred in connection with such action, suit or proceeding and provided the director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, in the case of criminal proceedings, provided he had no reasonable cause to believe that his conduct was unlawful. The corporation may indemnify directors and officers in a derivative action (in which suit is brought by a stockholder on behalf of the corporation) under the same conditions, except that no indemnification is permitted without judicial approval if the director or officer is adjudged liable to the corporation. If the director or officer is successful on the merits or otherwise in defense of any actions referred to above, the corporation must indemnify him against the expenses and attorneys' fees he actually and reasonably incurred. Article VIII of the Company's By-Laws provides that the Company shall indemnify its officers and directors to the fullest extent permitted by Section 145. Under an existing policy of insurance, the Company is entitled to be reimbursed for certain indemnity payments it is required or permitted to make to directors and officers of the Company. Item 15. RECENT SALES OF UNREGISTERED SECURITIES. On July 27, 1995, the Company sold to the Initial Purchasers, in an action exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof, II-1 175 $110,000,000 in aggregate principal amount of its Notes, less Initial Purchasers' discount of $2,750,600. In accordance with the agreement pursuant to which the Initial Purchasers purchased the Old Notes, the Initial Purchasers agreed to offer and sell such securities only to "qualified institutional buyers" (as defined in Rule 144A under the Securities Act), to a limited number of institutional "accredited investors" (as defined in Rule 501(A)(1), (2), (3) or (7) under the Securities Act) and pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act. Except for the transactions described above there have not been any recent sales of unregistered securities. Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits. 3.1* Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1, to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (the "Form 10-K"). 3.2* By-laws of the Company, as amended, filed as Exhibit 3.2, to the Form 10-K. 4.1* Indenture for the Notes, dated as of July 27, 1995, among the Company, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc., and Bankers Trust Company, as Trustee (including form of Exchange Note), filed as Exhibit 2.3 to the Company's Current Report on Form 8-K, dated June 27, 1995 (the "Form 8-K"). 4.2 Amended and Restated Credit Agreement dated as of September 22, 1995, among the Company, certain of its subsidiaries, Comerica Bank, as agent, and Harris Bank, as co-agent. 4.3 Purchase Agreement dated as of July 27, 1995 among the Company, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc., and the Initial Purchasers. 4.4 Registration Rights Agreement, dated July 21, 1995, among the Company, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc., and the Initial Purchasers. 4.5* Form of Exchange Note (included in Exhibit 4.1). 4.6* Shareholder Rights Plan, dated December 8, 1988, filed as the Exhibit to the Company's Registration Statement on Form 8-A for Shareholder Stock Purchase Rights filed December 12, 1988. 4.7* First Amendment to Rights Agreement, dated February 6, 1991, filed as Exhibit 4.8 to the Company's 1990 Annual Report on Form 10-K. 4.8* Loan Agreement between City of Ligonier, Indiana and Sharon Manufacturing Company, dated as of June 1, 1992, filed as Exhibit 4.12 to the Company's 1992 Annual Report on Form 10-K. 4.9* Loan Agreement between Walbro Automotive Corporation and the Town of Ossian, Indiana, dated as of December 1, 1993, filed as Exhibit 4.13 to the Company's 1993 Annual Report on Form 10-K. 4.10* Note Agreement among the Company and the purchasers named therein, dated as of October 1, 1994, relating to the 7.68% Senior Notes of the Company, filed as Exhibit 4.9 to the Company's 1994 Annual Report on Form 10-K. 5** Form of Opinion of Katten Muchin & Zavis as to the legality of the securities being registered (including consent). 10.1* Purchase and Sale Agreement dated as of April 7, 1995 by and between the Company and Dyno filed as Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q, for the quarter ended March 31, 1995. 10.2* Addendum to Purchase and Sale Agreement by and between the Company and Dyno dated as of July 27, 1995, filed as Exhibit 2.2 to the Form 8-K. 10.3* The Company's 1983 Incentive Stock Option Plan, filed as the Exhibit to the Company's Registration Statement on Form S-8, filed November 15, 1989. 10.4* Joint Venture Agreement between the Company and Mitsuba Electric Manufacturing Company, Ltd., dated December 12, 1986, filed as Exhibit 10.4 to the Company's 1986 Annual Report on Form 10-K. 10.5* The Company's Equity Based Long-Term Incentive Plan, filed as Exhibit 4.5 to the Company's Registration Statement on Form S-8, filed June 15, 1992. 10.6* Executive Disability Plan adopted July 8, 1988, filed as Exhibit 10.10 to the Company's 1988 Annual Report on Form 10-K. 10.7* Retirement Income Plan for Directors, dated February 9, 1988, filed as Exhibit 10.11 to the Company's 1988 Annual Report on Form 10-K. 10.8* Equipment Leasing Agreement between the Company and NEMLC Leasing Associates No. 3, without supplements, dated July 1, 1988, filed as Exhibit 10.13 to the Company's 1988 Annual Report on Form 10-K. 10.9* The Company's Employee Stock Ownership Plan, dated August 15, 1989, filed as Exhibit 10.14 to the Form 10-K. 10.10* Walbro Engine Management Incentive Compensation Plan, filed as Exhibit 10.21 to the Company's 1990 Annual Report on Form 10-K. 10.11* Joint Venture Agreement, dated June 17, 1991, between the Company and Jaeger S.A., an indirect, majority-controlled subsidiary of Magneti Marelli S.p.A., relating to the Marwal Systems S.A. joint venture, filed as Exhibit 10.23 to the Company's Registration Statement on Form S-2, File No. 33-41425. 10.12* Joint Venture Agreement between the Company and Jaeger S.A., dated as of January 1, 1993, relating to the Marwal do Brasil joint venture, filed as Exhibit 10.10 to the Company's 1992 Annual Report on Form 10-K. 10.13* Agreement among AB Svenska Elektromagneter, Opcon AB, Cartona Fastighetsforvaltning K.B., Erling Edmundson, Four Seasons Venture Capital AB, SEM-Walbro Corporation and the Company, effective as of January 2, 1991, filed as Exhibit 10.20 to the Company's 1991 Annual Report on Form 10-K. 10.14* The Company's Advantage Plan, filed as the Exhibit to the Company's Registration Statement on Form S-8, filed October 28, 1991. 10.15* Aircraft Lease Agreement between the Company and C.I.T. Leasing Corporation, dated as of October 27, 1992, filed as Exhibit 10.13 to the Company's 1992 Annual Report on Form 10-K. 10.16* Joint Venture Contract among Walbro Engine Management Corporation, Fujian Fuding Carburetor Factory and Twin Winner Trading Co., Ltd., dated December 30, 1993, relating to the Fujian Hualong Carburetor Co. Ltd. joint venture, filed as Exhibit to the Company's 1993 Annual Report on Form 10-K. 10.17* Assistance Agreement among the State of Connecticut, acting by the Department of Economic Development, and Walbro Automotive Corporation and Whitehead Engineered Products, dated February 17, 1995, filed as Exhibit 10.24 to the Company's 1994 Annual Report on Form 10-K. 10.18* Agreement among the Company, Walbro Automotive Corporation and Magneti Marelli France S.A., dated February 7, 1995, filed as Exhibit 10.25 to the Company's 1994 Annual Report on Form 10-K. 10.19* Joint Venture Agreement between the Company and Daewoo Precision Industries, Ltd., dated November 30, 1994, filed as Exhibit 10.26 to the Company's 1994 Annual Report on Form 10-K. 12.1 Computation of ratio of earnings to fixed charges. 23.1 Consent of Arthur Andersen LLP. 23.2 Consent of Arthur Andersen & Co. GmbH. 23.3 Consent of Deloitte & Touche. 23.4 Consent of Katten Muchin & Zavis (contained in its opinion to be filed as Exhibit 5 hereto). 24 Power of Attorney (see signature page). 25 Statement of eligibility under the Trust Indenture Act of 1939, as amended, on Form T-1 of Bankers Trust Company, as Trustee under the Indenture. 99.1 Form of Letter of Transmittal for New Notes. II-2 176 99.2 Form of Notice of Guaranteed Delivery for New Notes. 99.3 Letter to Brokers. 99.4 Letter to Clients. 99.5 Instruction to Registered Holder and/or Book Entry Transfer Participant from Beneficial Owner. 99.6 Guidelines for Certificate of Taxpayer Identification Number on Substitute Form W-9. - -------------------- * Incorporated by reference. ** To be filed by amendment (b) Financial Statement Schedules. Report of Independent Public Accountants SCHEDULE II Walbro Corporation and Subsidiaries Supplemental Note to Consolidated Financial Statements - Valuation and Qualifying Accounts. Item 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 177 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cass City, State of Michigan on the 22nd day of September, 1995. WALBRO CORPORATION By: /s/ Lambert E. Althaver ---------------------------------- Lambert E. Althaver Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Lambert E. Althaver, Michael A. Shope, Gary L. Vollmar and Howard S. Lanznar and each of them his true and lawful attorney-in-fact and agent, with full power of substitution, to sign on his behalf, individually and in each capacity stated below, all amendments and post- effective amendments to this Registration Statement on Form S-4 and to file the same, with all exhibits thereto and any other documents in connection therewith, with the Commission under the Securities Act, granting unto said attorneys-in- fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as each might or could do in person, hereby ratifying and confirming each act that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date ----------------------------- ------------------------------------------------ ------------------ /s/ Lambert E. Althaver Chairman of the Board, President and Chief September 22, 1995 ----------------------------- Executive Officer (Principal Executive Officer) Lambert E. Althaver /s/ Robert S. Walpole Vice President and Director September 22, 1995 ----------------------------- Robert S. Walpole /s/ Michael A. Shope Chief Financial Officer and Treasurer (Principal September 22, 1995 ----------------------------- Financial and Accounting Officer) Michael A. Shope /s/ William T. Bacon, Jr. Director September 22, 1995 ----------------------------- William T. Bacon, Jr. /s/ Frank E. Bauchiero Director September 22, 1995 ----------------------------- Frank E. Bauchiero /s/ Herbert M. Kennedy Director September 22, 1995 ----------------------------- Herbert M. Kennedy /s/ Vernon E. Oechsle Director September 22, 1995 ----------------------------- Vernon E. Oechsle /s/ Robert D. Tuttle Director September 22, 1995 ----------------------------- Robert D. Tuttle /s/ John E. Utley Director September 22, 1995 ----------------------------- John E. Utley
II-4 178 SIGNATURES Each of the Guarantors pursuant to the requirements of the Securities Act of 1933, as amended, certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cass City, State of Michigan on the 22nd day of September, 1995. WALBRO AUTOMOTIVE CORPORATION WALBRO ENGINE MANAGEMENT CORPORATION SHARON MANUFACTURING COMPANY WHITEHEAD ENGINEERED PRODUCTS, INC. By: /s/ Lambert E. Althaver ---------------------------------------- Lambert E. Althaver President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Lambert E. Althaver, Michael A. Shope, Gary L. Vollmar and Howard S. Lanznar and each of them his true and lawful attorney-in-fact and agent, with full power of substitution, to sign on his behalf, individually and in each capacity stated below, all amendments and post-effective amendments to this Registration Statement on Form S-4 and to file the same, with all exhibits thereto and any other documents in connection therewith, with the Commission under the Securities Act, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as each might or could do in person, hereby ratifying and confirming each act that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date - ------------------------ ----------------------------- ---------------------- Chairman of the Board, President and Chief Executive Officer (Principal Executive /s/ Lambert E. Althaver Officer) September 22, 1995 - ----------------------- Lambert E. Althaver Treasurer (Principal Financial /s/ Michael A. Shope and Accounting Officer) September 22, 1995 - ----------------------- Michael A. Shope 179 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ----------- -------- 3.1* Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1, to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (the "Form 10-K"). 3.2* By-laws of the Company, as amended, filed as Exhibit 3.2, to the Form 10-K. 4.1* Indenture for the Notes, dated as of July 27, 1995, among the Company, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc., and Bankers Trust Company, as Trustee (including form of Exchange Note), filed as Exhibit 2.3 to the Company's Current Report on Form 8-K, dated June 27, 1995 (the "Form 8-K"). 4.2 Amended and Restated Credit Agreement dated as of September 22, 1995, among the Company, certain of its subsidiaries, Comerica Bank, as agent, and Harris Bank, as co-agent. 4.3 Purchase Agreement dated as of July 27, 1995 among the Company, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc., and the Initial Purchasers. 4.4 Registration Rights Agreement, dated July 21, 1995, among the Company, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc., and the Initial Purchasers. 4.5* Form of Exchange Note (included in Exhibit 4.1). 4.6* Shareholder Rights Plan, dated December 8, 1988, filed as the Exhibit to the Company's Registration Statement on Form 8-A for Shareholder Stock Purchase Rights filed December 12, 1988. 4.7* First Amendment to Rights Agreement, dated February 6, 1991, filed as Exhibit 4.8 to the Company's 1990 Annual Report on Form 10-K. 4.8* Loan Agreement between City of Ligonier, Indiana and Sharon Manufacturing Company, dated as of June 1, 1992, filed as Exhibit 4.12 to the Company's 1992 Annual Report on Form 10-K. 4.9* Loan Agreement between Walbro Automotive Corporation and the Town of Ossian, Indiana, dated as of December 1, 1993, filed as Exhibit 4.13 to the Company's 1993 Annual Report on Form 10-K. 4.10* Note Agreement among the Company and the purchasers named therein, dated as of October 1, 1994, relating to the 7.68% Senior Notes of the Company, filed as Exhibit 4.9 to the Company's 1994 Annual Report on Form 10-K. 5** Form of Opinion of Katten Muchin & Zavis as to the legality of the securities being registered (including consent). 10.1* Purchase and Sale Agreement dated as of April 7, 1995 by and between the Company and Dyno filed as Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q, for the quarter ended March 31, 1995. 10.2* Addendum to Purchase and Sale Agreement by and between the Company and Dyno dated as of July 27, 1995, filed as Exhibit 2.2 to the Form 8-K. 10.3* The Company's 1983 Incentive Stock Option Plan, filed as the Exhibit to the Company's Registration Statement on Form S-8, filed November 15, 1989. 10.4* Joint Venture Agreement between the Company and Mitsuba Electric Manufacturing Company, Ltd., dated December 12, 1986, filed as Exhibit 10.4 to the Company's 1986 Annual Report on Form 10-K. 10.5* The Company's Equity Based Long-Term Incentive Plan, filed as Exhibit 4.5 to the Company's Registration Statement on Form S-8, filed June 15, 1992. 10.6* Executive Disability Plan adopted July 8, 1988, filed as Exhibit 10.10 to the Company's 1988 Annual Report on Form 10-K. 10.7* Retirement Income Plan for Directors, dated February 9, 1988, filed as Exhibit 10.11 to the Company's 1988 Annual Report on Form 10-K. 10.8* Equipment Leasing Agreement between the Company and NEMLC Leasing Associates No. 3, without supplements, dated July 1, 1988, filed as Exhibit 10.13 to the Company's 1988 Annual Report on Form 10-K. 10.9* The Company's Employee Stock Ownership Plan, dated August 15, 1989, filed as Exhibit 10.14 to the Form 10-K. 10.10* Walbro Engine Management Incentive Compensation Plan, filed as Exhibit 10.21 to the Company's 1990 Annual Report on Form 10-K. 10.11* Joint Venture Agreement, dated June 17, 1991, between the Company and Jaeger S.A., an indirect, majority-controlled subsidiary of Magneti Marelli S.p.A., relating to the Marwal Systems S.A. joint venture, filed as Exhibit 10.23 to the Company's Registration Statement on Form S-2, File No. 33-41425. 10.12* Joint Venture Agreement between the Company and Jaeger S.A., dated as of January 1, 1993, relating to the Marwal do Brasil joint venture, filed as Exhibit 10.10 to the Company's 1992 Annual Report on Form 10-K. 10.13* Agreement among AB Svenska Elektromagneter, Opcon AB, Cartona Fastighetsforvaltning K.B., Erling Edmundson, Four Seasons Venture Capital AB, SEM-Walbro Corporation and the Company, effective as of January 2, 1991, filed as Exhibit 10.20 to the Company's 1991 Annual Report on Form 10-K. 10.14* The Company's Advantage Plan, filed as the Exhibit to the Company's Registration Statement on Form S-8, filed October 28, 1991. 10.15* Aircraft Lease Agreement between the Company and C.I.T. Leasing Corporation, dated as of October 27, 1992, filed as Exhibit 10.13 to the Company's 1992 Annual Report on Form 10-K. 10.16* Joint Venture Contract among Walbro Engine Management Corporation, Fujian Fuding Carburetor Factory and Twin Winner Trading Co., Ltd., dated December 30, 1993, relating to the Fujian Hualong Carburetor Co. Ltd. joint venture, filed as Exhibit to the Company's 1993 Annual Report on Form 10-K. 10.17* Assistance Agreement among the State of Connecticut, acting by the Department of Economic Development, and Walbro Automotive Corporation and Whitehead Engineered Products, dated February 17, 1995, filed as Exhibit 10.24 to the Company's 1994 Annual Report on Form 10-K. 10.18* Agreement among the Company, Walbro Automotive Corporation and Magneti Marelli France S.A., dated February 7, 1995, filed as Exhibit 10.25 to the Company's 1994 Annual Report on Form 10-K. 10.19* Joint Venture Agreement between the Company and Daewoo Precision Industries, Ltd., dated November 30, 1994, filed as Exhibit 10.26 to the Company's 1994 Annual Report on Form 10-K. 12.1 Computation of ratio of earnings to fixed charges. 23.1 Consent of Arthur Andersen LLP. 23.2 Consent of Arthur Andersen & Co. GmbH. 23.3 Consent of Deloitte & Touche. 23.4 Consent of Katten Muchin & Zavis (contained in its opinion to be filed as Exhibit 5 hereto). 24 Power of Attorney (see signature page). 25 Statement of eligibility under the Trust Indenture Act of 1939, as amended, on Form T-1 of Bankers Trust Company, as Trustee under the Indenture. 99.1 Form of Letter of Transmittal for New Notes.
180 99.2 Form of Notice of Guaranteed Delivery for New Notes. 99.3 Letter to Brokers. 99.4 Letter to Clients. 99.5 Instruction to Registered Holder and/or Book Entry Transfer Participant from Beneficial Owner. 99.6 Guidelines for Certificate of Taxpayer Identification Number on Substitute Form W-9. - -------------------- * Incorporated by reference. ** To be filed by amendment 181 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Walbro Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Walbro Corporation and Subsidiaries annual report to shareholders included in this registration statement, and have issued our report thereon dated February 14, 1995. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The supplemental note to consolidated financial statements on page S-2 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic consolidated financial statements. The information contained in this supplemental note has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Detroit, Michigan, February 14, 1995. S-1 182 SCHEDULE II WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTE TO CONSOLIDATED FINANCIAL STATEMENTS VALUATION AND QUALIFYING ACCOUNTS Following is a summary of changes in the valuation and qualifying accounts for the three years ended December 31, 1994:
1994 1993 1992 ------- ------- ------- RESERVE FOR LOSS ON DISCONTINUANCE AND PLANT CLOSINGS: Balance Beginning of Year $ -- $ 258 $ 1,400 Additions charged to operations -- -- -- Deductions (A) -- (258) (1,142) ------- ------- -------- Balance End of Year $ -- $ -- $ 258 ======= ======= ======== ALLOWANCE FOR DOUBTFUL ACCOUNTS: Balance Beginning of Year $ 413 $ 340 $ 162 Additions charged to operations 115 86 178 Deductions for uncollectible accounts written off, net of recoveries (160) (13) -- -------- ------- -------- Balance End of Year $ 368 $ 413 $ 340 ======== ======= ======== RESERVE FOR INVENTORY VALUATION: Balance Beginning of Year $ 482 $ 669 $ 70 Additions charged to operations 159 2 644 Deductions for inventory disposal (403) (189) (45) -------- ------- -------- Balance End of Year $ 238 $ 482 $ 669 ======== ======= ======== ALLOWANCE FOR NOTES RECEIVABLE: Balance Beginning of Year $ 214 214 $ -- Additions charged to operations 240 -- 214 Deductions -- -- -- -------- ------- -------- Balance End of Year $ 454 $ 214 $ 214 ======== ======= ======== VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS: Balance Beginning of Year $ 355 $ -- $ -- Additions charged to operations 389 355 -- Deductions -- -- -- -------- ------- -------- Balance End of Year $ 744 $ 355 $ -- ======== ======= ========
- ------------------ (A) Represents costs of discontinuance incurred subsequent to decision date. S-2 EX-4.2 2 CREDIT AGREEMENT 1 EXHIBIT 4.2 EXECUTION COPY ================================================================================ ================================================================================ AMENDED AND RESTATED WALBRO CORPORATION $135,000,000 CREDIT AGREEMENT DATED AS OF SEPTEMBER 22, 1995 COMERICA BANK, AS AGENT HARRIS BANK, AS CO-AGENT ================================================================================ ================================================================================ 2 TABLE OF CONTENTS
Page ---- 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1 "Account(s)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 "Account Debtor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 "Account Party(ies)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.4 "Activation Fee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.5 "Advance(s)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.6 "Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.7 "Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.8 "Agent's Correspondent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.9 "Agent's Fees" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.10 "Alternate Base Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.11 "Alternative Currency" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.12 "Alternative Currency Principal Limit" . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.13 "Applicable Fee Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.14 "Applicable Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.15 "Applicable Margin" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.16 "Assignment Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.17 "Banks" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.18 "Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.19 "Capital Expenditures" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.20 "Capitalized Lease Obligations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.21 "Closing Fee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.22 "Co-Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.23 "Collateral" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.24 "Collateral Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.25 "Collateral Documents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.26 "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.27 "Company Collateral Documents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.28 "Company Guaranty" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.29 "Company Security Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.30 "Consolidated" or "Consolidating" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.31 "Consolidated Intangible Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.32 "Consolidated Net Income" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.33 "Consolidated Tangible Net Worth" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.34 "Continuing Directors" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.35 "Contractual Obligation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.36 "Covenant Compliance Report" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.37 "Current Dollar Equivalent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.38 "Current Shareholder and Management Group" . . . . . . . . . . . . . . . . . . . . . . . 7 1.39 "De Minimis Matters" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.40 "Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.41 "Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.42 "Dollar Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.43 "Dollars" and the sign "$" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.44 "Domestic Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.45 "Domestic Guaranty" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.46 "Domestic Subsidiaries" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
- i - 3 TABLE OF CONTENTS (Continued)
Page ---- 1.47 "Dyno" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.48 "Dyno Acquisition Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.49 "Dyno Acquisition" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.50 "Dyno Capital Expenditures" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.51 "EBITDA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.52 "Equity Offering" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.53 "Equity Offering Adjustment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.54 "ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.55 "ERISA Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.56 "Eurocurrency-based Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.57 "Eurocurrency-based Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.58 "Eurocurrency-Interest Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.59 "Eurocurrency Lending Office" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.60 "Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.61 "Excess Cash Flow" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.62 "Existing Senior Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.63 "Existing Senior Debt Documents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.64 "Existing Senior Note Purchasers" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.65 "Existing Senior Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.66 "Federal Funds Effective Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.67 "Fees" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.68 "Fixed Charge Coverage Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.69 "Fixed Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.70 "Fixed Rate Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.71 "Fixed Rate Option" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.72 "Fixed Rate Election" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.73 "Foreign Subsidiaries" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.74 "Funded Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.75 "Funded Debt Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.76 "GAAP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.77 "Guaranties" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.78 "Guarantor Collateral Documents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.79 "Guarantor Security Agreement[s]" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.80 "Guarantor(s)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.81 "Hazardous Material" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.82 "Hazardous Material Law(s)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.83 "Hereof", "hereto", "hereunder" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.84 "HLT Determination" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.85 "Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.86 "Intercreditor Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.87 "Intercompany Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.88 "Intercompany Loans, Advances or Investments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.89 "Interest Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.90 "Internal Revenue Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.91 "Investment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.92 "Issuing Office" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.93 "Japanese Term Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
- ii - 4 TABLE OF CONTENTS (Continued)
Page ---- 1.94 "Joinder Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.95 "Joint Venture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.96 "Lender Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.97 "Lenders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.98 "Letter of Credit Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.99 "Letter of Credit Fees" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.100 "Letter of Credit Maximum Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.101 "Letter of Credit Obligation(s)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.102 "Letter of Credit Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.103 "Letter(s) of Credit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.104 "Lien" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.105 "Loan Documents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.106 "Majority Banks" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.107 "Material Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.108 "Minority Interests" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.109 "Multiemployer Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.110 "Net Income Adjustment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.111 "New Senior Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.112 "New Senior Debt Documents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.113 "New Senior Note Purchasers" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.114 "New Senior Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.115 "Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.116 "PBGC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.117 "Pension Plan(s)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 1.118 "Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 1.119 "Permitted Acquisitions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 1.120 "Permitted Borrower" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1.121 "Permitted Borrower Guaranty" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1.122 "Permitted Currency(ies)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1.123 "Permitted Guaranties" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1.124 "Permitted Investments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 1.125 "Permitted Liens" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 1.126 "Permitted Merger(s)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 1.127 "Permitted Transfer(s)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 1.128 "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 1.129 "Prime Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.130 "Prime-based Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.131 "Prime-based Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.132 "Prohibited Transaction" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.133 "Quoted Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.134 "Quoted Rate Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.135 "Quoted Rate Interest Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.136 "Reference Banks" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.137 "Refunded Swing Line Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.138 "Reportable Event" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.139 "Request for Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.140 "Required Consummation Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.141 "Revolving Credit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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Page ---- 1.142 "Revolving Credit Aggregate Commitment" . . . . . . . . . . . . . . . . . . . . . . . . . 27 1.143 "Revolving Credit Commitment Fee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 1.144 "Revolving Credit Designated Unused Portion" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 1.145 "Revolving Credit Maturity Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 1.146 "Revolving Credit Maximum Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 1.147 "Revolving Credit Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 1.148 "Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 1.149 "Sharon" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 1.150 "Special Conditions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 1.151 "Special Purpose Letter(s) of Credit" . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1.152 "Significant Subsidiary(ies)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1.153 "Significant Domestic Subsidiaries" . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1.154 "Significant Foreign Subsidiaries" . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.155 "Single Employer Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.156 "Sublimit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.157 "Subordinated Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.158 "Subsidiary(ies)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.159 "Swing Line Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.160 "Swing Line Bank" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.161 "Swing Line Maximum Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.162 "Swing Line Note(s)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.163 "Term Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 1.164 "Term Loan Aggregate Commitment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 1.165 "Term Loan Funding Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 1.166 "Term Loan Maturity Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 1.167 "Term Loan Permitted Amortization Schedule" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 1.168 "Term Loan Initial Request" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.169 "Term Loan Rate Request" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.170 "Term Loan Request" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.171 "Term Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.172 "UCC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.173 "Walbro Automotive" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.174 "Walbro Engine Management" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.175 "Walbro Belgium" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.176 "Walbro England" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.177 "Walbro France" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.178 "Walbro Germany" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.179 "Walbro Japan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.180 "Walbro Netherlands" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.181 "Walbro Norway" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1.182 "Walbro Spain" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1.183 "Whitehead" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1.184 "Yield Maintenance Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2. REVOLVING CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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Page ---- 2.1 Commitment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.2 Accrual of Interest and Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 2.3 Requests for and Refundings and Conversions of Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 2.4 Disbursement of Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 2.5 (a) Swing Line Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 (b) Accrual of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 (c) Requests for Swing Line Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . 39 (d) Disbursement of Swing Line Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 (e) Refunding of or Participation Interest in Swing Line Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 2.6 Prime-based Interest Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 2.7 Eurocurrency-based and Quoted Rate Interest Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 2.8 Interest Payments on Conversions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 2.9 Interest on Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 2.10 Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 2.11 Determination, Denomination and Redenomination of Alternative Currency Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 2.12 Prime-based Advance in Absence of Election or Upon Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 2.13 Revolving Credit Commitment Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 2.14 Currency Appreciation; Sublimits; Mandatory Reduction of Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . 48 2.15 Optional Reduction or Termination of Revolving Credit Maximum Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . 50 2.16 Revolving Credit Designated Unused Portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 2.17 Activation of Designated Unused Portion. . . . . . . . . . . . . . . . . . . . . . . . . 52 2.18 Extension of Revolving Credit Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 2.19 Revolving Credit as Renewal; Application of Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 3. LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 3.1 Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 3.2A Conditions to Issuance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 3.2B Special Purpose Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 3.3 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 3.4 Letter of Credit Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 3.5 Issuance Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 3.6 Draws and Demands for Payment Under Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 3.7 Obligations Irrevocable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
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Page ---- 3.8 Risk Under Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 3.9 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 3.10 Right of Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 3.11 Existing Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 4. TERM LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 4.1 Commitment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 4.2 Repayment of Principal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 4.3 Excess Cash Flow Recapture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 4.4 Accrual of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 4.5 Prime-based Interest Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 4.6 Eurocurrency-based Interest Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 66 4.7 Interest Payments on Conversions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 4.8 Interest on Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 4.9A Initial Requests for Funding Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . 67 4.9B Term Loan Rate Requests; Refundings and Conversions of Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 4.9C Term Loan Certifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 4.9D Failure to Refund or Convert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 4.9E Limited Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 4.9F Unavailability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 4.9G Reconversion to Applicable Alternative Currency and Eurocurrency-based Rate on Re-availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 4.9H Repayment on Reconversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 4.9I Interest Payments on Conversions and Reconversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 4.10 Disbursement of Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 4.11 Fixed Rate Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 4.12 Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 4.13 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 5. MARGIN ADJUSTMENTS; HLT DETERMINATION; SPECIAL LIMITATION . . . . . . . . . . . . . . . . . . . . . . 79 5.1 Margin Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 5.2 HLT Determination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 5.3 Special Limitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 6. CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 6.1 Execution of Notes, this Agreement and the other Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 6.2 Corporate Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 6.3 Company Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 6.4 Domestic Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 6.5 Foreign Permitted Borrower Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . 82
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Page ---- 6.6 Company Collateral Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 6.7 Guarantor Collateral Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 6.8 Representations and Warranties -- All Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 6.9 Compliance with Certain Documents and Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 6.10 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 6.11 Intercreditor Agreement and Existing Senior Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 6.12 Company's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 6.13 Payment of Agent's and Other Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 6.14 Other Documents and Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 6.15 Continuing Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 7. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 7.1 Corporate Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 7.2 Due Authorization - Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 7.3 Due Authorization -- Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 7.4 Title to Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 7.5 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 7.6 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 7.7 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 7.8 No Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 7.9 Enforceability of Agreement and Loan Documents -- Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 7.10 Enforceability of Loan Documents -- Significant Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 7.11 Non-contravention -- Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 7.12 Non-contravention -- Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 7.13 No Litigation -- Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 7.14 No Litigation -- Other Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 7.15 Consents, Approvals and Filings, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 89 7.16 Agreements Affecting Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . 89 7.17 No Investment Company; No Margin Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 89 7.18 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 7.19 Environmental Matters and Safety Matters. . . . . . . . . . . . . . . . . . . . . . . . . 90 7.20 Accuracy of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 8. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 8.1 Preservation of Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 8.2 Keeping of Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 8.3 Reporting Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 8.4 Consolidated Tangible Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 8.5 Funded Debt Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 8.6 Maintain Fixed Charge Coverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . 95 8.7 Inspections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
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Page ---- 8.8 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 8.9 Further Assurances; Financing Statements. . . . . . . . . . . . . . . . . . . . . . . . . 96 8.10 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 8.11 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 8.12 Governmental and Other Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 8.13 Compliance with Contractual Obligations and Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 8.14 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 8.15 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 8.16 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 8.17 Significant Subsidiaries; Joinder Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 8.18 Financial Covenant Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 9. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 9.1 Capital Structure and Redemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 9.2 Business Purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 9.3 Mergers or Dispositions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 9.4 Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 9.5 Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 9.6 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 9.7 Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 9.8 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 9.9 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 9.10 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 9.11 Dyno Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 9.12 No Further Negative Pledges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 9.13 Prepayment of Debts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 9.14 Amendment of Existing Senior Debt Documents and New Senior Debt Documents and Subordinated Debt. . . . . . . . . . . . 107 10. DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 10.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 10.2 Exercise of Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 10.3 Rights Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 10.4 Waiver by Company and the Permitted Borrowers of Certain Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 10.5 Waiver of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 11. PAYMENTS, RECOVERIES AND COLLECTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 11.1 Payment Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 11.2 Application of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 11.3 Pro-rata Recovery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 11.4 Deposits and Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
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Page ---- 12. CHANGES IN LAW OR CIRCUMSTANCES; INCREASED COSTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 115 12.1 Reimbursement of Prepayment Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 12.2 Eurocurrency Lending Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 12.3 Availability of Alternative Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . 116 12.4 Refunding Advances in Same Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . 116 12.5 Circumstances Affecting Eurocurrency-based Rate or Alternative Currency Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 12.6 Laws Affecting Eurocurrency-based or Alternative Currency Advance Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 12.7 Increased Cost of Eurocurrency-based or Alternative Currency Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 12.8 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 12.9 Judgment Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 12.10 Other Increased Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 13. AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 13.1 Appointment of Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 13.2 Deposit Account with Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 13.3 Exculpatory Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 13.4 Successor Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 13.5 Loans by Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 13.6 Credit Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 13.7 Notices by Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 13.8 Agent's Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 13.9 Nature of Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 13.10 Actions; Confirmation of Agent's Authority to Act in Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 13.11 Authority of Agent to Enforce Notes and This Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 13.12 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 13.13 Knowledge of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 13.14 Agent's Authorization; Action by Banks. . . . . . . . . . . . . . . . . . . . . . . . . . 124 13.15 Enforcement Actions by the Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 13.16 Co-Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 14.1 Accounting Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 14.2 Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 14.3 Law of Michigan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 14.4 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 14.5 Closing Costs; Other Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 14.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 14.7 Further Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
- ix - 11 TABLE OF CONTENTS (Continued)
Page ---- 14.8 Successors and Assigns; Assignments and Participations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 14.9 Indulgence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 14.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 14.11 Amendment and Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 14.12 Taxes and Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 14.13 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 14.14 Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 14.15 Effective Upon Execution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 14.16 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 14.17 Table of Contents and Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 14.18 Construction of Certain Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 14.19 Independence of Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 14.20 Reliance on and Survival of Various Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 14.21 Complete Agreement; Amendment and Restatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 EXHIBITS - -------- FORM OF REQUEST FOR ADVANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A FORM OF REVOLVING CREDIT NOTE -- COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1 FORM OF REVOLVING CREDIT NOTE -- PERMITTED BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2 PERCENTAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C SUBLIMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D FORM OF SWING LINE NOTE -- COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1 FORM OF SWING LINE NOTE -- PERMITTED BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-2 FORM OF REQUEST FOR SWING LINE ADVANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G FORM OF TERM NOTE -- COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H-1 FORM OF TERM NOTE -- PERMITTED BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H-2 FORM OF TERM LOAN INITIAL REQUEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I FORM OF TERM LOAN RATE REQUEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . J FORM OF FIXED RATE ELECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K FORM OF COVENANT COMPLIANCE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L FORM OF JOINDER AGREEMENT: DOMESTIC GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M-1 PERMITTED BORROWER GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M-2 FORM OF ASSIGNMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N SCHEDULES - --------- Schedule 1.104 Schedule 9.4 Schedule 5.1 Schedule 9.5 Schedule 7.6 Schedule 9.6 Schedule 7.13 Schedule 9.8 Schedule 7.14 Schedule 7.19 Schedule 8.17
- x - 12 AMENDED AND RESTATED CREDIT AGREEMENT THIS AMENDED AND RESTATED CREDIT AGREEMENT ("Agreement") is made as of the 22nd day of September, 1995, by and among the Banks signatory hereto (individually, "Bank", and collectively "Banks"), Comerica Bank, as agent for the Banks (in such capacity, "Agent"), and Walbro Corporation, a Delaware corporation ("Company"). RECITALS: A. Company has requested that the Banks amend, renew and extend to it and to the Permitted Borrowers (as defined below), credit in the aggregate amount of up to One Hundred Thirty-Five Million Dollars ($135,000,000) previously extended to Company and the Permitted Borrowers pursuant to that certain Walbro Corporation $135,000,000 Credit Agreement dated as of July 26, 1995, as amended ("Prior Credit Agreement"), by and among the Company, certain of the Permitted Borrowers (by their execution and delivery of promissory notes thereunder) and Comerica Bank, individually as a Bank and in its capacity as Agent, and consisting of the Revolving Credit, Swing Line Advances, Letters of Credit and Term Loans (each as defined below), on the terms and conditions set forth herein. B. The Banks are prepared to extend such credit by amendment and renewal (but not in novation), as aforesaid, but only upon the terms and conditions set forth in this Agreement. NOW THEREFORE, COMPANY, AGENT AND THE BANKS AGREE: 1. DEFINITIONS For the purposes of this Agreement the following terms will have the following meanings: 1.1 "Account(s)" shall mean any account or account receivable as defined under the UCC, including without limitation, with respect to any Person, any right of such Person to payment for goods sold or leased or for services rendered. 1.2 "Account Debtor" shall mean the party who is obligated on or under any Account. 1.3 "Account Party(ies)" shall mean, with respect to any Letter of Credit, the account party or parties (which shall be Company individually, or jointly and severally with a Permitted Borrower which has issued Revolving Credit Notes hereunder) named in an application to the Agent for the issuance of such Letter of Credit. 1.4 "Activation Fee" shall mean the fee payable by Company to Agent, for distribution to the Banks based on their respective Percentages, in connection with each activation of the Revolving edit Designated Unused Portion under Section 2.17 hereof and each 13 request for the funding of a Term Loan under Section 4.9A hereof, in each case in the respective amounts set forth therein. 1.5 "Advance(s)" shall mean, as the context may indicate, a borrowing requested by Company or by a Permitted Borrower, and made by Banks under Section 2.1 or 4.1 of this Agreement, as the case may be, or requested by the Company or by a Permitted Borrower and made by the Swing Line Bank under Section 2.5 hereof, including without limitation any readvance, refunding or conversion of such borrowing pursuant to Section 2.3, 2.5(c) or 4.9B hereof, any advance in respect of a Letter of Credit under Section 3.6 hereof (including without limitation the unreimbursed amount of any draws under any Letters of Credit), and shall include, as applicable, a Eurocurrency-based Advance, a Prime-based Advance, a Quoted Rate Advance, a Fixed Rate Advance and a Swing Line Advance. 1.6 "Affiliate" shall mean, with respect to any Person, any other Person or group acting in concert in respect of the first Person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with such first Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person or group of Persons, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. 1.7 "Agent" shall mean Comerica Bank, a Michigan banking corporation, or any successor appointed in accordance with Section 13.4 hereof. 1.8 "Agent's Correspondent" shall mean such bank or banks as Agent may from time to time designate by written notice to Company, the Permitted Borrowers and the Banks as its correspondent for Advances in Eurodollars or in particular Alternative Currencies. 1.9 "Agent's Fees" shall mean those fees and expenses required to be paid by Company to Agent under Section 13.8 hereof. 1.10 "Alternate Base Rate" shall mean, for any day, an interest rate per annum equal to the Federal Funds Effective Rate in effect on such day, plus one percent (1%). 1.11 "Alternative Currency" shall mean British Pounds Sterling ("Sterling"), French Francs ("FF"), Japanese Yen ("Y"), Deutsche Marks ("DM"), Norwegian Krone ("K"), Spanish Peseta ("SP"), Belgian Francs ("BF") and, subject to the prior written approval of Agent and each of the Banks and to the terms and conditions of this Agreement, such other freely convertible foreign currencies (which, when referred to herein or in any of the other Loan Documents, shall be referred to using the currency codes in 2 14 effect from time to time under ISO International Standard 4217, or any such successor publication or standard) as requested by the Company or a Permitted Borrower. 1.12 "Alternative Currency Principal Limit" shall mean, with respect to each Term Loan funded in an Alternative Currency, the initial principal amount of such Term Loan (stated in the applicable Alternative Currency) minus the sum of (a) the amount of any payments or prepayments of principal made on such Term Loan on or prior to the date of any determination of such Alternative Currency Principal Limit and (b) the amount of any principal repayments on the Term Loan scheduled to be paid under Section 4.3 hereof or required to be paid under Section 4.2 hereof on or prior to the date of any determination of such Alternative Currency Principal Limit. 1.13 "Applicable Fee Percentage" shall mean, as of any date of determination thereof, the applicable percentage used to calculate certain of the fees due and payable hereunder, determined (based on the Funded Debt Ratio) by reference to the appropriate columns in the Pricing Matrix attached to this Agreement as Schedule 5.1. 1.14 "Applicable Interest Rate" shall mean the Eurocurrency-based Rate, the Quoted Rate or the Prime-based Rate, as selected by Company or a Permitted Borrower from time to time, subject to the terms and conditions of this Agreement, and, if elected by the Company or a Permitted Borrower pursuant to Section 4.11 hereof, the Fixed Rate. 1.15 "Applicable Margin" shall mean, as of any date of determination thereof, the applicable interest rate margin, determined (based on the Funded Debt Ratio) by reference to the appropriate columns in the Pricing Matrix attached to this Agreement as Schedule 5.1. 1.16 "Assignment Agreement" shall have the meaning ascribed to such term in Section 14.8(d) hereof. 1.17 "Banks" shall mean Comerica Bank, any other Banks signatory hereto, and any assignee which becomes a Bank pursuant to Section 14.8(d) hereof. 1.18 "Business Day" shall mean any day on which commercial banks are open for domestic and international business (including dealings in foreign exchange) in Detroit, London (except with respect to any Prime-based Advances), and New York and if funds are to be paid or made available in any Alternative Currency, on such day in the place where such funds are to be paid or made available. 1.19 "Capital Expenditures" shall mean, without duplication, any amounts paid or accrued for a period in respect of any purchase or other acquisition for value of fixed or capital assets; provided that, in no event shall Capital Expenditures include amounts 3 15 expended in respect of normal repair and maintenance of plant facilities, machinery, fixtures and other like capital assets utilized in the ordinary conduct of business (to the extent such amounts would not be capitalized in preparing a balance sheet determined in accordance with GAAP). 1.20 "Capitalized Lease Obligations" shall mean, at any time, a lease obligation with respect to which the lessee is required by GAAP to recognize the acquisition of an asset and the incurrence of a liability at such time. 1.21 "Closing Fee" shall mean the fee payable to the Agent upon closing of this Agreement in accordance with the Agency Fee Letter. 1.22 "Co-Agent" shall mean Harris Bank, in its capacity as Co-Agent hereunder. 1.23 "Collateral" shall mean all property or rights in which a security interest, mortgage, lien or other encumbrance for the benefit of the Lenders is or has been granted or arises or has arisen, under or in connection with this Agreement, the Loan Documents, the Existing Senior Debt Documents, or otherwise. 1.24 "Collateral Agent" shall mean Comerica, acting in its capacity as Collateral Agent for the Lenders under the Intercreditor Agreement. 1.25 "Collateral Documents" shall mean the Company Collateral Documents and the Guarantor Collateral Documents executed and delivered by Company and by certain of Company's Subsidiaries, as the case may be, to the Collateral Agent, in accordance with the terms and conditions of this Agreement, as the same may be amended from time to time. 1.26 "Company" shall mean Walbro Corporation, a Delaware corporation. 1.27 "Company Collateral Documents" shall mean the Company Security Agreement, and all of the other acknowledgments, certificates, financing statements, instruments and other security documents executed by Company and delivered to the Collateral Agent, as of the date of the Prior Credit Agreement or, from time to time, subsequent thereto, in connection with such security agreement, this Agreement, the Prior Credit Agreement, the Loan Documents, and the Existing Senior Debt Documents, as such collateral documents may be amended, restated, supplemented or replaced from time to time. 1.28 "Company Guaranty" shall mean that certain guaranty of all of the Indebtedness outstanding from the Permitted Borrowers hereunder, executed and delivered by the Company to the Agent, on behalf of the Banks as of the date of the Prior Credit Agreement, as amended, restated, supplemented or replaced from time to time. 4 16 1.29 "Company Security Agreement" shall mean that certain stock pledge and security agreement encumbering the Accounts, Inventory and general intangibles of Company and the shares of stock or share capital of Company in certain of its Subsidiaries, now owned or hereafter acquired (all as set forth therein), executed and delivered by Company to the Collateral Agent as of the date of the Prior Credit Agreement, or from time to time subsequent thereto, hereof as security for the Lender Debt, as the same may be amended, restated, supplemented or replaced from time to time. 1.30 "Consolidated" or "Consolidating" shall, when used with reference to any financial information pertaining to (or when used as a part of any defined term or statement pertaining to the financial condition of) Company and its Subsidiaries, mean the accounts of Company and its Subsidiaries determined on a consolidated or consolidating basis, as the case may be, all determined as to principles of consolidation and, except as otherwise specifically required by the definition of such term or by such statements, as to such accounts, in accordance with GAAP applied on a consistent basis and consistent with the financial statements as at and for the fiscal year ended December 31, 1994. 1.31 "Consolidated Intangible Assets" shall mean, as of any date of determination thereof, the amount of good will, patents, trade names, trade marks, copyrights, franchises, experimental expense, organization expense, unamortized debt discount and expense, deferred assets other than prepaid insurance and prepaid taxes, the excess of cost of shares acquired over book value of related assets and such other assets as are properly classified as "intangible assets" determined on a Consolidated basis in accordance with GAAP (but expressly excluding the value of the technology licenses for Orbital Engine Company Ltd. and cash surrender values under key employee insurance policies), in each case determined for the Company and its Subsidiaries on a Consolidated basis. 1.32 "Consolidated Net Income" shall mean, in respect of any period, the net income (loss) of Company and its Subsidiaries, determined on a Consolidated basis in accordance with GAAP, for such period. 1.33 "Consolidated Tangible Net Worth" shall mean, as of any date of determination thereof, (a) the amount of capital stock accounts plus (or minus in the case of a deficit) the paid-in capital and retained earnings of the Company and its Subsidiaries; plus (b) to the extent not included in subparagraph (a) above, an amount equal to the liquidation preference of issued and outstanding preferred stock of the Company; plus (c) to the extent not included in subparagraph (a) above, Minority Interests; plus (d) deferred income taxes; plus (e) the unpaid principal amount of any outstanding Subordinated Debt; plus (f) $2,900,000; minus (g) the net book value, after deducting any reserves applicable thereto, of all items of the following character which are included in the assets of the Company and its Subsidiaries: (i) Consolidated 5 17 Intangible Assets; (ii) any increment resulting from any reappraisal, revaluation or writeup of assets; and (iii) treasury stock, all determined on a Consolidated basis for the Company and its Subsidiaries in accordance with GAAP. 1.34 "Continuing Directors" shall mean the directors of the Company on the effective date of this Agreement and each other director of the Company, if such other director's nomination or election to the board of directors of the Company is recommended by a majority of the then Continuing Directors. 1.35 "Contractual Obligation" shall mean, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or written undertaking to which such Person is a party or by which it or any of its property is bound. 1.36 "Covenant Compliance Report" shall mean the report to be furnished by the Company to the Agent, in substantially the form attached to this Agreement as Exhibit "L" and certified by the chief financial officer of the Company pursuant to Section 8.3(b) and 8.3(c), hereof, as to whether the Company and its Subsidiaries are in compliance with the financial and other covenants contained in Sections 8.4 through 8.6, inclusive, and 9.5, 9.6, 9.8 and 9.11, inclusive, of this Agreement, in which report the Company shall set forth its calculations and the resultant ratios or financial tests determined thereunder. 1.37 "Current Dollar Equivalent" shall mean at any time, with respect to any Advance in an Alternative Currency, the amount of Dollars which is equivalent to the then outstanding principal amount of such Advance at the most favorable spot exchange rate determined by the Agent to be available to it for the sale of Dollars for such Alternative Currency for delivery at approximately 11:00 A.M. (Detroit time) two (2) Business Days after such date. Alternative Currency equivalents of Advances in Dollars (to the extent used herein) shall be determined by Agent in a manner consistent herewith. 1.38 "Current Shareholder and Management Group" shall mean (i) Lambert A. Althaver, Robert H. Walpole, Gary L. Vollmar, Richard H. Whitehead III, Michael A. Shope and Daniel L. Hittler; (ii) the spouses, lineal descendants and spouses of the lineal descendants of the persons named in clause (i); and (iii) the estates or legal representatives of the persons named in clauses (i) and (ii). 1.39 "De Minimis Matters" shall mean environmental or other matters, the existence of which and any liability which may result therefrom, could not, individually or in the aggregate, have a material adverse effect on the financial condition or businesses of the Company or any of its Subsidiaries or on the ability of the Company or any of its Subsidiaries to pay its Debts, as such Debts become due. 6 18 1.40 "Debt" shall mean, as of any applicable date of determination, all items of indebtedness, obligation or liability of a Person, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, that should be classified as liabilities in accordance with GAAP, including without limitation, any items so classified on a balance sheet or the accompanying footnotes and any reimbursement obligations in respect of letters of credit, obligations in respect of bankers acceptances, payment obligations, if any, under interest rate protection agreements (including without limitation interest rate swaps and similar agreements), and currency swaps and hedges and similar agreements; provided, however that for purposes of calculating the aggregate Debt of Company and its Subsidiaries, the direct and indirect and absolute and contingent obligations of Company and the Guarantors (whether direct or contingent) shall be determined without duplication. 1.41 "Default" shall mean any event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default. 1.42 "Dollar Amount" shall mean (i) with respect to each Advance made or carried (or to be made or carried) in Dollars, the principal amount thereof and (ii) with respect to each Advance made or carried (or to be made or carried) in an Alternative Currency, the amount of Dollars which is equivalent to the principal amount of such Advance at the most favorable spot exchange rate determined by the Agent to be available to it for the sale of Dollars for such Alternative Currency at approximately 11:00 A.M. (Detroit time) two (2) Business Days before such Advance is made (or to be made), as such Dollar Amount may be adjusted from time to time pursuant to Section 2.11 hereof or otherwise hereunder. When used with respect to any Alternative Currency portion of an Advance being repaid or remaining outstanding at any time or with respect to any other sum expressed in an Alternative Currency, "Dollar Amount" shall mean the amount of Dollars which is equivalent to the principal amount of such Advance, or the amount so expressed in such Alternative Currency, at the most favorable spot exchange rate determined by the Agent to be available to it for the sale of Dollars for such Alternative Currency at the relevant time. Alternative Currency amounts of Advances made, carried or expressed in Dollars (to the extent used herein) shall be determined by Agent in a manner consistent herewith. 1.43 "Dollars" and the sign "$" shall mean lawful money of the United States of America. 1.44 "Domestic Advance" shall mean any Advance other than a Eurocurrency-based Advance or any other Advance denominated in an Alternative Currency. 1.45 "Domestic Guaranty" shall mean that certain guaranty agreement containing the unconditional guaranties of borrowings hereunder by Company and the Permitted Borrowers, executed and 7 19 delivered by the Significant Domestic Subsidiaries to the Banks as of the date hereof (or, pursuant to Section 8.17 hereof, subsequent to the date of this Agreement), as amended, restated, supplemented or replaced from time to time. 1.46 "Domestic Subsidiaries" shall mean those Subsidiaries of the Company incorporated under the laws of the United States of America, or any state thereof. 1.47 "Dyno" shall mean Dyno Industrier AS, a Norwegian corporation. 1.48 "Dyno Acquisition Agreement" shall mean that certain Purchase and Sale Agreement entered into between Dyno, as seller, and the Company, as purchaser, dated as of April 7, 1995, as amended to the date hereof, and as further amended (subject to the terms hereof) from time to time. 1.49 "Dyno Acquisition" shall mean the acquisition by the Company, subject to the terms hereof, of the assets, properties, rights and business of Dyno (and certain subsidiaries of Dyno) for the price and on the terms and conditions set forth in the Dyno Acquisition Agreement. 1.50 "Dyno Capital Expenditures" shall mean all Capital Expenditures of the Company and its Subsidiaries made as part of, or in support (whether directly or indirectly) of the operations acquired by the Company and its Subsidiaries pursuant to or in connection with the Dyno Acquisition, excluding Capital Expenditures in an amount not to exceed Twelve Million Dollars ($12,000,000) in the aggregate, for or in connection with the European research and development facility to be constructed by the Company or a Significant Foreign Subsidiary. 1.51 "EBITDA" shall mean, with respect to any period, net earnings (or loss) before gross interest expense, depreciation, good will, amortization and taxes and before reflecting extraordinary gains (losses), gains (losses) from discontinued operations and gains (losses) from Minority Interests and Joint Ventures for such period, as determined in accordance with GAAP. 1.52 "Equity Offering" shall mean the issuance and sale by the Company or any of its Subsidiaries of additional capital stock or other equity interests. 1.53 "Equity Offering Adjustment" shall mean that amount to be added to the minimum Consolidated Tangible Net Worth required to be maintained under Section 8.4 hereof consisting of an amount equal to one hundred percent (100%) of each Equity Offering conducted by the Company or any of its Subsidiaries (plus the result of any merger or acquisition), net of costs of issuance, on or after the date hereof, on a cumulative basis. 8 20 1.54 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor act or code, and the regulations in effect from time to time thereunder. 1.55 "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and would be treated as a single employer under Section 414(b) or (c) of the Internal Revenue Code. 1.56 "Eurocurrency-based Advance" shall mean any Advance (including a Swing Line Advance) which bears interest at the Eurocurrency-based Rate. 1.57 "Eurocurrency-based Rate" shall mean a per annum interest rate which is the Applicable Margin (subject in each case to adjustment under Section 5.1 hereof) above the quotient of: (i) the per annum interest rate at which deposits in the relevant eurocurrency are offered to Agent's Eurocurrency Lending Office by other prime banks in the eurocurrency market in an amount comparable to the relevant Eurocurrency-based Advance and for a period equal to the relevant Eurocurrency-Interest Period at approximately 11:00 A.M. Detroit time two (2) Business Days prior to the first day of such Eurocurrency-Interest Period, divided by (ii) a percentage equal to 100% minus the maximum rate on such date at which Agent or any of the Reference Banks is required to maintain reserves on `Eurocurrency Liabilities' as defined in and pursuant to Regulation D of the Board of Governors of the Federal Reserve System or, if such regulation or definition is modified, and as long as Agent is required to maintain reserves against a category of liabilities which includes eurocurrency deposits or includes a category of assets which includes eurocurrency loans, the rate at which such reserves are required to be maintained on such category, such sum to be rounded upward, if necessary, to the nearest whole multiple of 1/100th of 1%. 1.58 "Eurocurrency-Interest Period" shall mean, (a) for Swing Line Advances, an Interest Period of one month (or any lesser number of days agreed to in advance by Company or a Permitted Borrower, Agent and the Swing Line Bank) and (b) for all other Eurocurrency-based Advances, an Interest Period of one, two, three 9 21 or six months (or any lesser or greater number of days agreed to in advance by Company or a Permitted Borrower, Agent and the Banks), as selected by Company or a Permitted Borrower, as applicable, for a Eurocurrency-based Advance pursuant to Section 2.3, 2.5 or 4.9B hereof, as the case may be. 1.59 "Eurocurrency Lending Office" shall mean, (a) with respect to the Agent, Agent's office located at its Grand Caymans Branch or such other branch of Agent, domestic or foreign, as it may hereafter designate as its Eurocurrency Lending Office by notice to Company, the Permitted Borrower and the Banks and (b) as to each of the Banks, its office, branch or affiliate located at its address set forth on the signature pages hereof (or identified thereon as its Eurocurrency Lending Office), or at such other office, branch or affiliate of such Bank as it may hereafter designate as its Eurocurrency Lending Office by notice to Company and Agent. 1.60 "Event of Default" shall mean each of the Events of Default specified in Section 10.1 hereof. 1.61 "Excess Cash Flow" shall mean for any fiscal year (using the terms contained in the Company's Consolidated financial statements for its fiscal year ending December 31, 1994 and the sources and uses statement contained in Company's 10-K Report filed with the Federal Securities and Exchange Commission in respect of such period), net cash provided by operating activities for such fiscal year, less purchase of property and equipment for such fiscal year, less principal payments on long-term debt for such fiscal year (including all principal payments based on Excess Cash Flow made on the Term Loan under Section 4.3 hereof, if any, during such fiscal year, but excluding all payments on the Revolving Credit, or any other revolving loan facility utilized at any time by Company or any of its Subsidiaries), all calculated based upon Company's annual Consolidated financial statements required to be delivered to Agent and the Banks under Section 8.3(b) hereof. 1.62 "Existing Senior Debt" shall mean the senior debt issued by the Company pursuant to the Senior Debt Documents in an aggregate principal amount of Forty-Five Million Dollars ($45,000,000). 1.63 "Existing Senior Debt Documents" shall mean that certain Walbro Corporation Note Purchase Agreement dated as of October 1, 1994 ($45,000,000 7.68% Senior Notes due October 1, 2004) and the Existing Senior Notes issued thereunder, together with any and all other documents, instruments and certificates executed and delivered pursuant thereto, as the same may be amended from time to time (subject to the terms hereof) and any and all other documents executed in exchange therefor or in replacement or renewal thereof. 10 22 1.64 "Existing Senior Note Purchasers" shall mean the note purchasers which are signatories to the Existing Senior Debt Documents, and their respective successors and assigns. 1.65 "Existing Senior Notes" shall mean the senior notes issued by the Company to the Existing Senior Note Purchasers pursuant to the Existing Senior Debt Documents as evidence of the Existing Senior Debt, as such notes may be amended, extended or supplemented from time to time, and any other notes issued in substitution, renewal or replacement thereof from time to time. 1.66 "Federal Funds Effective Rate" shall mean, for any day, a fluctuating interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from three Federal funds brokers of recognized standing selected by it. 1.67 "Fees" shall mean the Agent's Fees, the Closing Fee, the Activation Fee, the Letter of Credit Fees and the Revolving Credit Commitment Fee and the other fees and charges payable hereunder. 1.68 "Fixed Charge Coverage Ratio" shall mean a ratio, the numerator of which consists of the EBITDA of Company and its Subsidiaries for the four fiscal quarters immediately preceding the applicable date of determination, minus the aggregate Capital Expenditures of Company and its Subsidiaries during such period (excluding in such calculations through and including June 30, 1996, all Dyno Capital Expenditures, but including in such calculations beginning September 30, 1996 all Dyno Capital Expenditures) and the denominator of which consists of gross interest expense of Company and its Subsidiaries for such period, all determined without duplication in accordance with GAAP on a Consolidated basis. 1.69 "Fixed Rate" shall mean the per annum fixed rate of interest for a specified Term Loan established by the Agent under Section 4.11 hereof, such rate to be based on (a) an average of the funding cost of each of the Reference Banks on that date which is three (3) Business Days prior to the effective date of an election of the Fixed Rate Option pursuant to Section 4.11 hereof, as determined by each such Reference Bank in the interbank swap market for the weighted average life of the specified Term Loan then remaining, plus (b) the Applicable Margin which would then be in effect for Eurocurrency-based Rate Advances of such Term Loan if the Company or the applicable Permitted Borrower had selected such rate, subject to any applicable margin adjustment under Section 5.1 hereof, giving immediate effect thereto based on the most current 11 23 quarterly financial statement delivered by the Company under Section 8.3(b) or 8.3(c) hereof, as the case may be. 1.70 "Fixed Rate Advance" shall mean any Advance of a Term Loan carried at the Fixed Rate. 1.71 "Fixed Rate Option" shall mean the right of the Company or a Permitted Borrower, subject to and in accordance with Section 4.11 hereof, to elect the Fixed Rate as the Applicable Interest Rate for a specified Term Loan. 1.72 "Fixed Rate Election" shall mean the written election of the Fixed Rate as the Applicable Interest Rate for a specified Term Loan, submitted by the Company or a Permitted Borrower under Section 4.11 hereof, in the form attached hereto as Exhibit "K." 1.73 "Foreign Subsidiaries" shall mean all of the Company's Subsidiaries other than the Domestic Subsidiaries. 1.74 "Funded Debt" shall mean, on a Consolidated basis and without duplication (i) all Debt of the Company and its Subsidiaries for borrowed money or which has been incurred in connection with the acquisition of assets, excluding intercompany items, (ii) all Capitalized Lease Obligations of the Company and its Subsidiaries, and (iii) all guaranties by Company or any of its Subsidiaries of Funded Debt of any other person, including without limitation any and all agreements, contingent or otherwise, to support the obligation of such other Person, whether or not denominated as a guaranty, any letter of credit reimbursement obligations and any other such agreement or undertaking which would constitute a guaranty for purposes of GAAP, consistently applied. 1.75 "Funded Debt Ratio" shall mean a ratio, the numerator of which consists of the Funded Debt of the Company and its Subsidiaries as of the applicable date of determination, and the denominator of which consists of the EBITDA of the Company and its Subsidiaries for the four fiscal quarters immediately preceding such date of determination, all determined without duplication in accordance with GAAP on a Consolidated basis. 1.76 "GAAP" shall mean generally accepted accounting principles in the United States of America (except as otherwise expressly stated herein) as in effect (i) for purposes of calculating any financial covenants or ratios hereunder, on the date hereof, consistently applied, and (ii) for all other purposes, as in effect from time to time. 1.77 "Guaranties" shall mean the Company Guaranty, the Domestic Guaranty and the Permitted Borrowers Guaranty, and "Guaranty" shall mean each and any of such Guaranties, as the context may indicate. 1.78 "Guarantor Collateral Documents" shall mean the Guarantor Security Agreement and the local share pledges identified 12 24 and defined therein ("Local Share Pledges") and all other acknowledgments, certificates, financing statements, instruments, local share pledges and other security documents executed by the Domestic Guarantors and delivered to Collateral Agent, as of the date of the Prior Credit Agreement or, from time to time, subsequent thereto, in connection with such security agreements, this Agreement, the Prior Credit Agreement, any of the other Loan Documents and the Existing Senior Debt Documents, as such collateral documents may be amended, restated, supplemented or replaced from time to time. 1.79 "Guarantor Security Agreement[s]" shall mean those certain stock pledges and security agreements encumbering the accounts, inventory and general intangibles of the Domestic Guarantors and the shares of stock or share capital of certain of the Significant Subsidiaries now owned or hereafter acquired by the Domestic Guarantors (or any of them) (as set forth therein), executed and delivered by the Domestic Guarantors to the Collateral Agent, as of the date of the Prior Credit Agreement or from time to time subsequent thereto, as security for the Lender Debt, as amended, restated, supplemented or replaced from time to time, and each security agreement or other security document executed and delivered from and after the date hereof by a Significant Domestic Subsidiary which becomes a Guarantor hereunder subsequent to the date hereof in accordance with this Agreement. 1.80 "Guarantor(s)" shall mean each Significant Subsidiary of the Company and each Person otherwise becoming a Significant Subsidiary of the Company subsequent to the date hereof or otherwise entering into a Guaranty (by joinder agreement or otherwise) from time to time and shall as of the date of execution of this Agreement consist of those Subsidiaries designated as Guarantors on Schedule 7.6 hereto. 1.81 "Hazardous Material" shall mean and include any hazardous, toxic or dangerous waste, substance or material defined as such in (or for purposes of) the Hazardous Material Laws or in respect of which liability or standards of conduct may be imposed under any such laws. 1.82 "Hazardous Material Law(s)" shall mean all laws, codes, ordinances, rules, regulations, orders, decrees and directives issued by any federal, state, local, foreign or other governmental or quasi-governmental authority or body (or any agency, instrumentality or political subdivision thereof) pertaining to any hazardous, toxic, or dangerous waste, substance or material on or about the Material Property or any portion thereof including, without limitation, those relating to soil, surface, subsurface ground water conditions and the condition of the ambient air; any so-called "superfund" or "superlien" law; and any other federal, state, foreign or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic 13 25 or dangerous waste, substance or material, as now or at any time hereafter in effect. 1.83 "Hereof", "hereto", "hereunder" and similar terms shall refer to this Agreement in its entirety and not to any particular paragraph or provision of this Agreement. 1.84 "HLT Determination" shall mean any determination by the Agent or by the Majority Banks, or by applicable federal or state regulatory authorities (including without limitation any central bank or other governmental body having jurisdiction over any of the Banks) that the Indebtedness (or any specific loan facility or portion thereof pursuant to this Agreement) would be classified as a "highly-leveraged transaction" or an "HLT" under applicable federal or state law, regulations or guidelines in effect from time to time, provided that (a), with any determination of HLT status by Agent or the Majority Banks, Agent shall have given Company not less than thirty (30) days prior written notice of such determination, accompanied by a certificate setting forth in reasonable detail the basis for such determination (which shall be presumed correct absent manifest error) and (b) with respect to any determination of HLT status by a federal or state regulatory authority, Agent shall have given written notice thereof to Company, accompanied by a copy of such determination (if in writing). 1.85 "Indebtedness" shall mean all indebtedness and liabilities, whether direct or indirect, absolute or contingent, owing by Company or any of the Permitted Borrowers to the Banks (or any of them) or to the Agent, in any manner and at any time, under this Agreement or the other Loan Documents, whether evidenced by the Notes, the Company Guaranty, the Domestic Guaranty, the Permitted Borrower Guaranty, or otherwise, due or hereafter to become due, now owing or that may hereafter be incurred by the Company, or any of the Permitted Borrowers to, or acquired by, the Banks or by Agent, and any judgments that may hereafter be rendered on such indebtedness or any part thereof, with interest according to the rates and terms specified, or as provided by law, and any and all consolidations, amendments, renewals, replacements or extensions of any of the foregoing. 1.86 "Intercreditor Agreement" shall mean that certain Intercreditor Agreement dated as of the date of the Prior Credit Agreement, as the same may be amended from time to time, by and among Company, the Agent, the Collateral Agent and the Lenders. 1.87 "Intercompany Loan" shall mean any loan (or advance in the nature of a loan) by the Company or any 100% Subsidiary to another 100% Subsidiary, provided that each such loan or advance is subordinated in right of payment and priority to the Indebtedness on terms and conditions satisfactory to Agent and the Majority Banks. 14 26 1.88 "Intercompany Loans, Advances or Investments" shall mean any Intercompany Loan, and any advance or investment by the Company or any 100% Subsidiary (including without limitation any guaranty of obligations or indebtedness to third parties) to or in another 100% Subsidiary. 1.89 "Interest Period" shall mean a Eurocurrency-Interest Period commencing on the day a Eurocurrency-based Advance is made, or on the effective date of an election of the Eurocurrency-based Rate made under Section 2.3, 2.5(c) or 4.9B hereof, as the case may be, or a Quoted Rate Interest Period commencing on the day a Quoted-Rate Advance is made under Section 2.5(c) hereof, provided that: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day, except that as to a Eurocurrency-Interest Period, if the next succeeding Business Day falls in another calendar month, such Eurocurrency-Interest Period shall end on the next preceding Business Day, and when a Eurocurrency-Interest Period begins on a day which has no numerically corresponding day in the calendar month during which such Eurocurrency-Interest Period is to end, it shall end on the last Business Day of such calendar month, and (b) no Interest Period shall extend beyond the maturity date set forth in the Note to which such Interest Period is to apply. 1.90 "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder. 1.91 "Investment" shall mean any loan, advance or extension of credit by Company or any of its Subsidiaries to, or any other loan, advance investment by Company or any of its Subsidiaries in (or guaranty or similar undertaking for the benefit of), any Person (including without limitation, any Subsidiary of Company), without offset, reduction or other adjustment, whether such loan, advance or investment shall be in the nature of an investment in shares of stock or other capital or securities, any contribution of capital, general or limited partnership or joint venture interests, debentures, evidences of indebtedness or otherwise. 1.92 "Issuing Office" shall mean Agent's office located at One Detroit Center, 500 Woodward Avenue, Detroit, Michigan 48275 or such other office as Agent shall designate as its Issuing Office. 1.93 "Japanese Term Loan" shall mean that certain Term Loan in the aggregate principal amount of Seven Hundred Fifty Million Yen (Y 750,000,000) to be advanced by the Banks to Walbro Japan pursuant to Section 4.1 hereof. 15 27 1.94 "Joinder Agreement" shall mean a joinder agreement in the form attached to this Agreement as Exhibits "M-1" or "M- 2"; as the case may be, to be executed and delivered pursuant to Section 8.17 of this Agreement by any Subsidiary specified therein or which becomes a Significant Subsidiary subsequent to the date hereof. 1.95 "Joint Venture" shall mean any corporation, partnership, association, joint stock company, business trust or other combined enterprise, other than a Consolidated Subsidiary, in which (or to which) the Company or any of its Subsidiaries has made a loan, investment or advance or has an ownership stake or interest, whether in the nature of Share Capital, partnership or equity interest or otherwise. 1.96 "Lender Debt" shall mean the Indebtedness and the Existing Senior Debt. 1.97 "Lenders" shall mean each of the Banks and each of the Existing Senior Note Purchasers and their respective successors and assigns. 1.98 "Letter of Credit Agreement" shall mean, in respect of each Letter of Credit, the application and related documentation satisfactory to the Agent of an Account Party or Account Parties requesting Agent to issue such Letter of Credit, as amended from time to time. 1.99 "Letter of Credit Fees" shall mean the fees payable to Agent for the accounts of the Banks in connection with Letters of Credit pursuant to Section 3.4 hereof. 1.100 "Letter of Credit Maximum Amount" shall mean as of any date of determination the lesser of: (a) Seventeen Million Dollars ($17,000,000); or (b) the Revolving Credit Aggregate Commitment of the Banks as of such date, minus the aggregate principal amount of Advances outstanding as of such date under the Revolving Credit Notes and the Swing Line Note. 1.101 "Letter of Credit Obligation(s)" shall mean the obligation of an Account Party or Account Parties under each Letter of Credit Agreement to reimburse the Agent for each payment made by the Agent under the Letter of Credit issued pursuant to such Letter of Credit Agreement, together with all other sums, fees, charges and amounts which may be owing to the Agent under such Letter of Credit Agreement. 1.102 "Letter of Credit Payment" shall mean any amount paid or required to be paid by the Agent in its capacity hereunder as issuer of a Letter of Credit as a result of a draft or other demand for payment under any Letter of Credit. 1.103 "Letter(s) of Credit" shall mean any standby or documentary letters of credit issued by Agent at the request of or for the account of an Account Party or Account Parties pursuant to 16 28 Article 3 hereof, including without limitation any Special Purpose Letter of Credit and those existing Letters of Credit ("Existing Letters of Credit") issued under the Prior Credit Agreement, as identified on Schedule 1.103 hereto. 1.104 "Lien" shall mean any pledge, assignment, hypothecation, mortgage, security interest, deposit arrangement, option, trust receipt, conditional sale or title retaining contract, sale and leaseback transaction, or any other type of lien, charge or encumbrance, whether based on common law, statute or contract. 1.105 "Loan Documents" shall mean, collectively, this Agreement, the Prior Credit Agreement, the Notes, the Company Guaranty, the Domestic Guaranty, the Permitted Borrower Guaranty, the Company Collateral Documents, the Guarantor Collateral Documents (including the Local Share Pledges), the Intercreditor Agreement and any other documents, instruments or agreements executed pursuant to or in connection with any such document, or this Agreement, as such documents may be amended, renewed, supplemented or replaced from time to time. 1.106 "Majority Banks" shall mean at any time Banks holding 66-2/3% of the aggregate principal amount of the Indebtedness then outstanding under the Notes (provided that, for purposes of determining Majority Banks hereunder, Indebtedness outstanding under the Swing Line Notes shall be allocated among the Banks based upon their respective Percentages), or, if no Indebtedness is then outstanding, Banks holding 66-2/3% of the Percentages. 1.107 "Material Property" shall mean any property, whether personal or real, owned, leased or otherwise used by the Company or any of its Subsidiaries which is material to the operations of the Company and its Subsidiaries, taken as a whole, or which is material to the operations of Company or any of the Significant Subsidiaries. 1.108 "Minority Interests" shall mean any shares of stock of any class of a Subsidiary (other than directors' qualifying shares as required by law) that are not owned by the Company and/or one or more of its Subsidiaries. Minority Interests shall be valued by valuing Minority Interests constituting preferred stock at the voluntary or involuntary liquidating value of such preferred stock, whichever is greater, and by valuing Minority Interests constituting common stock at the book value of capital and surplus applicable thereto adjusted, if necessary, to reflect any changes from the book value of such common stock required by the foregoing method of valuing Minority Interests in preferred stock. 1.109 "Multiemployer Plan" shall mean any Pension Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. 1.110 "Net Income Adjustment" shall mean that amount to be added to the minimum Consolidated Tangible Net Worth required to be 17 29 maintained under Section 8.4 hereof consisting of fifty percent (50%) of Company's Consolidated Net Income for each of Company's fiscal years ending on or after December 31, 1995 (in each case, only if a positive number), on a cumulative basis. 1.111 "New Senior Debt" shall mean the additional senior debt to be issued by the Company pursuant to the New Senior Debt Documents in an aggregate principal amount of One Hundred Ten Million Dollars ($110,000,000). 1.112 "New Senior Debt Documents" shall mean that certain note purchase agreement to be entered into between the Company and the New Senior Note Purchasers with respect to the New Senior Debt, and the New Senior Notes to be issued thereunder (all in form and substance acceptable to Agent and the Majority Banks), together with any and all other documents, instruments and certificates executed and delivered pursuant thereto, as the same may be amended from time to time (subject to the terms hereof), and all other documents executed in exchange therefor or in replacement or renewal thereof. 1.113 "New Senior Note Purchasers" shall mean the note purchasers which become signatories to the New Senior Debt Documents, and their respective successors and assigns. 1.114 "New Senior Notes" shall mean the senior notes to be issued by the Company to the New Senior Note Purchasers. 1.115 "Notes" shall mean the Revolving Credit Notes, the Swing Line Note, or the Term Notes or any or all of the Revolving Credit Notes, the Swing Line Note and the Term Notes as the context indicates, and in the absence of such indication, all such notes. 1.116 "PBGC" shall mean the Pension Benefit Guaranty Corporation under ERISA, or any successor corporation. 1.117 "Pension Plan(s)" shall mean all employee pension benefit plans of Company or any ERISA Affiliate, as defined in Section 3(2) of ERISA, to the extent such Person is subject to ERISA, as provided in Section 4 of ERISA, which is subject to Section 412 of the Code or Section 302 of ERISA. 1.118 "Percentage" shall mean, with respect to any Bank, its percentage share, as set forth on Exhibit "C" hereto, of the Revolving Credit, Letters of Credit and/or the Term Loans, as the context indicates, as such Exhibit may be revised from time to time by Agent in accordance with Section 14.8(d) hereof. 1.119 "Permitted Acquisitions" shall mean (x) subject to satisfaction by the Company of the Special Conditions on or before the Required Consummation Date, the Dyno Acquisition and (y) any acquisition by the Company or any of its Subsidiaries of assets, businesses or business interests or shares of stock or other ownership interests of or in any Person primarily engaged in those 18 30 businesses in which Company and its Subsidiaries are engaged on the date hereof or other businesses directly related thereto, conducted in accordance with the following requirements: (a) not less than thirty (30) nor more than ninety (90) days prior to the commencement of each such proposed acquisition, the Company provides written notice thereof to Agent (with drafts of all material documents pertaining to such proposed acquisition to be furnished to Agent not less than thirty (30) days prior to such proposed acquisition), whereupon Agent shall promptly notify each of the Banks of its receipt thereof and, upon the written request of a Bank, shall distribute copies of all notices and other materials received from Company under this Section 1.119 to each such requesting Bank; (b) on the date of any such acquisition, all necessary or appropriate governmental, quasi-governmental, agency, regulatory or similar approvals of applicable jurisdictions (or the respective agencies, instrumentalities or political subdivisions, as applicable, of such jurisdictions) and all necessary or appropriate non-governmental and other third-party approvals which, in each case, are material to such acquisition have been obtained and are in effect, and the Company and its Subsidiaries are in full compliance therewith, and all necessary or appropriate declarations, registrations or other filings with any court, governmental or regulatory authority, securities exchange or any other person have been made; (c) the aggregate value of all of such acquisitions, including the value of any proposed new acquisition, conducted while this Agreement remains in effect as Permitted Acquisitions (but excluding the Dyno Acquisition, and any acquisition conducted with the specific written approval of the Majority Banks, and not as a Permitted Acquisition hereunder) computed on the basis of total acquisition consideration paid or incurred, or to be paid or incurred, by the Company or its Subsidiaries with respect thereto, including all indebtedness which is assumed or to which such assets, businesses or business or ownership interests or shares, or any Person so acquired, is subject, shall not exceed Twenty-Five Million Dollars ($25,000,000) (or the Alternative Currency equivalent thereof, if applicable), determined as of the date of such acquisition; (d) concurrently with such acquisition, the Company, its Subsidiaries and any of the corporate entities involved in such acquisition shall execute or cause to be executed, and provide or cause to be provided to Agent, for the Banks, any Loan Documents required hereunder and such other documents and instruments (including without limitation opinions of counsel, amendments, acknowledgments, consents and evidence of approvals or filings) as reasonably requested by 19 31 Agent, if any, and otherwise comply with the terms and conditions of this Agreement; and (e) both immediately before and after such acquisition, no Default or Event of Default (whether or not related to such acquisition), has occurred and is continuing. 1.120 "Permitted Borrower" shall mean, prior to the Dyno Acquisition, Walbro Automotive, Walbro Engine Management, Sharon, Whitehead and Walbro Japan; and from and after the Dyno Acquisition, Walbro Automotive, Walbro Engine Management, Sharon, Whitehead, Walbro Japan, Walbro Norway, Walbro England, Walbro Germany, Walbro France, Walbro Belgium and Walbro Spain; provided however that the aggregate Advances of the Revolving Credit available to Company and the Permitted Borrowers hereunder shall be subject at all times to the applicable Sublimits and to the Revolving Credit Aggregate Commitment and to the other terms and conditions hereof. 1.121 "Permitted Borrower Guaranty" shall mean that certain unconditional guaranty of all Indebtedness outstanding from the Permitted Borrowers which are Foreign Subsidiaries hereunder, executed and delivered by the Significant Foreign Subsidiaries to the Banks as of the date hereof (or, pursuant to Section 8.17 hereof, subsequent to the date of this Agreement), as amended from time to time. 1.122 "Permitted Currency(ies)" shall mean Dollars or any Alternative Currency. 1.123 "Permitted Guaranties" shall mean those guaranties executed and delivered, or to be executed and delivered, by the Significant Domestic Subsidiaries in favor of the Existing Senior Note Purchasers and the New Senior Note Purchasers according to the terms of the Existing Senior Debt Documents or the New Senior Debt Documents, as the case may be, provided that the guarantors thereunder are also Guarantors hereunder, and those existing guaranties identified on Schedule 9.4 hereto. 1.124 "Permitted Investments" shall mean: (a) Investments in direct obligations of, or obligations guarantied by, the United States of America or any agency of the United States of America the obligations of which agency carry the full faith and credit of the United States of America, provided that such obligations mature within one (1) year from the date of acquisition thereof; (b) Investments in any obligation of any state or municipality thereof that at the time of acquisition thereof have an assigned rating of "A" or higher by Standard & Poor's Ratings Group (or an equivalent or higher rating by another credit rating agency of recognized national standing in the United States of America), provided that such obligations 20 32 mature within one (1) year from the date of acquisition thereof; (c) Investments in negotiable certificates of deposit issued by commercial banks organized under the laws of the United States of America or any state thereof, having capital, surplus and undivided profits aggregating at least Five Hundred Million Dollars ($500,000,000) and the long-term unsecured debt obligations of which are rated "A" or higher by Standard & Poor's Ratings Group (or an equivalent or higher rating by another credit rating agency of recognized national standing in the United States of America), provided that such certificates of deposit mature within one (1) year from the date of acquisition thereof; (d) Investments in corporate debt obligations of corporations organized under the laws of the United States of America or any state thereof that at the time of acquisition thereof have an assigned rating of "A" or higher by Standard & Poor's Rating Group (or an equivalent or higher rating by another credit rating agency of recognized national standing in the United States of America); and (e) Investments in preferred stock of corporations organized under the laws of the United States of America or any state thereof (other than preferred stock convertible into common shares) that have an assigned rating of "A" or higher by Standard & Poor's Ratings Group (or an equivalent or higher rating by another credit rating agency of recognized national standing in the United States of America). 1.125 "Permitted Liens" shall mean, with respect to any Person: (a) any Liens granted under or established by this Agreement or the other Loan Documents; (b) Liens for taxes not yet due and payable or which are being contested in good faith by appropriate proceedings diligently pursued, provided that such provision for the payment of all such taxes known to such Person has been made on the books of such Person as may be required by GAAP; (c) mechanics', materialmen's, banker's, carriers', warehousemen's and similar Liens arising in the ordinary course of business and securing obligations of such Person that are not overdue for a period of more than 60 days or are being contested in good faith by appropriate proceedings diligently pursued, provided that in the case of any such contest (i) any proceedings commenced for the enforcement of such liens and encumbrances shall have been duly suspended; and (ii) such provision for the payment of such liens and 21 33 encumbrances has been made on the books of such Person as may be required by GAAP; (d) Liens arising in connection with worker's compensation, unemployment insurance, old age pensions (subject to the applicable provisions of this Agreement) and social security benefits which are not overdue or are being contested in good faith by appropriate proceedings diligently pursued, provided that in the case of any such contest (i) any proceedings commenced for the enforcement of such Liens shall have been duly suspended; and (ii) such provision for the payment of such Liens has been made on the books of such Person as may be required by GAAP; (e) (i) Liens incurred in the ordinary course of business to secure the performance of statutory obligations arising in connection with progress payments or advance payments due under contracts with the United States or any foreign government or any agency thereof entered into in the ordinary course of business and (ii) liens incurred or deposits made in the ordinary course of business to secure the performance of statutory obligations, bids, leases, fee and expense arrangements with trustees and fiscal agents and other similar obligations (exclusive of obligations incurred in connection with the borrowing of money, any lease-purchase arrangements or the payment of the deferred purchase price of property), provided that full provision for the payment of all such obligations set forth in clauses (i) and (ii) has been made on the books of such Person as may be required by GAAP; (f) Liens in the nature of any minor imperfections of title, including but not limited to easements, covenants, rights-of-way or other similar restrictions, which, either individually or in the aggregate would not (i) materially adversely affect the present or future use of the property to which they relate, or (ii) have a material adverse effect on the sale or lease of such property, or (iii) render title thereto unmarketable; (g) Liens (i) arising from judicial attachments and judgments, (ii) securing appeal bonds or supersedeas bonds, and (iii) arising in connection with court proceedings (including, without limitation, surety bonds and letters of credit or any other instrument serving a similar purpose), provided that (1) the execution or other enforcement of such Liens is effectively stayed, (2) the claims secured thereby are being contested in good faith and by appropriate proceedings, (3) adequate book reserves in accordance with GAAP shall have been established and maintained and shall exist with respect thereto, (4) such Liens do not in the aggregate detract from the value of such property and (5) the title of the Company or a Subsidiary, as the case may be, to, and its right to use, such property, is not materially adversely affected thereby; and 22 34 (h) those Liens of the Company or its Subsidiaries identified in Schedule 9.6 hereto. 1.126 "Permitted Merger(s)" shall mean any merger of any Subsidiary (including any of the Permitted Borrowers) into Company or another Permitted Borrower or the merger of any Subsidiary (other than a Permitted Borrower) into any 100% Subsidiary which, in each case, satisfies and/or is conducted in accordance with the following requirements: (a) not less than thirty (30) nor more than ninety (90) days prior to the commencement of such proposed merger, Company provides written notice thereof to Agent (with drafts of all material documents pertaining to such proposed merger to be furnished to Agent not less than twenty (20) days prior to such proposed merger) whereupon Agent shall promptly notify each of the Banks of its receipt thereof and, upon the request of a Bank, shall distribute copies of all notices and other materials received from Company under this Section 1.126, to each such requesting Bank; (b) immediately following and as the direct result of any such merger, the surviving or successor entity has succeeded by operation of applicable law (as confirmed by an opinion(s) of counsel in form and substance satisfactory to the Majority Banks) to all of the obligations of the non-surviving entity under this Agreement and the other Loan Documents, and to all of the property rights of such non-surviving entity subject to the applicable Loan Documents and, if the shares of stock of the non-surviving entity have been pledged to the Collateral Agent on behalf of the Lenders in accordance with this Agreement, the shares of stock of the surviving or successor entity are, or concurrently with such merger, will be similarly pledged, and such steps have been taken as necessary under applicable law to perfect such pledge; (c) concurrently with such proposed merger, the surviving entity involved in such merger shall execute or cause to be executed, and provide or cause to be provided to Agent for the Banks (or the Collateral Agent for the Lenders, if applicable), any Loan Documents required hereunder and such other documents and instruments (including without limitation Collateral Documents, opinions of counsel, amendments, acknowledgments and consents) as reasonably requested by the Majority Banks; and (d) both immediately before and immediately after such merger, no Default or Event of Default (whether or not related to such restructuring), has occurred and is continuing. 23 35 1.127 "Permitted Transfer(s)" shall mean: (a) any sale, assignment, transfer or other disposition of inventory or worn-out or obsolete machinery, equipment or other such personal property in the ordinary course of business; and (b) any sale, lease, assignment, transfer or other disposition of real estate or tangible personal property having a net book value, determined in accordance with GAAP, at the time of disposition thereof, aggregating (with all other such dispositions during the period commencing on the date of this Agreement and ending on the Revolving Credit Maturity Date), an amount not to exceed fifteen percent (15%) of the Company's Consolidated Tangible Net Worth determined as of the applicable date of disposition, provided that, immediately before and after each such disposition (giving effect thereto), no Default or Event of Default has occurred and is continuing. 1.128 "Person" shall mean an individual, corporation, partnership, trust, incorporated or unincorporated organization, joint venture, joint stock company, or a government or any agency or political subdivision thereof or other entity of any kind. 1.129 "Prime Rate" shall mean the per annum interest rate established by Agent as its prime rate for its borrowers as such rate may vary from time to time, which rate is not necessarily the lowest rate on loans made by Agent at any such time. 1.130 "Prime-based Advance" shall mean an Advance (including a Swing Line Advance) which bears interest at the Prime- based Rate. 1.131 "Prime-based Rate" shall mean that rate of interest which is the greater of (i) the Prime Rate or (ii) the Alternate Base Rate. 1.132 "Prohibited Transaction" shall mean any transaction involving a Pension Plan which constitutes a non-exempt "prohibited transaction" under Section 406 of ERISA or Section 4975 of the Internal Revenue Code. 1.133 "Quoted Rate" shall mean the rate of interest per annum offered by the Swing Line Bank in its sole discretion with respect to a Swing Line Advance. 1.134 "Quoted Rate Advance" means any Swing Line Advance which bears interest at the Quoted Rate. 1.135 "Quoted Rate Interest Period" shall mean an Interest Period of up to thirty (30) days, as offered by the Swing Line Bank and accepted by the Company or a Permitted Borrower with respect to a Quoted Rate Advance pursuant to Section 2.5 hereof. 1.136 "Reference Banks" shall mean Comerica, Harris Bank and Societe Generale, or such other Banks as may be agreed to 24 36 constitute the "Reference Banks" by Company, Agent and the Majority Banks. 1.137 "Refunded Swing Line Advance" is defined in Section 2.5(e) hereof. 1.138 "Reportable Event" shall mean a "reportable event" within the meaning of Section 4043 of ERISA and the regulations promulgated thereunder, which is material to the Company and its Subsidiaries, taken as a whole. 1.139 "Request for Advance" shall mean a Request for Advance of the Revolving Credit issued by Company or by a Permitted Borrower and countersigned by the Company under Section 2.3 of this Agreement in the form annexed hereto as Exhibit "A". 1.140 "Required Consummation Date" shall mean December 31, 1995, or such later date as may be approved in writing by each of the Banks. 1.141 "Revolving Credit" shall mean the revolving credit loan to be advanced to the Company and the Permitted Borrowers by the Banks pursuant to Section 2 hereof, in an aggregate principal amount not to exceed (subject to the terms hereof) the Revolving Credit Maximum Amount. 1.142 "Revolving Credit Aggregate Commitment" shall mean, as of the applicable date of determination, the Revolving Credit Maximum Amount minus the Revolving Credit Designated Unused Portion, subject to reduction or termination pursuant to Sections 2.15 or 10.2 hereof. 1.143 "Revolving Credit Commitment Fee" shall mean the commitment fee payable to Agent for distribution to the Banks pursuant to Section 2.13 hereof. 1.144 "Revolving Credit Designated Unused Portion" shall mean that portion of the Revolving Credit Aggregate Commitment, not to exceed Forty Million Dollars ($40,000,000) in the aggregate, designated by Company as not immediately available for borrowing hereunder in accordance with and subject to Section 2.16 hereof. 1.145 "Revolving Credit Maturity Date" shall mean the earlier to occur of (i) July 26, 2000, as such date may be extended from time to time pursuant to Section 2.18 hereof, and (ii) the date on which the Revolving Credit Maximum Amount shall be terminated pursuant to Section 2.15 hereof or any commitments to make Advances of the Revolving Credit shall be terminated pursuant to Section 10.2 hereof. 1.146 "Revolving Credit Maximum Amount" shall mean One Hundred Thirty-Five Million Dollars ($135,000,000), less any reductions in the Revolving Credit Maximum Amount under Section 2.15 or 4.9A of this Agreement. 25 37 1.147 "Revolving Credit Notes" shall mean the Notes described in Section 2.1 hereof, made or to be made by Company or the Permitted Borrowers to each of the Banks in the form annexed to this Agreement as Exhibit "B-1" or "B-2", as the case may be, as such Notes may be amended, renewed, replaced or extended from time to time. 1.148 "Shares", "share capital", "capital stock", "stock" and words of similar import shall mean and refer to the equity capital interest under applicable law of any Person in a corporation, howsoever such interest is created or arises, whether such capital consists of common stock, preferred stock or preference shares, or other stock, and whether such capital is evidenced by a certificate, share register entry or otherwise. 1.149 "Sharon" shall mean Sharon Manufacturing Company, a Michigan corporation. 1.150 "Special Conditions" shall mean those special terms and conditions required to be satisfied prior to or concurrently with the consummation of the Dyno Acquisition, as follows: (a) the Company and its Subsidiaries shall have furnished, executed and delivered, or caused to be furnished, executed and delivered, to Collateral Agent, in form to be satisfactory to Collateral Agent and the Lenders, the Local Share Pledges, supported by (i) certified copies of such parties' Articles of Incorporation and Bylaws or other constitutional documents to the extent required in the jurisdiction of incorporation, (ii) appropriate resolutions in certified form authorizing same, and (iii) certificates of good standing meeting the requirements set forth in Section 6.2 hereof; (b) the Collateral Agent shall have received, to the extent necessary for perfection of the security interests and pledges under applicable law, certificates representing the issued and outstanding capital stock of the Subsidiaries encumbered by the Collateral Documents, transferred for security purposes into the name of the Collateral Agent (or its nominees), on behalf of the Lenders or the bearer or properly endorsed or with assignments separate from certificate for transfer and proof that each such pledge has been duly registered or filed under applicable law, and that appropriate financing statements, local share pledges, nantissements, collateral and other documents covering such Collateral have been executed and delivered by the appropriate parties and registered, recorded or filed in such jurisdictions as necessary to perfect the security interests, stock pledges or other liens granted thereby; 26 38 (c) there shall have been no material adverse change in the condition, financial or otherwise, or prospects of, Dyno and its subsidiaries, generally, or in the condition, financial or otherwise, or prospects of the properties, business, results or operations of Dyno and its subsidiaries to be acquired by the Company and its subsidiaries pursuant to the Dyno Acquisition Agreement (taken as a whole) from that existing as of the date of this Agreement (as determined in reference to the financial statements of Dyno covering fiscal years 1993 and 1994, as previously delivered by the Company to the Banks); nor shall any omission, inconsistency, inaccuracy, or any change in presentation or accounting standards which renders such financial statements materially misleading have been determined by Agent or the Majority Banks to exist; (d) all governmental, quasi-governmental, agency, regulatory or similar licenses, authorizations, exemptions, qualifications, consents and approvals necessary or appropriate under any laws applicable to Company or any of its Subsidiaries, or Dyno or any of its subsidiaries for or in connection with the Dyno Acquisition and all necessary or appropriate non-governmental and other third-party approvals which, in each case, are material to such acquisition shall have been obtained, and all necessary or appropriate declarations, registrations or other filings with any court, governmental or regulatory authority, securities exchange or any other person have been made, and evidence thereof satisfactory in form and substance to Agent and the Majority Banks shall have been delivered, or cause to be delivered, by Company to Agent; (e) the New Senior Notes shall have been executed and delivered by the Company to and accepted by the New Senior Note Purchasers, the funding of the New Senior Debt shall have occurred, all New Senior Debt Documents shall have been executed and delivered in form and substance satisfactory to the Banks and Agent; and (f) the Company shall have delivered or caused to be delivered to Agent (as evidenced by Agent's written confirmation thereof) updated schedule(s) of the Permitted Liens, and the matters shown on such updated schedule(s) do not differ materially adversely from the matters disclosed by Company on Schedule 9.6, hereto (as evidenced by Agent's written confirmation thereof), or have been approved by the Majority Banks, in their sole discretion (upon which event Schedule 9.6 hereto shall be deemed amended to include such additional matters). 27 39 1.151 "Special Purpose Letter(s) of Credit" shall mean any letter of credit which is issued for the purpose of supporting industrial development revenue bonds or other obligations of the Company or an Account Party for borrowed money. 1.152 "Significant Subsidiary(ies)" shall mean, as of any date of determination, any Subsidiary which is or becomes a Permitted Borrower or a Guarantor or which has total assets in excess of Ten Million Dollars ($10,000,000) (or the Alternative Currency equivalent thereof), determined by Agent as of the end of the most recent fiscal quarter of the Company. 1.153 "Significant Domestic Subsidiaries" shall mean those Domestic Subsidiaries identified on Schedule 7.6 hereto, and any Domestic Subsidiaries which become Significant Subsidiaries subsequent to the date hereof. 1.154 "Significant Foreign Subsidiaries" shall mean those Foreign Subsidiaries identified on Schedule 7.6 hereto, and any Foreign Subsidiaries which become Significant Subsidiaries subsequent to the date hereof. 1.155 "Single Employer Plan" shall mean any Pension Plan which does not constitute a Multiemployer Plan. 1.156 "Sublimit" shall mean the maximum aggregate amount of Swing Line Advances, Letters of Credit and of Advances of the Revolving Credit and Term Loans available at any time to each of the Permitted Borrowers hereunder, as set forth on Exhibit "D" hereto. 1.157 "Subordinated Debt" shall mean any unsecured Debt subordinated to the prior payment and discharge in full of the Indebtedness, on written terms and conditions approved by and acceptable to each of the Banks, in their sole discretion. 1.158 "Subsidiary(ies)" shall mean any other corporation, association, partnership, joint venture, limited liability partnership or company, joint stock company, or business trust of which more than fifty percent (50%) of the outstanding voting stock is owned either directly or indirectly by Company or one or more of its Subsidiaries or by Company and one or more of its Subsidiaries, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by Company and/or its Subsidiaries. "100% Subsidiary(ies)" shall mean any of the Company's Subsidiaries whose stock (other than directors' or qualifying shares to the extent required under applicable law) is owned 100% by any other 100% Subsidiary and/or the Company. 1.159 "Swing Line Advance" shall mean an Advance made by Swing Line Bank to Company or a Permitted Borrower pursuant to Section 2.5 hereof. 28 40 1.160 "Swing Line Bank" shall mean Comerica Bank, in its capacity as lender under Section 2.5 of this Agreement, and its successors and assigns. 1.161 "Swing Line Maximum Amount" shall mean Five Million Dollars ($5,000,000). 1.162 "Swing Line Note(s)" shall mean the swing line notes described in Section 2.5 hereof, made or to be made by Company or the Permitted Borrowers to the Swing Line Bank in the form annexed hereto as Exhibit "E-1" or "E-2", as the case may be, as such Notes may be amended or supplemented from time to time, and any notes issued in substitution, replacement or renewal thereof from time to time. 1.163 "Term Loans" shall mean the term loans to be advanced by the Banks to the Company or any of the Permitted Borrowers pursuant to Section 4.1 hereof (including without limitation the Japanese Term Loan), in an aggregate amount not to exceed the Term Loan Aggregate Commitment, and "Term Loan" shall mean any specified Term Loan funded pursuant thereto. 1.164 "Term Loan Aggregate Commitment" shall mean Seventy Million Dollars ($70,000,000) as reduced from time to time pursuant to Section 4.9A hereof by the Dollar Amount or the Current Dollar Equivalent, as the case may be, of each Term Loan funded from time to time hereunder as of the date of the funding of each such Term Loan. 1.165 "Term Loan Funding Period" shall mean (a) with respect to the Japanese Term Loan, a period commencing on the date hereof and ending ninety (90) days following the date of this Agreement and (b) with respect to each of the other Term Loans, a period commencing thirty (30) days following the date hereof, and ending on July 26, 1998. 1.166 "Term Loan Maturity Date" shall mean a maturity date for a Term Loan selected by the Company or the applicable Permitted Borrower pursuant to Section 4.9A hereof, not less than two years from the date of funding of such Term Loan and not more than seven years from the date of this Agreement; provided, however, that the Japanese Term Loan shall have a maturity date three years from the date of funding of such loan. 1.167 "Term Loan Permitted Amortization Schedule" shall mean the amortization schedule selected by Company or the applicable Permitted Borrower for a specified Term Loan based on equal annual installments of principal sufficient to pay and discharge the full initial amount of the Term Loan over the stated term of such loan (without regard to any principal reductions resulting from Excess Cash Flow), commencing on the first anniversary date of the funding of such loan and continuing on each anniversary date thereof to and including the applicable Term Loan Maturity Date; provided however that Company or the applicable Permitted Borrower, in establishing 29 41 the applicable amortization schedule, may elect to make payments of interest only during the first two years of the term of any such loan (or any portion thereof), in which event principal amortization will be required in equal annual installments sufficient to pay and discharge in full the initial amount of the applicable Term Loan over the remaining term of the loan commencing on the first anniversary date of the expiration of the interest-only period and continuing on each anniversary date thereof to and including the applicable Term Loan Maturity Date; and provided further that for the Japanese Term Loan and for each Term Loan with a Maturity Date of two years or less from the date of funding thereof, no principal amortization will be required during the stated term of the loan and (if no amortization is provided) the entire outstanding principal balance shall be due and payable on the applicable Term Loan Maturity Date. 1.168 "Term Loan Initial Request" shall mean a request for the initial funding of a Term Loan submitted by the Company or the applicable Permitted Borrower to the Agent under Section 4.9A of this Agreement in the form annexed hereto as Exhibit "I". 1.169 "Term Loan Rate Request" shall mean a request for the refunding or conversion of any Advance of a Term Loan, other than any Advance carried at the Fixed Rate, submitted by Company or the applicable Permitted Borrower under Section 4.9B of this Agreement in the form annexed hereto as Exhibit "J". 1.170 "Term Loan Request" shall mean a Term Loan Initial Request or a Term Loan Rate Request, or both such requests, as the context may indicate. 1.171 "Term Notes" shall mean the term notes described in Section 4.1 hereof, made by Company or a Permitted Borrower to each of the Banks in the form annexed to this Agreement as Exhibit "H-1" or "H-2", as the case may be, as such notes may be amended, renewed, replaced, extended or supplemented from time to time. 1.172 "UCC" shall mean the Uniform Commercial Code, as in effect from time to time in the State of Michigan. 1.173 "Walbro Automotive" shall mean Walbro Automotive Corporation, a Delaware corporation. 1.174 "Walbro Engine Management" shall mean Walbro Engine Management Corporation, a Delaware corporation. 1.175 "Walbro Belgium" shall mean Walbro Automotive N.V., a Belgium corporation. 1.176 "Walbro England" shall mean Walbro Automotive Limited, an English corporation. 30 42 1.177 "Walbro France" shall mean Dynoplast S.A., a French corporation, whose name is to be changed, concurrently with or subsequent to the Dyno Acquisition, to Walbro Automotive S.A. 1.178 "Walbro Germany" shall mean Walbro Automotive GmbH, a German corporation. 1.179 "Walbro Japan" shall mean Walbro Japan, Inc., a Japanese corporation. 1.180 "Walbro Netherlands" shall mean Walbro Automotive N.V., a Dutch corporation. 1.181 "Walbro Norway" shall mean Walbro Automotive A.S., a Norwegian company. 1.182 "Walbro Spain" shall mean Dynoplast S.A., a Spanish corporation, whose name is to be changed, concurrently with or subsequent to the Dyno Acquisition, to Walbro Automotive S.A. 1.183 "Whitehead" shall mean Whitehead Engineered Products, Inc., a Delaware Corporation. 1.184 "Yield Maintenance Payment" shall mean the yield maintenance payment required to be paid by the Company under Section 4.12(b) hereof in connection with any prepayment of the Term Loan following the Company's or a Permitted Borrower's Fixed Rate Election hereunder. 2. REVOLVING CREDIT 2.1 Commitment. Subject to the terms and conditions of this Agreement (including without limitation Section 2.3 hereof), each Bank severally and for itself alone agrees to make Advances of the Revolving Credit in any one or more of the Permitted Currencies to the Company or to any of the Permitted Borrowers from time to time on any Business Day during the period from the effective date hereof until (but excluding) the Revolving Credit Maturity Date in an aggregate amount, based on the Dollar Amount of any Advances outstanding in Dollars and the Current Dollar Equivalent of any Advances outstanding in Alternative Currencies, not to exceed at any one time outstanding each Bank's Percentage of the Revolving Credit Aggregate Commitment. Except as provided in Section 2.12, for purposes of this Agreement, Advances in Alternative Currencies shall be determined, denominated and redenominated as set forth in Section 2.11 hereof. All of the Advances of the Revolving Credit hereunder shall be evidenced by Revolving Credit Notes made by Company or the Permitted Borrowers to each of the Banks in the form attached hereto as Exhibit "B-1" or "B-2", as the case may be, subject to the terms and conditions of this Agreement. Advances of the Revolving Credit shall be subject to the following additional conditions and limitations: 31 43 (a) A Permitted Borrower shall not be entitled to request an Advance of the Revolving Credit hereunder until it has executed and delivered to the Banks, as aforesaid, the Revolving Credit Notes, accompanied by authority documents, legal opinions and other supporting documents as required hereunder. (b) None of the Permitted Borrowers shall be entitled to request or maintain (or, in the case of any Eurocurrency-based Advance, maintain beyond any applicable Interest Period then in effect) an Advance of the Revolving Credit hereunder if it ceases to be a 100% Subsidiary of the Company. (c) The maximum aggregate amount of Advances of the Revolving Credit available to each of the Permitted Borrowers at any time hereunder, using the Current Dollar Equivalent of any Advances outstanding in any Alternative Currency (determined and tested pursuant to and in accordance with Section 2.14 hereof), shall not exceed the Sublimit applicable to such Permitted Borrower. 2.2 Accrual of Interest and Maturity. The Revolving Credit Notes, and all principal and interest outstanding thereunder, shall mature (unless required to be paid prior thereto) and become due and payable in full on the Revolving Credit Maturity Date, and each Advance of Indebtedness evidenced by the Revolving Credit Notes from time to time outstanding hereunder shall, from and after the date of such Advance, bear interest at its Applicable Interest Rate. The amount and date of each Advance, its Applicable Interest Rate, its Interest Period, if any, and the amount and date of any repayment shall be noted on Agent's records, which records will be rebuttably presumptive evidence thereof, absent demonstrable error; provided, however, that any failure by the Agent to record any such information shall not relieve the Company or the applicable Permitted Borrower of its obligation to repay the outstanding principal amount of such Advance, all interest accrued thereon and any amount payable with respect thereto in accordance with the terms of this Agreement and the other Loan Documents. 2.3 Requests for and Refundings and Conversions of Advances. Company or a Permitted Borrower may request an Advance, refund any Advance in the same type of Advance or convert any Advance to any other type of Advance only after delivery to Agent of a Request for Advance executed by an authorized officer of Company or of such Permitted Borrower, subject to the following and to the remaining provisions hereof: (a) each such Request for Advance shall set forth the information required on the Request for Advance form annexed hereto as Exhibit "A", including without limitation: (i) the proposed date of such Advance, which must be a Business Day; 32 44 (ii) whether such Advance is a refunding or conversion of an outstanding Advance; (iii) whether such Advance is to be a Prime-based Advance or a Eurocurrency-based Advance, and, except in the case of a Prime-based Advance, the first Interest Period applicable thereto; and (iv) in the case of a Eurocurrency-based Advance, the Permitted Currency in which such Advance is to be made. (b) each such Request for Advance shall be delivered to Agent by 12:00 noon (Detroit time) three (3) Business Days prior to the proposed date of Advance, except in the case of a Prime-based Advance, for which the Request for Advance must be delivered by 12:00 noon (Detroit time) on such proposed date; (c) the principal amount (or Dollar Amount of the principal amount, if such Advance of the Revolving Credit is being funded in an Alternative Currency) of such requested Advance, plus the principal amount of all other Advances of the Revolving Credit then outstanding hereunder, whether to Company or the Permitted Borrowers (using the Current Dollar Equivalent of any such Advances outstanding in any Alternative Currency, determined pursuant to the terms hereof as of the date of such requested Advance), plus the aggregate principal amount of all Swing Line Advances hereunder (using the Current Dollar Equivalent of any such Advances outstanding in any Alternative Currency) plus the aggregate undrawn portion of any Letters of Credit which shall be outstanding as of the date of the requested Advance (based on the Dollar Amount of the undrawn portion of any Letters of Credit denominated in Dollars and the Current Dollar Equivalent of the undrawn portion of any Letters of Credit denominated in any Alternative Currency) and the aggregate face amount of Letters of Credit requested but not yet issued (determined as aforesaid), plus the unreimbursed amount of any draws under any Letters of Credit (using the Current Dollar Equivalent thereof for any Letters of Credit denominated in any Alternative Currency) shall not exceed the Revolving Credit Aggregate Commitment; provided however, that, in the case of any Advance of the Revolving Credit being applied to refund an outstanding Swing Line Advance, the aggregate principal amount of Swing Line Advances to be refunded shall not be included for purposes of calculating the limitation under this Section 2.3(c); (d) in the case of each of the Permitted Borrowers, the principal amount of the requested Advance of the Revolving Credit (determined as aforesaid), plus the aggregate principal amount of any other Advances of the Revolving Credit and of 33 45 any Swing Line Advances then outstanding to such Permitted Borrower hereunder (determined as aforesaid), plus the aggregate undrawn portion of any Letters of Credit which shall be outstanding as of the date of the requested Advance for the account of such Permitted Borrower hereunder and the aggregate face amount of Letters of Credit requested but not yet issued for the account of such Permitted Borrower hereunder (in each case determined as aforesaid), plus the unreimbursed amount of any draws under any Letters of Credit (using the Current Dollar Equivalent thereof for any Letters of Credit denominated in any Alternative Currency) issued for the account of such Permitted Borrower hereunder, plus the aggregate principal amount of any Term Loans then outstanding to such Permitted Borrower (determined as aforesaid) shall not exceed the applicable Sublimit; (e) the principal amount of such requested Advance, plus the amount of any other outstanding Advance of the Revolving Credit to be then combined therewith having the same Applicable Interest Rate and Interest Period, if any, shall be (i) in the case of a Prime-based Advance at least Three Million Dollars ($3,000,000) and (ii) in the case of a Eurocurrency-based Advance at least Five Million Dollars ($5,000,000) or the equivalent thereof in an Alternative Currency (or a larger integral multiple of One Million Dollars ($1,000,000), or the equivalent thereof in the Applicable Alternative Currency), and at any one time there shall not be in effect more than (x) for Advances in Dollars, eight (8) Applicable Interest Rates and Interest Periods, and (y) for Advances in any Alternative Currency, four (4) Applicable Interest Rates and Interest Periods for each such currency; (f) a Request for Advance, once delivered to Agent, shall not be revocable by Company or the Permitted Borrowers; (g) each Request for Advance shall constitute and include a certification by the Company and the applicable Permitted Borrower as of the date thereof that: (i) both before and after such Advance, the obligations of the Company and the Permitted Borrowers set forth in this Agreement and the Loan Documents to which such Persons are parties are valid, binding and enforceable obligations of the Company and the Permitted Borrowers, as the case may be; (ii) all conditions to Advances of the Revolving Credit have been satisfied, and shall remain satisfied to the date of such Advance (both before and after giving effect to such Advance); 34 46 (iii) there is no Default or Event of Default in existence, and none will exist upon the making of such Advance (both before and after giving effect to such Advance); (iv) the representations and warranties contained in this Agreement and the Loan Documents are true and correct in all material respects and shall be true and correct in all material respects as of the making of such Advance (both before and after giving effect to such Advance); and (v) the execution of the Request for Advance will not violate the material terms and conditions of any material contract, agreement or other borrowing of Company or the Permitted Borrowers. 2.4 Disbursement of Advances. (a) Upon receiving any Request for Advance from Company or a Permitted Borrower under Section 2.3 hereof, Agent shall promptly notify each Bank by wire, telex or telephone (confirmed by wire, telecopy or telex) of the amount and currency of such Advance to be made and the date such Advance is to be made by said Bank pursuant to its Percentage of such Advance. Unless such Bank's commitment to make Advances of the Revolving Credit hereunder shall have been suspended or terminated in accordance with this Agreement, each Bank shall make available the amount of its Percentage of each Advance in immediately available funds in the currency of such Advance to Agent, as follows: (i) for Domestic Advances, at the office of Agent located at One Detroit Center, Detroit, Michigan 48226, not later than 2:00 p.m. (Detroit time) on the date of such Advance; and (ii) for Eurocurrency-based Advances, at the Agent's Correspondent for the account of the Eurocurrency Lending Office of the Agent, not later than 12 noon (the time of the Agent's Correspondent) on the date of such Advance. (b) Subject to submission of an executed Request for Advance by Company or a Permitted Borrower without exceptions noted in the compliance certification therein, Agent shall make available to Company or to the applicable Permitted Borrower, as the case may be, the aggregate of the amounts so received by it from the Banks in like funds and currencies: 35 47 (i) for Domestic Advances, not later than 4:00 p.m. (Detroit time) on the date of such Advance by credit to an account of Company or such Permitted Borrower maintained with Agent or to such other account or third party as Company or such Permitted Borrower may reasonably direct; and (ii) for Eurocurrency-based Advances, not later than 4:00 p.m. (the time of the Agent's Correspondent) on the date of such Advance, by credit to an account of Company or such Permitted Borrower maintained with Agent's Correspondent or to such other account or third party as Company or such Permitted Borrower may reasonably direct. (c) Agent shall deliver the documents and papers received by it for the account of each Bank to such Bank or upon its order. Unless Agent shall have been notified by any Bank prior to the date of any proposed Advance that such Bank does not intend to make available to Agent such Bank's Percentage of such Advance, Agent may assume that such Bank has made such amount available to Agent on such date and in such currency, as aforesaid and may, in reliance upon such assumption, make available to Company or to the applicable Permitted Borrower, as the case may be, a corresponding amount. If such amount is not in fact made available to Agent by such Bank, as aforesaid, Agent shall be entitled to recover such amount on demand from such Bank. If such Bank does not pay such amount forthwith upon Agent's demand therefor, the Agent shall promptly notify Company and the applicable Permitted Borrower, and Company and the applicable Permitted Borrower, shall pay such amount to Agent. Agent shall also be entitled to recover from such Bank or Company, as the case may be, interest on such amount in respect of each day from the date such amount was made available by Agent to Company or the applicable Permitted Borrower to the date such amount is recovered by Agent, at a rate per annum equal to: (i) in the case of such Bank, with respect to Domestic Advances, the Federal Funds Effective Rate, and with respect to Eurocurrency-based Advances, Agent's aggregate marginal cost (including the cost of maintaining any required reserves or deposit insurance and of any fees, penalties, overdraft charges or other costs or expenses incurred by Agent as a result of such failure to deliver funds hereunder) of carrying such amount; and (ii) in the case of Company or any of the Permitted Borrowers, the rate of interest then 36 48 applicable to such Advance of the Revolving Credit. The obligation of any Bank to make any Advance of the Revolving Credit hereunder shall not be affected by the failure of any other Bank to make any Advance hereunder, and no Bank shall have any liability to the Company or any of its Subsidiaries, the Agent, any other Bank, or any other party for another Bank's failure to make any loan or Advance hereunder. 2.5 (a) Swing Line Advances. The Swing Line Bank shall, on the terms and subject to the conditions hereinafter set forth (including without limitation Section 2.5(c) hereof), make one or more advances in Dollars or in any Alternative Currency (each such advance being a "Swing Line Advance") to Company or any of the Permitted Borrowers (provided that any such Permitted Borrower has executed a Swing Line Note and Revolving Credit Notes in compliance with this Agreement) from time to time on any Business Day during the period from the date hereof to (but excluding) the Revolving Credit Maturity Date in an aggregate amount, based on the Dollar Amount of any such Advances outstanding in Dollars and the Current Dollar Equivalent of any such Advances outstanding in Alternative Currencies, not to exceed at any time outstanding the Swing Line Maximum Amount. All Swing Line Advances shall be evidenced by the Swing Line Notes, under which advances, repayments and readvances may be made, subject to the terms and conditions of this Agreement. Each Swing Line Advance shall mature and the principal amount thereof shall be due and payable by Company or the applicable Permitted Borrower on the last day of the Interest Period applicable thereto, if any. In no event whatsoever shall any outstanding Swing Line Advance be deemed to reduce, modify or affect any Bank's commitment to make Revolving Credit Advances based upon its Percentage. (b) Accrual of Interest. Each Swing Line Advance shall, from time to time after the date of such Advance, bear interest at its Applicable Interest Rate. The amount and date of each Swing Line Advance, its Applicable Interest Rate, its Interest Period, and the amount and date of any repayment shall be noted on Agent's records, which records will be rebuttably presumptive evidence thereof, absent demonstrable error; provided, however, that any failure by the Agent to record any such information shall not relieve Company or the applicable Permitted Borrower of its obligation to repay the outstanding principal amount of such Advance, all interest accrued thereon and any amount payable with respect thereto in accordance with the terms of this Agreement and the other Loan Documents. (c) Requests for Swing Line Advances. Company or a Permitted Borrower may request a Swing Line Advance only after delivery to Swing Line Bank of a Request for Swing Line Advance executed by an authorized officer of Company or such Permitted 37 49 Borrower, subject to the following and to the remaining provisions hereof: (i) each such Request for Swing Line Advance shall set forth the information required on the Request for Swing Line Advance form annexed hereto as Exhibit "F", including without limitation: (A) the proposed date of such Swing Line Advance, which must be a Business Day; (B) whether such Swing Line Advance is to be a Prime-based Advance, Eurocurrency-based Advance or a Quoted Rate Advance; and (C) except in the case of a Prime-based Advance, the duration of the Interest Period applicable thereto; and (D) in the case of a Eurocurrency-based Advance, the Permitted Currency in which such Advance is to be made. (ii) the principal amount (or Dollar Amount of the principal amount, if such Advance is being funded in an Alternative Currency) of such requested Swing Line Advance, plus the aggregate principal amount of all other Swing Line Advances and all Advances of the Revolving Credit then outstanding hereunder (including any Revolving Credit Advances requested to be made on such date) whether to Company or to any of the Permitted Borrowers (using the Current Dollar Equivalent of any such Advances outstanding in any Alternative Currency, determined pursuant to the terms hereof as of the date of such requested Advance), and the aggregate undrawn portion of any Letters of Credit which shall be outstanding as of the date of the Requested Swing Line Advance (based on the Dollar Amount of the undrawn portion of any Letters of Credit denominated in Dollars and the Current Dollar Equivalent of the undrawn portion of any Letters of Credit denominated in any Alternative Currency) and the aggregate face amount of Letters of Credit required but not yet issued (determined as aforesaid), plus the unreimbursed amount of any draws under Letters of Credit (using the Current Dollar Equivalent thereof for any Letters of Credit denominated in any Alternative Currency) shall not exceed the Revolving Credit Aggregate Commitment; (iii) in the case of each of the Permitted Borrowers, the principal amount of the requested Swing Line Advance to the applicable Permitted Borrower (determined as aforesaid), plus the aggregate principal amount of any other Swing Line Advances and all Advances of the Revolving Credit then outstanding to such Permitted Borrower hereunder (including any Revolving Credit Advances requested to be made on such date) determined as aforesaid, plus the aggregate undrawn portion of any Letters of Credit which shall be outstanding as of the date of the requested Swing Line Advance for the account of such Permitted Borrower hereunder, plus the aggregate face amount of any Letters of Credit requested but not 38 50 yet issued for the account of such Permitted Borrower hereunder (in each case determined as aforesaid), plus the unreimbursed amount of any draws under any Letters of Credit (using the Current Dollar Equivalent thereof for any Letters of Credit denominated in any Alternative Currency) issued for the account of such Permitted Borrower plus the aggregate principal amount of any Term Loans then outstanding to such Permitted Borrower (determined as aforesaid) shall not exceed the applicable Sublimit; (iv) the principal amount of such Swing Line Advance, plus the amount of any other outstanding Advance of the Swing Line to be then combined therewith having the same Applicable Interest Rate and Interest Period, if any, shall be (i) in the case of a Prime-based Advance at least Five Hundred Thousand Dollars ($500,000) and (ii) in the case of a Quoted Rate Advance or a Eurocurrency-based Advance at least Five Hundred Thousand Dollars ($500,000), or the equivalent thereof in an Alternative Currency (or a larger integral multiple of Five Hundred Thousand Dollars ($500,000), or the equivalent thereof in the Applicable Alternative Currency), and at any one time there shall not be in effect more than (x) for Advances in Dollars, three (3) Applicable Interest Rates and Interest Periods, and (y) for Advances in any Alternative Currency (other than eurodollars), one (1) Applicable Interest Rates and Interest Periods for each such currency; (v) each such Request for Swing Line Advance shall be delivered to the Swing Line Bank (x) for each Advance in Dollars, by 2:00 p.m. (Detroit time) on the proposed date of the Advance and (y) for each Advance in any Alternative Currency, by 12:00 noon (Detroit time) two Business Days prior to the proposed date of Advance; (vi) each Request for Swing Line Advance, once delivered to Swing Line Bank, shall not be revocable by Company or the Permitted Borrowers, and shall constitute and include a certification by the Company and the applicable Permitted Borrower as of the date thereof that: (A) both before and after such Swing Line Advance, the obligations of the Company and the Permitted Borrowers set forth in this Agreement and the Loan Documents, are valid, binding and enforceable obligations of the Company and the Permitted Borrowers; (B) all conditions to the making of Swing Line Advances have been satisfied (both before and after giving effect to such Advance); (C) both before and after the making of such Swing Line Advance, there is no Default or Event of Default in existence; and (D) both before and after such Swing Line Advance, the representations and warranties contained in this Agreement 39 51 and the other Loan Documents are true and correct in all material respects. Swing Line Bank shall promptly deliver to Agent by telecopy a copy of any Request for Swing Line Advance received hereunder. (d) Disbursement of Swing Line Advances. Subject to submission of an executed Request for Swing Line Advance by Company or a Permitted Borrower without exceptions noted in the compliance certification therein and to the other terms and conditions hereof, Swing Line Bank shall make available to Company or the applicable Permitted Borrower the amount so requested, in like funds and currencies, not later than: (i) for Domestic Advances, not later than 4:00 p.m. (Detroit time) on the date of such Advance by credit to an account of Company or the applicable Permitted Borrower maintained with Agent or to such other account or third party as Company or the Permitted Borrower may reasonably direct; and (ii) for Eurocurrency-based advances, not later than 4:00 p.m. (the time of the Agent's Correspondent) on the date of such Advance, by credit to an account of Company or the Permitted Borrower maintained with Agent's Correspondent or to such other account or third party as Company or the applicable Permitted Borrower may reasonably direct. Swing Line Bank shall promptly notify Agent of any Swing Line Advance by telephone, telex or telecopier. (e) Refunding of or Participation Interest in Swing Line Advances. (i) The Agent, at any time in its sole and absolute discretion, may (or, upon the request of the Swing Line Bank, shall) on behalf of the Company or the applicable Permitted Borrower (which hereby irrevocably directs the Agent to act on its behalf) request each of the Banks (including the Swing Line Bank in its capacity as a Bank) to make an Advance of the Revolving Credit to each of Company and the Permitted Borrowers, for each Permitted Currency in which Swing Line Advances are outstanding to such party, in an amount (in the applicable Permitted Currency, determined in accordance with Section 2.11(b) hereof) equal to such Bank's Percentage of the principal amount of the aggregate Swing Line Advances outstanding in each Permitted Currency to each such party on the date such notice is given (the "Refunded Swing Line Advances"); provided that at any time as there shall be a Swing Line Advance outstanding for more than thirty days, the Agent shall, on behalf of the Company or the applicable Permitted Borrower (which hereby irrevocably directs the Agent to act on its behalf), promptly request each Bank (including the Swing Line Bank) to make an Advance of the Revolving Credit in an amount equal to such Bank's Percentage of the principal amount of such outstanding Swing Line Advance. In the case of each Refunded Swing Line Advance 40 52 outstanding in Dollars, the applicable Advance of the Revolving Credit used to refund such Swing Line Advance shall be a Prime-based Advance. In the case of each Refunded Swing Line Advance outstanding in any Alternative Currency, the applicable Advance of the Revolving Credit used to refund such Swing Line Advance shall be an Advance in the applicable Alternative Currency, with an Interest Period of one month (or any lesser number of days selected by Agent in consultation with the Banks). In connection with the making of any such Refunded Swing Line Advances (whether as an Advance of the Revolving Credit or a participation in the Refunded Swing Line Advance under Section 2.5(e)(ii) hereof) the Swing Line Bank shall retain its claim against the Company or the applicable Permitted Borrower for any unpaid interest or fees in respect thereof. Unless any of the events described in Section 10.1(l) hereof shall have occurred (in which event the procedures of subparagraph (ii) of this Section 2.5(e) shall apply) and regardless of whether the conditions precedent set forth in this Agreement to the making of an Advance of the Revolving Credit are then satisfied, each Bank shall make the proceeds of its Advance of the Revolving Credit available to the Agent for the benefit of the Swing Line Bank at the office of the Agent specified in Section 2.4(a) hereof prior to 11:00 a.m. Detroit time (for Domestic Advances) on the Business Day next succeeding the date such notice is given, and, in the case of any Eurocurrency-based Advance, prior to 2:00 p.m. Detroit time on the third Business Day following the date such notice is given, in each case in immediately available funds in the applicable Permitted Currency. The proceeds of such Advances of the Revolving Credit shall be immediately applied to repay the Refunded Swing Line Advances in accordance with the provisions of Section 11.1 hereof. (ii) If, prior to the making of an Advance of the Revolving Credit pursuant to subparagraph (i) of this Section 2.5(e), one of the events described in Section 10.1(l) hereof shall have occurred, each Bank will, on the date such Advance of the Revolving Credit was to have been made, purchase from the Swing Line Bank an undivided participating interest in each Refunded Swing Line Advance in an amount equal to its Percentage of such Refunded Swing Line Advance. Each Bank within the time periods specified in section 2.5(d)(i) and (ii), above, as the case may be, shall immediately transfer to the Agent, in immediately available funds in the applicable Permitted Currency of such Swing Line Advance, the amount of its participation and upon receipt thereof the Agent will deliver to such Bank a participation certificate evidencing such participation. (iii) Each Bank's obligation to make Advances of the Revolving Credit and to purchase participation interests in accordance with clauses (i) and (ii) above shall, except in respect of any Swing Line Advance made by the Swing Line Bank following receipt by Agent from such Bank of a written notice of the type described in Section 13.13, below, captioned "Notice of Default" and specifically stating that such Bank does not intend to refund or participate in future Swing Line Advances on the basis of such 41 53 Default or Event of Default, be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against Swing Line Bank, the Company, the Permitted Borrowers or any other Person for any reason whatsoever; (ii) the occurrence or continuance of any Default or Event of Default; (iii) any adverse change in the condition (financial or otherwise) of the Company, any Permitted Borrower or any other Person; (iv) any breach of this Agreement by the Company, any Permitted Borrower or any other Person; (v) any inability of the Company or the Permitted Borrowers to satisfy the conditions precedent to borrowing set forth in this Agreement on the date upon which such participating interest is to be purchased or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Bank does not make available to the Agent the amount required pursuant to clause (i) or (ii) above, as the case may be, the Agent shall be entitled to recover such amount on demand from such Bank, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Effective Rate for Advances in Dollars (other than eurodollars) and, for Eurocurrency-based Advances, Agent's marginal cost (including the cost of maintaining any required reserves or deposit insurance and of any fees, penalties, overdraft charges or other costs or expenses incurred by Agent as a result of such failure to deliver funds hereunder) of carrying such amount. 2.6 Prime-based Interest Payments. Interest on the unpaid balance of all Prime-based Advances of the Revolving Credit and all Swing Line Advances carried at the Prime-based Rate from time to time outstanding shall accrue from the date of such Advance to the Revolving Credit Maturity Date (and until paid), at a per annum interest rate equal to the Prime-based Rate, and shall be payable in immediately available funds (a) with respect to Swing Line Advances, monthly commencing on September 1, 1995, and on the first day of each month thereafter, and (b) with respect to Advances of the Revolving Credit, quarterly commencing on October 1, 1995, and on the first day of each calendar quarter thereafter. Interest accruing at the Prime-based Rate shall be computed on the basis of a 360 day year and assessed for the actual number of days elapsed, and in such computation effect shall be given to any change in the interest rate resulting from a change in the Prime-based Rate on the date of such change in the Prime-based Rate. 2.7 Eurocurrency-based and Quoted Rate Interest Payments. Interest on each 1 month, 2 month and 3 month Eurocurrency-based Advased Advance or a Quoted Rate Advance shall, absent a contrary election by the Majority Banks, be converted automatically to a Prime-based Advance and the Agent shall thereafter promptly notify Company, the Permitted Borrowers and each of the Banks of said action. If a Eurocurrency-based Advance or a Quoted Rate Advance converted hereunder is payable in an Alternative Currency, the Prime- based Advance shall be in an amount equal to the Dollar Amount of such Eurocurrency-based Advance or Quoted Rate Advance at such time and the Agent and the Banks shall use said Prime-based Advance to fund payment of the Alternative Currency obligation, all subject to the provisions of Section 2.14. The Company and the Permitted Borrowers, if applicable, shall reimburse the Agent and the Banks on demand for any costs incurred by the Agent or any of the Banks, as applicable, resulting from the conversion pursuant to this Section 2.12 of Eurocurrency-based Advances payable in an Alternative Currency to Prime-based Advances. 2.8 Revolving Credit Commitment Fee. From the date hereof to the Revolving Credit Maturity Date, the Company shall pay to the Agent, for distribution to the Banks (as set forth below), a Revolving Credit Commitment Fee equal to the sum of: (a) the Applicable Fee Percentage per annum times the daily average amount by which the Revolving Credit Aggregate Commitment then in effect hereunder exceeds the Dollar Amount of the principal amount outstanding from time to time under the Revolving Credit, plus the aggregate daily amount of Swing Line Advances outstanding from time to time hereunder, plus the aggregate undrawn portion of any Letters of Credit outstanding from time to time hereunder (using the Current Dollar Equivalent of any such Letters of Credit denominated in any Alternative Currency), determined, with respect to each outstanding Advance in an Alternative Currency, as of the first ance of the Revolving Credit and all Swing Line Advances carried at the Eurocurrency-based Rate or the Quoted Rate shall accrue at its Applicable Interest Rate and shall be payable in immediately available funds on the last day of the Interest Period applicable thereto. Interest shall be payable on each 6 month Eurocurrency-based Advance outstanding from time to time, at intervals of 3 months after the first day of the applicable Interest Period, and shall also be payable on the last day of the Interest Period 42 54 applicable thereto. Interest accruing at the Eurocurrency-based Rate and the Quoted Rate shall be computed on the basis of a 360 day year (except that any such Advances made in Sterling or any other Alternative Currency with respect to which applicable law or market custom so requires shall be calculated based on a 365 day year, or as otherwise required under applicable law or market custom) and assessed for the actual number of days elapsed from the first day of the Interest Period applicable thereto to but not including the last day thereof. Interest due on a Eurocurrency-based Advance made in an Alternative Currency shall be paid in such Alternative Currency. 2.9 Interest Payments on Conversions. Notwithstanding anything to the contrary in the preceding sections, all accrued and unpaid interest on any Advance converted pursuant to Section 2.3 hereof shall be due and payable in full on the date such Advance is converted. 2.10 Interest on Default. In the event and so long as any Event of Default shall exist, interest shall be payable daily on all Advances of the Revolving Credit and all Swing Line Advances from time to time outstanding at a per annum rate equal to the Applicable Interest Rate plus two percent (2%) for the remainder of the then existing Interest Period, if any, and at all other such times, with respect to Domestic Advances thereof from time to time outstanding, at a per annum rate equal to the Prime-based Rate plus two percent (2%), and, with respect to Eurocurrency-based Advances or Quoted Rate Advances thereof in any Alternative Currency from time to time outstanding, (i) at a per annum rate calculated by the Agent, whose determination shall be presumed to be correct, absent demonstrable error, on a daily basis, equal to two percent (2%) above the interest rate per annum at which one (1) day deposits (or, if such amount due remains unpaid for more than three (3) Business Days, then for such other period of time as the Agent may elect which shall in no event be longer than six (6) months) in the relevant eurocurrency in the amount of such overdue payment due to the Agent are offered by Agent's Eurocurrency Lending Office for the applicable period determined as provided above, or (ii) if at any such time such deposits are not offered by the Eurocurrency Lending Office, then at a rate per annum equal to two percent (2%) above the rate determined by the Agent to be its aggregate marginal cost (including the cost of maintaining any required reserves or deposit insurance) of carrying the amount of such Eurocurrency-based Advance or Quoted Rate Advance. 2.11 Prepayment. (a) Company or the Permitted Borrowers may prepay all or part of the outstanding balance of any Prime- based Advance(s) under the Revolving Credit Notes at any time, provided that the amount of any partial prepayment shall be at least One Million Dollars ($1,000,000) and the aggregate balance of Prime-based Advance(s) of the Revolving Credit remaining outstanding shall be at least Three Million Dollars ($3,000,000). Company or the applicable Permitted Borrower may prepay all or part of any Eurocurrency-based Advance (subject to not less than three (3) 43 55 Business Days' notice to Agent) only on the last day of the Interest Period therefor, provided that the amount of any such partial prepayment shall be at least One Million Dollars ($1,000,000), or the equivalent thereof in an Alternative Currency, and the unpaid portion of such Advance which is refunded or converted under Section 2.3 hereof shall be at least Five Million Dollars ($5,000,000) or the equivalent thereof in an Alternative Currency. (b) Company may prepay all or part of the outstanding balance of any Swing Line Advance carried at the Prime-based Rate at any time, provided that the amount of any partial prepayment shall be at least Five Hundred Thousand Dollars ($500,000) and the aggregate balance of such Swing Line Advances remaining outstanding shall be at least Five Hundred Thousand Dollars ($500,000). Company may prepay all or part of any Swing Line Advances carried at the Eurocurrency-based Rate or the Quoted Rate (subject to not less than three (3) Business Days' notice to Swing Line Bank and Agent) only on the last day of the Interest Period therefor, provided that the amount of any such partial payment shall be at least Five Hundred Thousand Dollars ($500,000), or the equivalent thereof in any Alternative Currency, and the unpaid portion of such Advance which is refunded or converted under Section 2.5(c) hereof shall be at least Five Hundred Thousand Dollars ($500,000), or the equivalent thereof in any Alternative Currency. (c) Any prepayment made in accordance with this Section shall be without premium, penalty or prejudice to the right to reborrow under the terms of this Agreement. Any other prepayment of all or any portion of any Advance of the Revolving Credit or any Swing Line Advance shall be subject to Section 12.1 hereof, but otherwise without premium, penalty or prejudice. 2.12 Determination, Denomination and Redenomination of Alternative Currency Advances. Whenever, pursuant to any provision of this Agreement: (a) an Advance of the Revolving Credit or a Swing Line Advance is initially funded, as opposed to any refunding or conversion thereof, in an Alternative Currency, the amount to be advanced hereunder will be the equivalent in such Alternative Currency of the Dollar Amount of such Advance; (b) an existing Advance of the Revolving Credit or a Swing Line Advance denominated in an Alternative Currency is to be refunded, in whole or in part, with an Advance denominated in the same Alternative Currency, the amount of the new Advance shall be continued in the amount of the Alternative Currency so refunded; (c) an existing Advance of the Revolving Credit denominated in an Alternative Currency is to be converted, in whole or in part, to an Advance denominated in another Alternative Currency, the amount of the new Advance shall be that amount of the Alternative Currency of the new Advance which may be purchased, 44 56 using the most favorable spot exchange rate determined by Agent to be available to it for the sale of Dollars for such other Alternative Currency at approximately (11:00 a.m.) (Detroit time) two (2) Business Days prior to the last day of the Eurocurrency Interest Period applicable to the existing Advance, with the Dollar Amount of the existing Advance, or portion thereof being converted; and (d) an existing Advance of the Revolving Credit denominated in an Alternative Currency is to be converted, in whole or in part, to an Advance denominated in Dollars, the amount of the new Advance shall be the Dollar Amount of the existing Advance, or portion thereof being converted (determined as aforesaid). 2.13 Prime-based Advance in Absence of Election or Upon Default. If, as to any outstanding Eurocurrency-based Advance of the Revolving Credit, or any Swing Line Advance carried at the Eurocurrency-based Rate or the Quoted Rate, Agent has not received payment on the last day of the Interest Period applicable thereto, or does not receive a timely Request for Advance meeting the requirements of Section 2.3 hereof with respect to the refunding or conversion of such Advance, or, subject to Section 2.9 hereof, if on such day a Default or an Event of Default shall have occurred and be continuing, the principal amount thereof which is not then prepaid in the case of a Eurocurrency-based Advance or a Quoted Rate Advance shall, absent a contrary election by the Majority Banks, be converted automatically to a Prime-based Advance and the Agent shall thereafter promptly notify Company, the Permitted Borrowers and each of the Banks of said action. If a Eurocurrency-based Advance or a Quoted Rate Advance converted hereunder is payable in an Alternative Currency, the Prime-based Advance shall be in an amount equal to the Dollar Amount of such Eurocurrency-based Advance or Quoted Rate Advance at such time and the Agent and the Banks shall use said Prime-based Advance to fund payment of the Alternative Currency obligation, all subject to the provisions of Section 2.14. The Company and the Permitted Borrowers, if applicable, shall reimburse the Agent and the Banks on demand for any costs incurred by the Agent or any of the Banks, as applicable, resulting from the conversion pursuant to this Section 2.12 of Eurocurrency-based Advances payable in an Alternative Currency to Prime-based Advances. 2.14 Revolving Credit Commitment Fee. From the date hereof to the Revolving Credit Maturity Date, the Company shall pay to the Agent, for distribution to the Banks (as set forth below), a Revolving Credit Commitment Fee equal to the sum of: (a) the Applicable Fee Percentage per annum times the daily average amount by which the Revolving Credit Aggregate Commitment then in effect hereunder exceeds the Dollar Amount of the principal amount outstanding from time to time under the Revolving Credit, plus the aggregate daily amount of Swing Line Advances outstanding from time to time hereunder, plus the aggregate undrawn portion of any Letters of Credit outstanding from 45 57 time to time hereunder (using the Current Dollar Equivalent of any such Letters of Credit denominated in any Alternative Currency), determined, with respect to each outstanding Advance in an Alternative Currency, as of the first day of each Interest Period and with respect to each Letter of Credit denominated in an Alternative Currency, on the first day of each calendar month (but otherwise computed on a daily basis); and (b) the Applicable Fee Percentage per annum, times the Revolving Credit Designated Unused Portion in effect under Section 2.16 hereof during such period, calculated on a daily basis. The Revolving Credit Commitment Fee shall be payable quarterly in arrears commencing on October 1, 1995 (in respect of the prior calendar quarter), and on the first day of each calendar quarter thereafter and at the Revolving Credit Maturity Date, and shall be computed on the basis of a year of three hundred sixty (360) days and assessed for the actual number of days elapsed. Whenever any payment of the Revolving Credit Commitment Fee shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next Business Day. Upon receipt of such payment Agent shall make prompt payment to each Bank of its share of the Revolving Credit Commitment Fee based upon its respective Percentage. It is expressly understood that the Revolving Credit Commitment Fee shall not be refundable under any circumstances. 2.15 Currency Appreciation; Sublimits; Mandatory Reduction of Indebtedness. (a) If at any time and for any reason, the aggregate principal amount (tested in the manner set forth below) of all Advances of the Revolving Credit hereunder to the Company and to the Permitted Borrowers made in Dollars and the aggregate Current Dollar Equivalent of all Advances hereunder to the Company and to the Permitted Borrowers in any Alternative Currency as of such time, plus the aggregate principal amount of Swing Line Advances outstanding hereunder as of such time, plus the aggregate undrawn portion of any Letters of Credit which shall be outstanding (based on the Dollar Amount of the undrawn portion of any Letters of Credit denominated in Dollars and the Current Dollar Equivalent of the undrawn portion of any Letters of Credit denominated in any Alternative Currency), plus the unreimbursed amount of any draws under any Letters of Credit (using the Current Dollar Equivalent thereof for any Letters of Credit denominated in any Alternative Currency) as of such time exceeds the Revolving Credit Aggregate Commitment (as used in this subparagraph (a), the "Excess"), the Company and the Permitted Borrowers shall: (i) immediately (x) repay that portion of such Indebtedness then carried as a Prime-based Advance, if any, by the Dollar Amount of such Excess, and/or (y) reduce any pending request for an Advance in Dollars on such day by the Dollar Amount of such Excess, and/or (z) activate any portion of the Revolving Credit Designated Unused Portion available to be activated under Section 2.17 hereof, if any, in compliance with said Section 2.17, to the extent of such Excess, in each case to the extent thereof; and 46 58 (ii) on the last day of each Interest Period of any Eurocurrency-based Advance or Quoted Rate Advance outstanding as of such time, until the necessary reductions of Indebtedness under this Section 2.14(a) have been fully made, repay the Indebtedness carried in such Advances and/or reduce any requests for refunding or conversion of such Advances submitted (or to be submitted) by the Company or the applicable Permitted Borrower in respect of such Advances, by the Amount in Dollars or the applicable Alternative Currency, as the case may be, of such Excess, to the extent thereof. Compliance with this Section 2.14(a) shall be tested on a daily or other basis satisfactory to Agent in its sole discretion, provided that, so long as no Default or Event of Default has occurred and is continuing, at any time while the aggregate Advances of the Revolving Credit available to be borrowed hereunder (based on the Revolving Credit Aggregate Commitment then in effect) equal or exceed Five Million Dollars ($5,000,000), compliance with this Section 2.14(a) shall be tested as of the last day of each calendar quarter. Notwithstanding the foregoing, upon the occurrence and during the continuance of any Default or Event of Default, or if any Excess remains after recalculating said Excess based on ninety-five percent (95%) of the Current Dollar Equivalent of any Advances or Letters of Credit denominated in Alternative Currencies (and one hundred percent (100%) of any Advances or Letters of Credit denominated in Dollars), Company and the Permitted Borrowers shall be obligated immediately to reduce the foregoing Indebtedness hereunder by an amount sufficient to eliminate such Excess. (b) If at any time and for any reason with respect to a Permitted Borrower the aggregate principal amount (tested in the manner set forth below) of all Advances of the Revolving Credit, all Swing Line Advances, the aggregate undrawn portion of any Letters of Credit, the unreimbursed amount of any draws under any Letters of Credit and the aggregate principal amount of any Term Loans hereunder to or for the account of such Permitted Borrower denominated in Dollars and ninety-five percent (95%) of the aggregate Current Dollar Equivalent of all such Advances, Letters of Credit (including unreimbursed draws) and Term Loans hereunder to or for the account of such Permitted Borrower in any Alternative Currency as of such time, exceeds the Sublimit applicable to such Permitted Borrower, the applicable Permitted Borrower shall (i) immediately repay that portion of the Indebtedness outstanding to such Permitted Borrower then carried as a Prime-based Advance, if any, by the Dollar Amount of such excess, and/or reduce on such day any pending request for an Advance in Dollars submitted by such Permitted Borrower by the Dollar Amount of such excess, to the extent thereof; and (ii) on the last day of each Interest Period of any Eurocurrency-based Advance or Quoted Rate Advance outstanding to such Permitted Borrower as of such time, until the necessary reductions of Indebtedness under this Section 2.14(b) have been fully made, repay such Indebtedness carried in such Advances and/or reduce any requests for refunding or conversion of such Advances submitted (or to be submitted) by the applicable Permitted Borrower 47 59 in respect of such Advances, by the Amount in Dollars or the applicable Alternative Currency, as the case may be, of such excess, to the extent thereof. Provided that no Default or Event of Default has occurred and is continuing, each Permitted Borrower's compliance with this Section 2.14(b) shall be tested as of the last day of each calendar quarter. Upon the occurrence and during the continuance of any Default or Event of Default, compliance with this Section 2.14(b) shall be tested on a daily or other basis satisfactory to Agent in its sole discretion. 2.16 Optional Reduction or Termination of Revolving Credit Maximum Amount. Provided that the Revolving Credit Designated Unused Portion then in effect is zero (0), the Company may, upon at least twenty (20) Business Days' prior written notice to Agent (except in the case of a request submitted pursuant to Section 4.9A hereof, in which event only five (5) Business Days prior written notice shall be required), permanently reduce the Revolving Credit Maximum Amount in whole at any time, or in part from time to time, without premium or penalty, provided that: (i) each partial reduction of the Revolving Credit Maximum Amount shall be in an aggregate amount equal to at least Ten Million Dollars ($10,000,000) or a larger integral multiple of One Million Dollars ($1,000,000); (ii) each reduction shall be accompanied by the payment of the Revolving Credit Commitment Fee, if any, accrued to the date of such reduction; (iii) the Company shall prepay in accordance with the terms hereof the amount, if any, by which the aggregate unpaid principal amount of Revolving Credit Notes, plus the aggregate undrawn amount of outstanding Letters of Credit, plus the unreimbursed amount of any draws under any Letters of Credit, plus the aggregate principal amount of all Swing Line Advances (in the case of any advances in Alternative Currencies, determined as aforesaid) exceeds the amount of the Revolving Credit Maximum Amount, taking into account the aforesaid reductions thereof, together with interest thereon to the date of prepayment; (iv) if the termination or reduction of the Revolving Credit Maximum Amount requires the prepayment of a Eurocurrency-based Advance, the termination or reduction may be made only on the last Business Day of the then current Interest Period applicable to such Eurocurrency-based Advance and (v) no reduction shall reduce the amount of the Revolving Credit Maximum Amount to an amount which is less than the sum of the aggregate undrawn amount of any Letters of Credit outstanding at such time. Reductions of the Revolving Credit Maximum Amount and any accompanying prepayments of the Revolving Credit Notes shall be distributed by Agent to each Bank in accordance with such Bank's Percentage thereof, and will not be available for reinstatement by or readvance to the Company. Any reductions of the Revolving Credit Maximum Amount hereunder shall reduce each Bank's portion thereof proportionately (based upon the applicable Percentages), shall automatically reduce the maximum amount thereof which may be designated as the Revolving Credit Designated Unused Portion (except in the case of requests for reductions submitted pursuant to Section 4.9A hereof, which shall be governed by Section 2.14 hereof) and shall be permanent and irrevocable. Any payments made pursuant to this Section shall be 48 60 applied first to outstanding Prime-based Advances under the Revolving Credit, next to Swing Line Advances carried at the Prime-based Rate, next to Eurocurrency-based Advances of the Revolving Credit, next to Swing Line Advances carried at the Eurocurrency-based Rate and then to Swing Line Advances carried at the Quoted Rate. 2.17 Revolving Credit Designated Unused Portion. The Company may at any time and from time to time, upon at least five (5) Business Days' prior written notice to the Agent, subject to any prior activations of the Revolving Credit Designated Unused Portion which shall remain in effect for a period of not less than one hundred eighty (180) days in accordance with Section 2.17 hereof, designate a portion of the Revolving Credit Aggregate Commitment not exceeding Forty Million Dollars ($40,000,000) at any time in the aggregate so designated (or such lesser amount resulting from the application of Section 2.15 hereof), as not presently available for borrowing hereunder, provided that (i) each such designation shall be in an aggregate amount equal to at least Ten Million Dollars ($10,000,000) or a larger One Million Dollar ($1,000,000) integral multiple thereof; (ii) each such designation shall be accompanied by the payment of the Revolving Credit Commitment Fee, if any, accrued to the date of such designation; (iii) the Company shall prepay in accordance with the terms hereof the amount, if any, by which the aggregate unpaid principal amount of the Revolving Credit, then outstanding, plus the aggregate principal amount of Swing Line Advances then outstanding, plus the aggregate amount of any outstanding Letters of Credit (using the Dollar Amount of any such Advances or Letters of Credit denominated in Dollars and the Current Dollar Equivalent of such Advances or Letter of Credit denominated in any Alternative Currency), exceeds the amount of the Revolving Credit Aggregate Commitment, taking into account the aforesaid designation under this Section 2.16, together with interest thereon to the date of prepayment; (iv) if the designation under this Section 2.16 requires the prepayment of a Eurocurrency-based Advance or Quoted Rate Advance, such designation may be effective only on the last Business Day of the then current Interest Period applicable to such Advance and (v) no such designation shall reduce the amount of the Revolving Credit Aggregate Commitment to an amount which is less than the sum of the aggregate undrawn amount (determined as aforesaid) of any Letters of Credit outstanding at such time. The Revolving Credit Aggregate Commitment shall be reduced by the aggregate amount so designated under this Section 2.16 as the Revolving Credit Designated Unused Portion, upon the effective date of each such designation. 2.18 Activation of Designated Unused Portion. Provided that no Default or Event of Default has occurred and is continuing, Company may, upon not less than five (5) Business Days' prior written notice to the Agent (except for any activation under Section 2.14(a)(i) hereof, which shall be effective upon Agent's receipt of written notice thereof) elect to activate all or any part of the Revolving Credit Designated Unused Portion, provided that on or before the requested date for activation, Company shall pay to the 49 61 Agent, for distribution to the Banks based on their respective Percentages, an Activation Fee in the amount of the Applicable Fee Percentage times that portion of the Revolving Credit Designated Unused Portion thereby activated. Each activation of the Revolving Credit Designated Unused Portion hereunder shall remain in effect (and shall not be reduced by a subsequent designation under Section 2.16 hereof) for a period of not less than 180 consecutive days. Upon the effecen-current Revolving Credit Maturity Date shall remain in effect (with no further right on the part of Company to request extensions thereof under this Section 2.18) and (z) the commitments of the Banks to make Advances of the Revolving Credit hereunder shall terminate on the Revolving Credit Maturity Date then in effect, and Agent shall promptly notify Company and the Banks thereof. 2.19 Revolving Credit as Renewal; Application of Advances. The Revolving Credit Notes issued by the Company and the Permitted Borrowers hereunder shall constitute renewal and replacement evidence of all present Indebtedness of such parties outstanding under the Prior Credit Agreement and the notes issued thereunder. Advances of the Revolving Credit and Swing Line Advances shall be available, subject to the terms hereof, to fund working capital 50 62 needs or other general corporate purposes of the Company and the Permitted Borrowers. 3. LETTERS OF CREDIT. 3.1 Letters of Credit. Subject to the terms and conditions of this Agreement, Agent may through its Issuing Office, at any time and from time to time from and after the date hereof until thirty (30) days prior to the Revolving Credit Maturity Date, upon the written request of an Account Party accompanied by a duly executed Letter of Credit Agreement and such other documentation related to the requested Letter of Credit as the Agent may require, issue standby or documentary Letters of Credit for the account of such Account Party, in an aggregate amount for all Letters of Credit issued hereunder at any one time outstanding not to exceed the Letter of Credit Maximum Amount. Each Letter of Credit shall be in a minimum face amount of One Hundred Thousand Dollars ($100,000) and, other than any Special Purpose Letter of Credit, shall have an expiration date not later than one (1) year from its date of issuance; provided that each Letter of Credit (including any renewal thereof, and any Special Purpose Letter of Credit) shall expire not later than ten (10) Business Days prior to the Revolving Credit Maturity Date in effect on the date of issuance thereof. The submission of all applications and the issuance of each Letter of Credit hereunder shall be subject in all respects to applicable provisions of U.S. law and regulations, including without limitation, the Trading With the Enemy Act, Export Administration Act, International Emergency Economic Powers Act, and the Regulations of the Office of Foreign Assets Control of the U.S. Department of the Treasury. 3.2A Conditions to Issuance. No Letter of Credit shall be issued at the request and for the account of any Account Party unless, as of the date of issuance of such Letter of Credit: (a) the face amount of the Letter of Credit requested (based on the Dollar Amount of the undrawn portion of any Letter of Credit denominated in Dollars and the Current Dollar Equivalent of the undrawn portion of any Letter of Credit denominated in any Alternative Currency), plus the undrawn portion of all other outstanding Letters of Credit (determined as aforesaid), does not exceed the Letter of Credit Maximum Amount; (b) the face amount of the Letter of Credit requested, plus the aggregate undrawn portion of all other outstanding Letters of Credit (in each case determined as aforesaid), plus the unreimbursed amount of any draws under Letters of Credit (using the Current Dollar Equivalent thereof for any Letters of Credit denominated in any Alternative Currency), plus the aggregate principal amount of all Advances outstanding under the Revolving Credit 51 63 Notes and the Swing Line Notes, including any Advances requested to be made on such date (determined on the basis of the Current Dollar Equivalent of any Advances denominated in any Alternative Currency, and the Dollar Amount of any Advances in Dollars), do not exceed the then applicable Revolving Credit Aggregate Commitment; (c) whenever the Account Party is a Permitted Borrower, the face amount of the Letter of Credit requested by such Permitted Borrower, plus the aggregate undrawn portion of all other outstanding Letters of Credit issued for the account of such Permitted Borrower (in each case determined as aforesaid), plus the unreimbursed amount of any draws under Letters of Credit (using the Current Dollar Equivalent thereof for any Letters of Credit denominated in any Alternative Currency) issued for the account of such Permitted Borrower, plus the aggregate principal amount of all Advances outstanding under the Revolving Credit Notes and the Swingline Notes to such Permitted Borrower, including any Advances requested to be made on such date (in each case determined as aforesaid), plus the aggregate principal amount of all Term Loans outstanding hereunder in the name of such Permitted Borrower (determined as aforesaid) do not exceed the Sublimit applicable to such Permitted Borrower; (d) the obligations of Company and the Permitted Borrowers set forth in this Agreement and the Loan Documents are valid, binding and enforceable obligations of Company and the valid, binding and enforceable nature of this Agreement and the Loan Documents has not been disputed by Company or the Permitted Borrowers; (e) the representations and warranties contained in this Agreement and the Loan Documents are true in all material respects as if made on such date, and both immediately before and immediately after issuance of the Letter of Credit requested, no Default or Event of Default exists; (f) the execution of the Letter of Credit Agreement with respect to the Letter of Credit requested will not violate the terms and conditions of any contract, agreement or other borrowing of Company or the Permitted Borrowers; (g) the Account Party requesting the Letter of Credit shall have delivered to Agent at its Issuing Office, not less than five (5) Business Days prior to the requested date for issuance (or such shorter 52 64 time as the Agent, in its sole discretion, may permit), the Letter of Credit Agreement related thereto, together with such other documents and materials as may be required pursuant to the terms thereof, and the terms of the proposed Letter of Credit shall be satisfactory to Agent and its Issuing Office; (h) no order, judgment or decree of any court, arbitrator or governmental authority shall purport by its terms to enjoin or restrain Agent from issuing the Letter of Credit, or any Bank from taking an assignment of its Percentage thereof pursuant to Section 3.6 hereof, and no law, rule, regulation, request or directive (whether or not having the force of law) shall prohibit or request that Agent refrain from issuing, or any Bank refrain from taking an assignment of its Percentage of, the Letter of Credit requested or letters of credit generally; (i) there shall have been no introduction of or change in the interpretation of any law or regulation that would make it unlawful or unduly burdensome for the Agent to issue the requested Letter of Credit, no suspension of or material limitation on trading on the New York Stock Exchange or any other national securities exchange, no declaration of a general banking moratorium by banking authorities in the United States, Michigan or the respective jurisdictions in which the Banks, the Account Party and the beneficiary of the requested Letter of Credit are located, and no establishment of any new restrictions on transactions involving letters of credit or on banks materially affecting the extension of credit by banks; and (j) Agent shall have received the issuance fees required in connection with the issuance of such Letter of Credit pursuant to Section 3.5 hereof. Each Letter of Credit Agreement submitted to Agent pursuant hereto shall constitute the certification by the Company and the Account Party of the matters set forth in this Section 3.2(A) (a) through (f). The Agent shall be entitled to rely on such certification without any duty of inquiry. 3.2B Special Purpose Letters of Credit. Notwithstanding anything herein to the contrary, in connection with the requested issuance of any Special Purpose Letter of Credit, the Agent shall be entitled to impose such additional conditions to issuance as it may in its sole discretion require. 53 65 3.3 Notice. Agent shall give notice, substantially in the form attached as Exhibit "G", to each Bank of the issuance of each Letter of Credit, not later than three (3) Business Days after issuance of each Letter of Credit, specifying the amount thereof and the amount of such Bank's Percentage thereof. 3.4 Letter of Credit Fees. Company shall pay to the Agent for distribution to the Banks in accordance with the Percentages, Letter of Credit Fees as follows: (a) A per annum Letter of Credit Fee with respect to the undrawn amount of each Letter of Credit issued pursuant hereto (based on the Dollar Amount of any Letters of Credit denominated in Dollars and the Current Dollar Equivalent of any Letters of Credit denominated in any Alternative Currency) in the amount of the Applicable Fee Percentage (determined with reference to Schedule 5.1 to this Agreement), inclusive of the facing fee of one-eighth of one percentage point (1/8%) per annum on the face amount thereof to be retained by Agent under Section 3.5 hereof. (b) If any change in any law or regulation or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof shall either (i) impose, modify or cause to be deemed applicable any reserve, special deposit, limitation or similar requirement against letters of credit issued by, or assets held by, or deposits in or for the account of, Agent or the Banks or (ii) impose on Agent or the Banks any other condition regarding this Agreement or the Letters of Credit, and the result of any event referred to in clause (i) or (ii) above shall be to increase the cost or expense to Agent or the Banks of issuing or maintaining or participating in any of the Letters of Credit (which increase in cost or expense shall be determined by the Agent's or such Bank's reasonable allocation of the aggregate of such cost increases and expense resulting from such events), then, upon demand by the Agent or such Bank, as the case may be, the Company shall, within ten days following demand for payment, pay to Agent or such Bank, as the case may be, from time to time as specified by the Agent or such Bank, additional amounts which shall be sufficient to compensate the Agent or such Bank for such increased cost and expense, together with interest on each such amount from ten days after the date demanded until payment in full thereof at the Prime-based Rate. A certificate as to such increased cost or expense incurred by the Agent or such Bank, as the case may be, as a result of any event mentioned in clause (i) or (ii) above, submitted to the Company, shall be rebuttably presumptive evidence, absent demonstrable error, as to the amount thereof. (c) All payments by the Company or any Permitted Borrower to the Agent or the Banks under this Section 3.4 shall be made in Dollars and in immediately available funds at the Agent's Issuing Office or such other office of the Agent as may be designated from time to time by written notice to the Company and the Permitted Borrowers by the Agent. The aforesaid fees shall be 54 66 nonrefundable under all circumstances, shall be payable annually in advance (or such lesser period, if applicable, for Letters of Credit issued with stated expiration dates of less than one year) upon the issuance of each such Letter of Credit, and shall be calculated on the basis of a 360 day year and assessed for the actual number of days from the date of the issuance thereof to the stated expiration thereof. 3.5 Issuance Fees. In connection with the Letters of Credit, and in addition to the Letter of Credit Fees (including a letter of credit facing fee of one-eighth of one percentage point (1/8%) to be retained by Agent for its own account), the Company and the applicable Account Party shall pay, for the sole account of the Agent, standard documentation, administration, payment and cancellation charges assessed by Agent or its Issuing Office, at the times, in the amounts and on the terms set forth or to be set forth from time to time in the standard fee schedule of Agent's Issuing office in effect from time to time. 3.6 Draws and Demands for Payment Under Letters of Credit. (a) The Company and each applicable Account Party agrees to pay to the Agent, on the day on which the Agent shall honor a draft or other demand for payment presented or made under any Letter of Credit, an amount equal to the amount paid by the Agent in respect of such draft or other demand under such Letter of Credit and all expenses paid or incurred by the Agent relative thereto. Unless the Company or the applicable Account Party shall have made such payment to the Agent on such day, upon each such payment by the Agent, the Agent shall be deemed to have disbursed to the Company or the applicable Account Party, and the Company or the applicable Account Party shall be deemed to have elected to substitute for its reimbursement obligation, with respect to Letters of Credit denominated in Dollars, a Prime-based Advance and, with respect to Letters of Credit denominated in any Alternative Currency, a Eurocurrency-based Advance in the applicable Alternative Currency with an Interest Period, commencing three (3) Business Days following the date of Agent's payment pursuant to the applicable Letter of Credit, of one month (or, if unavailable, such other Interest Period as selected by Agent in its sole discretion) in each case for the account of the Banks in an amount equal to the amount so paid by the Agent in respect of such draft or other demand under such Letter of Credit. Such Prime-based Advance or Eurocurrency Advance shall be deemed disbursed notwithstanding any failure to satisfy any conditions for disbursement of any Advance set forth in Section 2 hereof and, to the extent of the Advances so disbursed, the reimbursement obligation of the Company or the applicable Account Party under this Section 3.6 shall be deemed satisfied, provided that, with respect to any such Eurocurrency Advance deemed to have been made hereunder, Company or the applicable Permitted borrower shall also be obligated to pay to the Agent, for Agent's sole account, interest on the aggregate amount paid by the Agent under the applicable draft or other demand for payment at Agent's aggregate 55 67 marginal cost (including the cost of maintaining any required reserves or deposit insurance and of any fees, penalties, overdraft charges or other costs or expenses incurred by Agent as a result of such failure to deliver funds hereunder) of carrying such amount plus the Applicable Margin then in effect for Eurocurrency-based Advances, from the date of Agent's payment pursuant to any Letter of Credit to the date of the commencement of the Interest Period for the applicable Eurocurrency-based Advance deemed to have been made, as aforesaid, such interest (the "Gap Interest") to be due and payable on the last day of the initial Interest Period established for such deemed Advance. (b) If the Agent shall honor a draft or other demand for payment presented or made under any Letter of Credit, the Agent shall provide notice thereof to the Company and the applicable Account Party on the date such draft or demand is honored, and to each Bank on such date unless the Company or applicable Account Party shall have satisfied its reimbursement obligation under Section 3.6(a) by payment to the Agent on such date. The Agent shall further use reasonable efforts to provide notice to the Company or applicable Account Party prior to honoring any such draft or other demand for payment, but such notice, or the failure to provide such notice, shall not affect the rights or obligations of the Agent with respect to any Letter of Credit or the rights and obligations of the parties hereto, including without limitation the obligations of the Company or applicable Account Party under Section 3.6(a) hereof. (c) Upon issuance by the Agent of each Letter of Credit hereunder, each Bank shall automatically acquire a pro rata risk participation interest in such Letter of Credit and related Letter of Credit Payment based on its respective Percentage. Each Bank, on the date a draft or demand under any Letter of Credit is honored (or the next succeeding Business Day if the notice required to be given by Agent to the Banks under Section 3.6(b) hereof is not given to the Banks prior to 2:00 p.m. (Detroit time) on such date of draft or demand) or three (3) Business Days thereafter in respect of draws or demands under Letters of Credit issued in any Alternative Currency, shall make its Percentage share of the amount paid by the Agent, and not reimbursed by the Company or applicable Account Party on such day, available in the applicable Permitted Currency and in immediately available funds at the principal office of the Agent for the account of the Agent. If and to the extent such Bank shall not have made such pro rata portion available to the Agent, such Bank, the Company and the applicable Account Party severally agree to pay to the Agent forthwith on demand such amount together with interest thereon, for each day from the date such amount was paid by the Agent until such amount is so made available to the Agent at a per annum rate equal to the interest rate applicable during such period to the related Advance deemed to have been disbursed under Section 3.6(a) in respect of the reimbursement obligation of the Company and the applicable Account Party, as set forth in Section 2.4(b)(i) or 2.4(b)(ii), as the case may be. If such Bank shall pay such amount to the Agent together with such 56 68 interest, such amount so paid shall be deemed to constitute an Advance by such Bank disbursed in respect of the reimbursement obligation of the Company or applicable Account Party under Section 3.6(a) for purposes of this Agreement, effective as of the dates applicable under said Section 3.6(a). The failure of any Bank to make its pro rata portion of any such amount paid by the Agent available to the Agent shall not relieve any other Bank of its obligation to make available its pro rata portion of such amount, but no Bank shall be responsible for failure of any other Bank to make such pro rata portion available to the Agent. Furthermore, in the event of the failure by Company or the applicable Permitted Borrower to pay the Gap Interest required under the proviso to Section 3.6(a) hereof, each of the Banks shall pay to Agent, within one Business Day following receipt from Agent of written request therefor, its pro rata portion of said Gap Interest, excluding any portion thereof attributable to the Applicable Margin. (d) Nothing in this Agreement shall be construed to require or authorize any Bank to issue any Letter of Credit, it being recognized that the Agent shall be the sole issuer of Letters of Credit under this Agreement. 3.7 Obligations Irrevocable. The obligations of Company and any Account Party to make payments to Agent or the Banks with respect to Letter of Credit Obligations under Section 3.6 hereof, shall be unconditional and irrevocable and not subject to any qualification or exception whatsoever, including, without limitation: (a) Any lack of validity or enforceability of any Letter of Credit or any documentation relating to any Letter of Credit or to any transaction related in any way to such Letter of Credit (the "Letter of Credit Documents"); (b) Any amendment, modification, waiver, consent, or any substitution, exchange or release of or failure to perfect any interest in collateral or security, with respect to any of the Letter of Credit Documents; (c) The existence of any claim, setoff, defense or other right which the Company or any Account Party may have at any time against any beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom any such beneficiary or any such transferee may be acting), the Agent or any Bank or any other person or entity, whether in connection with any of the Letter of Credit Documents, the transactions contemplated herein or therein or any unrelated transactions; (d) Any draft or other statement or document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; 57 69 (e) Payment by the Agent to the beneficiary under any Letter of Credit against presentation of documents which do not comply with the terms of the Letter of Credit, including failure of any documents to bear any reference or adequate reference to such Letter of Credit; (f) Any failure, omission, delay or lack on the part of the Agent or any Bank or any party to any of the Letter of Credit Documents to enforce, assert or exercise any right, power or remedy conferred upon the Agent, any Bank or any such party under this Agreement, any of the Loan Documents or any of the Letter of Credit Documents, or any other acts or omissions on the part of the Agent, any Bank or any such party; or (g) Any other event or circumstance that would, in the absence of this Section 3.7, result in the release or discharge by operation of law or otherwise of Company or any Account Party from the performance or observance of any obligation, covenant or agreement contained in Section 3.6. No setoff, counterclaim, reduction or diminution of any obligation or any defense of any kind or nature which Company or any Account Party has or may have against the beneficiary of any Letter of Credit shall be available hereunder to Company or any Account Party against the Agent or any Bank. Nothing contained in this Section 3.7 shall be deemed to prevent Company or the Account Parties, after satisfaction in full of the absolute and unconditional obligations of Company and the Account Parties hereunder, from asserting in a separate action any claim, defense, set off or other right which they (or any of them) may have against Agent or any Bank. 3.8 Risk Under Letters of Credit. (a) In assigning and the handling of Letters of Credit and any security therefor, or any documents or instruments given in connection therewith, Agent shall have the sole right to take or refrain from taking any and all actions under or upon the Letters of Credit. (b) Subject to other terms and conditions of this Agreement, Agent shall issue the Letters of Credit and shall hold the documents related thereto in its own name and shall make all collections thereunder and otherwise administer the Letters of Credit in accordance with Agent's regularly established practices and procedures and, except pursuant to Section 13.3 hereof, Agent will have no further obligation with respect thereto. In the administration of Letters of Credit, Agent shall not be liable for any action taken or omitted on the advice of counsel, accountants, appraisers or other experts selected by Agent with due care and Agent may rely upon any notice, communication, certificate or other statement from Company, any Account Party, beneficiaries of Letters of Credit, or any other Person which Agent believes to be authentic. Agent will, upon request, furnish the Banks with copies of Letter of Credit Agreements, Letters of Credit and documents related thereto. 58 70 (c) In connection with the issuance and administration of Letters of Credit and the assignments hereunder, Agent makes no representation and shall have no responsibility with respect to (i) the obligations of Company or any Account Party or, the validity, sufficiency or enforceability of any document or instrument given in connection therewith, or the taking of any action with respect to same, (ii) the financial condition of, any representations made by, or any act or omission of Company, the applicable Account Party or any other Person, or (iii) any failure or delay in exercising any rights or powers possessed by Agent in its capacity as issuer of Letters of Credit in the absence of its gross negligence or willful misconduct. Each of the Banks expressly acknowledge that they have made and will continue to make their own evaluations of Company's and the Account Parties' creditworthiness without reliance on any representation of Agent or Agent's officers, agents and employees. (d) If at any time Agent shall recover any part of any unreimbursed amount for any draw or other demand for payment under a Letter of Credit, or any interest thereon, Agent shall receive same for the pro rata benefit of the Banks in accordance with their respective Percentage interests therein and shall promptly deliver to each Bank its share thereof, less such Bank's pro rata share of the costs of such recovery, including court costs and attorney's fees. If at any time any Bank shall receive from any source whatsoever any payment on any such unreimbursed amount or interest thereon in excess of such Bank's Percentage share of such payment, such Bank will promptly pay over such excess to Agent, for redistribution in accordance with this Agreement. 3.9 Indemnification. (a) The Company and each Account Party hereby indemnifies and agrees to hold harmless the Banks and the Agent, and their respective officers, directors, employees and agents, from and against any and all claims, damages, losses, liabilities, costs or expenses of any kind or nature whatsoever which the Banks or the Agent or any such person may incur or which may be claimed against any of them by reason of or in connection with any Letter of Credit, and neither any Bank nor the Agent or any of their respective officers, directors, employees or agents shall be liable or responsible for: (i) the use which may be made of any Letter of Credit or for any acts or omissions of any beneficiary in connection therewith; (ii) the validity, sufficiency or genuineness of documents or of any endorsement thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (iii) payment by the Agent to the beneficiary under any Letter of Credit against presentation of documents which do not comply with the terms of any Letter of Credit (unless such payment resulted from the gross negligence or willful misconduct of the Agent), including failure of any documents to bear any reference or adequate reference to such Letter of Credit; (iv) any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit; or (v) any other event or circumstance whatsoever arising 59 71 in connection with any Letter of Credit; provided, however, that Company and Account Parties shall not be required to indemnify the Banks and the Agent and such other persons, and the Agent shall be liable to the Company and the Account Parties to the extent, but only to the extent, of any direct, as opposed to consequential or incidental, damages suffered by Company and the Account Parties which were caused by the Agent's gross negligence, willful misconduct or wrongful dishonor of any Letter of Credit after the presentation to it by the beneficiary thereunder of a draft or other demand for payment and other documentation strictly complying with the terms and conditions of such Letter of Credit. (b) It is understood that in making any payment under a Letter of Credit the Agent will rely on documents presented to it under such Letter of Credit as to any and all matters set forth therein without further investigation and regardless of any notice or information to the contrary. It is further acknowledged and agreed that Company or an Account Party may have rights against the beneficiary or others in connection with any Letter of Credit with respect to which Agent or the Banks are alleged to be liable and it shall be a condition of the assertion of any liability of Agent or the Banks under this Section that Company or applicable Account Party shall contemporaneously pursue all remedies in respect of the alleged loss against such beneficiary and any other parties obligated or liable in connection with such Letter of Credit and any related transactions. 3.10 Right of Reimbursement. Each Bank agrees to reimburse the Agent on demand, pro rata in accordance with its respective Percentage, for (i) the reasonable out-of-pocket costs and expenses of the Agent to be reimbursed by Company or any Account Party pursuant to any Letter of Credit Agreement or any Letter of Credit, to the extent not reimbursed by Company or Account Party and (ii) any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, fees, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against Agent (in its capacity as issuer of any Letter of Credit) in any way relating to or arising out of this Agreement, the Prior Credit Agreement, any Letter of Credit, any documentation or any transaction relating thereto, or any Letter of Credit Agreement, except to the extent that such liabilities, losses, costs or expenses were incurred by Agent solely as a result of Agent's gross negligence or willful misconduct or by the Agent's wrongful dishonor of any Letter of Credit after the presentation to it by the beneficiary thereunder of a draft or other demand for payment and other documentation strictly complying with the terms and conditions of such Letter of Credit. 3.11 Existing Letters of Credit. Each Existing Letter of Credit shall be deemed for all purposes of this Agreement to be a Letter of Credit (except that Letter of Credit Fees paid under the Prior Credit Agreement shall be redistributed by Agent to the Banks pro rata (based on the applicable Percentages) from the effective date of this Agreement), and each application submitted in 60 72 connection with each Existing Letter of Credit shall be deemed for all purposes of this Agreement to be a Letter of Credit Application. On the date of execution of this Agreement, the Agent shall be deemed automatically to have sold and transferred, and each other Bank shall be deemed automatically, irrevocably, and unconditionally to have purchased and received from the Agent, without recourse or warranty, an undivided interest and risk participation, to the extent of such other Bank's Percentage, in each Existing Letter of Credit and the applicable Letter of Credit Obligations with respect thereto and any security therefor or guaranty pertaining thereto. 4. TERM LOANS 4.1 Commitment. Subject to the terms and conditions of this Agreement, each Bank, severally and for itself alone, agrees from and after the date hereof through the expiration of the Term Loan Funding Period to advance to the Company or to any Permitted Borrower, in a single Advance for each such loan in Dollars or any Alternative Currency (determined on the basis set forth in Section 4.9A hereof), sums not to exceed in the aggregate for each such Bank an amount equal to such Bank's respective Percentage of each Term Loan funded pursuant to Section 4.9A hereof; provided, however, that the aggregate Term Loans funded under this Agreement, determined as set forth in Section 4.9A hereof, shall not exceed the Term Loan Aggregate Commitment. Upon the expiration of the Term Loan Funding Period, the Banks' respective commitments to make additional Term Loans hereunder shall expire and be of no further force and effect. Each of the Term Loans funded under this Section 4.1 shall be evidenced by Term Notes to be executed and delivered by Company or the applicable Permitted Borrower to each of the Banks, substantially in the form attached hereto as Exhibit "H-1" or "H-2", as applicable, with appropriate insertions acceptable to the Agent and the Banks in form and substance, and in the face amount of each Bank's Percentage of the applicable Term Loan to be funded by the Banks hereunder. 4.2 Repayment of Principal. Until the applicable Term Loan Maturity Date (as selected by the Company or the applicable Permitted Borrower hereunder), when the entire unpaid principal balance of the applicable Term Loan and all accrued interest and other sums outstanding thereon shall be paid in full in Dollars or the applicable Alternative Currency (subject to the terms hereof), the principal Indebtedness evidenced by each Term Loan shall be repaid (irrespective of and in addition to any principal payments based on Excess Cash Flow required hereunder or any optional prepayments hereunder), in Dollars or the Applicable Alternative Currency, as the case may be, in accordance with the Term Loan Permitted Amortization Schedule selected by the Company or the applicable Permitted Borrower for such Term Loan under Section 4.9A hereof. The applicable Term Loan Maturity Date and the Term Loan Permitted Amortization Schedule selected for such Term Loan under Section 4.9A hereof shall be set forth in the Term Notes executed for such Term Loan. There shall be no readvance or reborrowing of 61 73 any principal reductions of the Term Loans, whether pursuant to this Section 4.2, or consisting of optional prepayments or payments based on Excess Cash Flow or otherwise. 4.3 Excess Cash Flow Recapture. (a) Subject to the terms and conditions hereof, the Term Loans shall be subject to additional required principal reductions in the amount of fifty percent (50%) of Excess Cash Flow, to be applied pro rata to the Term Notes issued by the Company and the Permitted Borrowers (based on the principal amounts outstanding under such Notes at the time any such payments are made hereunder, using the Current Dollar Equivalent of the outstanding principal balances of any Term Loans denominated in any Alternative Currency), payable in Dollars or the applicable Alternative Currency in respect of each calendar year (or portion thereof) beginning with calendar year 1997 and continuing so long as this Agreement remains in effect, on the earlier of (i) the respective dates of Company's delivery of financial statements for such calendar years under Section 8.3(b) hereof or (ii) May 31st of the succeeding year, as applicable, commencing on May 31, 1998 and on each May 31st thereafter until the Term Loans have been irrevocably paid and discharged in full. (b) If the Applicable Interest Rate for any Term Loan then in effect is the Fixed Rate, principal reductions based on Excess Cash Flow otherwise required under this Section 4.3 shall be applied (in the manner set forth above) first, against those Term Loans, if any, for which the Fixed Rate has not been selected. To the extent Excess Cash Flow remains after such principal reductions, such Excess Cash Flow shall be applied against the remaining Term Loans carried at the Fixed Rate, in the manner set forth above and subject to the payment of a Yield Maintenance Payment in respect of each such Term Loan so prepaid, in the amount required under Section 4.12(b); provided, however, that Company may elect, so long as no Default or Event of Default has occurred and is continuing hereunder, to deposit such Excess Cash Flow into a cash collateral account to be held by Agent for and on behalf of the Banks (which may be an interest bearing account, with interest earnings to be available to Company so long as no Default or Event of Default has occurred and is continuing) on such terms and conditions as acceptable to Agent and the Majority Banks, in their reasonable discretion. Subject to the terms and conditions of the cash collateral account so maintained, such sums on deposit therein shall be held in the cash collateral account until no Term Loans are outstanding under this Agreement. Principal reductions based on Excess Cash Flow shall be in addition to scheduled principal payments under Section 3.2 hereof, as the case may be, or any optional prepayments made prior thereto, and shall be applied against principal installments due hereunder in the inverse order of their maturity. 4.4 Accrual of Interest. Each Advance of Indebtedness evidenced by the Term Notes from time to time outstanding hereunder shall, from and after the date of such Advance, bear interest at 62 74 its Applicable Interest Rate. The amount and date of each Advance, its Applicable Interest Rate, its Interest Period, and the amount and date of any repayment shall be noted on Agent's records, which records will be rebuttably presumptive evidence thereof, absent demonstrable error; provided, however, that any failure by the Agent to record any such information shall not relieve Company or the applicable Permitted Borrower of its obligation to repay the outstanding principal amount of such Advance, all interest accrued thereon and any amount payable with respect thereto in accordance with the terms of this Agreement and the other Loan Documents. 4.5 Prime-based Interest Payments. Interest on the unpaid balance of each Term Loan which is funded or carried as a Prime-based Advance from time to time shall accrue from the date of such Advance to the Term Loan Maturity Date applicable to such Term Loan (or until refunded, converted or paid), at a per annum interest rate equal to the Prime-based Rate, and shall be payable in immediately available funds quarterly commencing on the first day of the calendar quarter immediately following the calendar quarter in which the Advance under the applicable Term Loan is made, and continuing on the first day of each calendar quarter thereafter until the applicable Term Loan Maturity Date. Interest accruing at the Prime-based Rate shall be computed on the basis of a 360-day year and assessed for the actual number of days elapsed, and in such computation effect shall be given to any change in the interest rate resulting from a change in the Prime-based Rate on the date of such change in the Prime-based Rate. 4.6 Eurocurrency-based Interest Payments. Interest on the unpaid balance of each Term Loan which is funded or carried as a 1-month, 2-month and 3-month Eurocurrency-based Advance from time to time shall accrue at its Applicable Interest Rate and shall be payable in immediately available funds on the last day of the Interest Period applicable thereto. Interest on the unpaid balance of each Term Loan which is funded or carried as a 6-month Eurocurrency-based Advance outstanding from time to time shall be payable in immediately available funds at intervals of 3 months after the first day of the applicable Interest Period, and on the last day of the applicable Interest Period. Interest accruing at the Eurocurrency-based Rate shall be computed on the basis of a 360-day year (except that any such Advances made in Sterling or any other Alternative Currency with respect to which applicable law or market custom so requires shall be calculated based on a 365 day year, or as otherwise required under applicable law or market custom) and assessed for the actual number of days elapsed from the first day of the Interest Period applicable thereto to, but not including, the last day thereof. Interest due on a Eurocurrency-based Advance made in an Alternative Currency shall be paid in such Alternative Currency. 4.7 Interest Payments on Conversions. Notwithstanding anything to the contrary in the preceding Sections, all accrued and unpaid interest on any Advance of the Term Loan converted pursuant 63 75 to Section 4.9B hereof shall be due and payable in full on the date such Advance of the Term Loan is converted. 4.8 Interest on Default. Subject to Section 4.11(f) hereof with respect to any Fixed Rate Advances, in the event and so long as any Event of Default shall exist under any Term Note or under this Agreement, interest shall be payable daily on all Advances evidenced by the Term Notes from time to time outstanding at a per annum rate equal to the Applicable Interest Rate, plus two percent (2%) for the remainder of the then existing Interest Period, if any, and at all other such times, with respect to any Advances carried in Dollars from time to time outstanding, at a per annum rate equal to the Prime-based Rate plus two percent (2%), and, with respect to any Advances denominated in any Alternative Currency from time to time outstanding under the Term Notes, (i) at a per annum rate calculated by the Agent, whose determination shall be presumed correct (absent demonstrable error), on a daily basis, equal to two percent (2%) above the interest rate per annum at which one (1) day deposits (or, if such amount due remains unpaid for more than three (3) Business Days, then for such other period of time as the Agent may elect which shall in no event be longer than six (6) months) in the relevant eurocurrency in the amount of such overdue payment due to the Agent are offered by the Eurocurrency Lending Office for the applicable period determined as provided above, or (ii) if at any such time such deposits are not offered by the Eurocurrency Lending Office, then at a rate per annum equal to two percent (2%) above the rate determined by the Agent to be its aggregate marginal cost (including the cost of maintaining any required reserves or deposit insurance) of carrying the amount of such Eurocurrency Advance. 4.9A Initial Requests for Funding Term Loans. Company or the applicable Permitted Borrower may request the funding of a Term Loan only upon delivery to the Agent of a Term Loan Initial Request executed by an authorized officer of Company or the applicable Permitted Borrower not less than ten (10) nor greater than thirty (30) Business Days prior to the proposed date of funding, subject to the following conditions: (a) Each such Term Loan Initial Request shall set forth the information required on the form annexed hereto as Exhibit "I", including without limitation: (i) whether the borrower will be the Company or an applicable Permitted Borrower (specifying such Permitted Borrower); (ii) the proposed date that the applicable Term Loan is to be funded which must be a Business Day; (iii) whether such Term Loan is to be funded in Dollars or in an Alternative Currency, and, if in an Alternative Currency, the applicable Alternative Currency; 64 76 (iv) the principal amount of the Term Loan requested to be funded, (A) which amount (except in the case of the Japanese Term Loan) shall not be less than Fifteen Million Dollars ($15,000,000), or the equivalent thereof in an Alternative Currency; and (v) subject to the terms and conditions hereof, the proposed Term Loan Maturity Date and the Term Loan Permitted Amortization Schedule for such Term Loan; (b) The Dollar Amount or the Current Dollar Equivalent, as the case may be, of the principal amount of the Term Loan requested to be funded, determined as of the date of funding such loan, shall not exceed the lesser of (i) the then remaining Term Loan Aggregate Commitment, reduced by the Dollar Amount or the Current Dollar Equivalent, as the case may be, of each Term Loan funded prior thereto (determined with respect to each Term Loan on the date of funding thereof) and (ii) the Revolving Credit Maximum Amount immediately preceding the funding thereof; (c) Whenever the borrower under such Term Loan is a Permitted Borrower, the Dollar Amount or the Current Dollar Equivalent (as of the date of funding) of such Term Loan and the aggregate principal amount of any other Term Loans outstanding to such Permitted Borrower, plus the aggregate principal amount of the Advances of the Revolving Credit then outstanding to such Permitted Borrower hereunder (using the current Dollar Equivalent of any such Advances outstanding in any Alternative Currency), plus the aggregate principal amount of all Swing Line Advances then outstanding to such Permitted Borrower hereunder (using the Current Dollar Equivalent of any such Advances outstanding in any Alternative Currency), plus the aggregate undrawn portion of any Letters of Credit which shall then be outstanding for the account of such Permitted Borrower (based on the Dollar Amount of the undrawn portion of any Letters of Credit denominated in Dollars and the Current Dollar Equivalent of the undrawn portion of any Letters of Credit denominated in any Alternative Currency) shall not exceed (in each case, as of the date of funding of such Term Loan) the Sublimit applicable to such Permitted Borrower; and (d) Each such Term Loan Initial Request shall be accompanied by the Company's concurrent request for a reduction in the Revolving Credit Maximum Amount in the Dollar Amount or the Current Dollar Equivalent, as the case may be, of the amount of the Term Loan so requested, to be effective, subject to the terms hereof, concurrently with the funding of such Term Loan, and satisfying in every respect the terms and conditions of Section 2.15 hereof (with respect to such reduction) as of the funding of such Term Loan, including without limitation making those reductions of Indebtedness required to be made under said Sections 2.14 and 2.15 hereof; and, if on the date of submission of the Applicable Term Loan Initial Request, the principal amount of all Advances of the Revolving Credit then outstanding hereunder, whether to Company or the Permitted Borrowers (using the Current Dollar Equivalent of any 65 77 such Advances outstanding in any Alternative Currency), plus the aggregate principal amount of all Swing Line Advances hereunder (using the Current Dollar Equivalent of any such Advances outstanding in any Alternative Currency), plus the aggregate undrawn portion of all Letters of Credit which shall then be outstanding (based on the Dollar Amount of the undrawn portion of any Letters of Credit denominated in Dollars and the Current Dollar Equivalent of the undrawn portion or any Letters of Credit denominated in any Alternative Currency), plus the principal amount of the Term Loan requested to be made (based on the Current Dollar Equivalent thereof if denominated in an Alternative Currency) shall exceed the Revolving Credit Aggregate Commitment then in effect, the Company shall pay to Agent for distribution to the Banks based on their respective Percentages an activation fee in the amount of the Applicable Fee Percentage times the amount of such excess; (e) Within three (3) Business Days of receipt from the Company or the applicable Permitted Borrower of a Term Loan Initial Request, Agent shall furnish, or cause to be furnished, to the Company or the applicable Permitted Borrower the proposed forms of Term Notes which have been completed to evidence the applicable Term Loan, incorporating the information supplied by the Company in its Term Loan Initial Request with respect to such Term Loan, including without limitation, the amount and currency of such Term Loan, the applicable Term Loan Maturity Date, and the Term Loan Permitted Amortization Schedule selected by the Company or the applicable Permitted Borrower, provided that neither the Agent nor any of the Banks shall suffer any liability whatsoever in the event such Term Notes are not delivered for execution hereunder; and (f) Not later than the close of business five (5) days prior to the proposed date of funding of the Term Loan covered by the Initial Request for Term Loan Funding, Company or the applicable Permitted Borrower shall deliver to the Agent (which shall distribute such documents to the Banks concurrently with the funding of such Term Loan) (i) the aforesaid Term Notes, executed and delivered in compliance with this Agreement (dated as of the proposed date of funding of such Term Loan) accompanied by such other Loan Documents (including without limitation Collateral Documents), corporate authority documentation, opinions of counsel and the like as required hereunder, upon which delivery the Term Loan Initial Request shall no longer be revocable by the Company or the applicable Permitted Borrower and (ii) a Term Loan Rate Request for such Term Loan submitted in accordance with Section 4.9B hereof. 4.9B Term Loan Rate Requests; Refundings and Conversions of Advances. Company may, until the exercise of the Fixed Rate Option, refund any Advance of a Term Loan as an Advance denominated in the same currency with a like Interest Period (or if denominated in Dollars, at the Prime-based Rate) or convert any Advance of a Term Loan to an Advance denominated in the same currency with a different Interest Period, but only after delivery to Agent of a Term Loan Rate Request executed by an authorized officer of Company 66 78 or the applicable Permitted Borrower (with the countersignature of the Company) and subject to the terms hereof and to the following: (a) each such Term Loan Rate Request shall set forth the information required on the Term Loan Rate Request form annexed hereto as Exhibit "J" with respect to such Term Loan, including without limitation: (i) the Permitted Currency in which the applicable Term Loan is denominated; (ii) the proposed date of the refunding or conversion of the Advance, which must be a Business Day; (iii) whether the Advance is a refunding or conversion of an outstanding Advance, provided that refundings and conversions of Advances of any Term Loan may be made only in the Permitted Currency in which the applicable Term Loan was denominated on the initial funding thereof; and (iv) whether such Advance is to be a Prime-based Advance (if the applicable Term Loan is denominated in Dollars) or a Eurocurrency-based Advance, and, except in the case of a Prime-based Advance, the first Interest Period applicable thereto. (b) each such Term Loan Rate Request shall be delivered to Agent by 12 Noon (Detroit time) four (4) Business Days prior to the proposed date of Advance, except in the case of a Prime-based Advance, for which the Request for Advance must be delivered by 11 a.m. on the proposed date of Advance; (c) the principal amount of such Advance of a Term Loan, plus the amount of any other advance of such Term Loan to be then combined therewith having the same Applicable Interest Rate and Interest Period, if any, shall be (i) in the case of a Prime-based Advance at least Three Million Dollars ($3,000,000), or the remaining principal balance outstanding under such Term Loan, whichever is less and (ii) in the case of a Eurocurrency-based Advance at least Five Million Dollars ($5,000,000) or the remaining principal balance outstanding under such Term Loan, whichever is less (or the equivalent thereof in the applicable Alternative Currency), or in each case a larger integral multiple of One Million Dollars ($1,000,000); (d) no Advance shall have an Interest Period ending after the Term Loan Maturity Date applicable to such Term Loan, and, notwithstanding any provision hereof to the contrary, Company or the applicable Permitted Borrower shall 67 79 be required to select Interest Periods for sufficient portions of a Term Loan (or, to the extent denominated in Dollars, maintain sufficient portions thereof as a Prime-based Advance) such that the Company or the applicable Permitted Borrower may make its required principal payments hereunder on a timely basis and otherwise in accordance with Sections 4.2 and 4.3, above; (e) upon completion of the Advance there shall be no more than two (2) Interest Periods and two (2) Applicable Interest Rates (including the Prime-based Rate) with respect to each Term Loan; and (f) a Term Loan Rate Request, once delivered to Agent, shall not be revocable by Company or the applicable Permitted Borrower; Each selection of an Interest Period, and the amount and date of any repayment shall be noted on Agent's records, which records will be rebuttably presumptive evidence thereof, absent demonstrable error. 4.9C Term Loan Certifications. Each Term Loan Request shall constitute and include a certification by the Company or the applicable Permitted Borrower as of the date thereof that: (a) both before and after the Advance so requested, the obligations of the Company and its Subsidiaries set forth in this Agreement and the Loan Documents to which such Persons are parties are valid, binding and enforceable obligations of the Company, its Subsidiaries and the Permitted Borrowers, as the case may be; (b) all conditions to Advances of the applicable Term Loan or Term Loans have been satisfied, and shall remain satisfied to the date of Advance (both before and after giving effect to such Advance); (c) there is no Default or Event of Default in existence, and none will exist upon the making of the applicable Advance (both before and after giving effect to such Advance); (d) the representations and warranties contained in this Agreement and the Loan Documents are true and correct in all material respect and shall be true and correct in all material respects as of the making of the applicable Advance (both before and after giving effect to such Advance); and (e) the execution of the applicable Term Loan Request will not violate the material terms and conditions of any material contract, agreement or other borrowing of Company or any of its Subsidiaries; 68 80 Each Term Loan Request shall be accompanied by such documents, instruments and other materials required hereunder or otherwise necessary to evidence satisfaction of all conditions to the applicable Advance or Advances of a specified Term Loan or Term Loans. 4.9D Failure to Refund or Convert. In the event the Company shall fail with respect to any Advance of a Term Loan (other than a Prime-based Advance) to timely exercise its option to refund or convert such Advance in accordance with this Section 4.9D (and such Advance has not been paid in full on the last day of the Interest Period applicable thereto according to the terms hereof) the principal amount of such Advance which has not been prepaid shall: (a) in the case of any Advance denominated in Dollars, be automatically converted to a Prime-based Advance; and (b) in the case of any Advance denominated in an Alternative Currency, the next Interest Period shall be fixed by the Agent for an Interest Period of one month, or, if applicable, the applicable Term Loan Maturity Date, whichever is the shorter period, provided that Company or the applicable Permitted Borrower will indemnify Agent and each of the Banks against any loss or expense incurred by them (or any of them) pursuant to Section 12.8 hereof. 4.9E Limited Availability. Notwithstanding the selection of an Interest Period under Section 4.9B hereof for an Advance of a Term Loan hereunder, if prior to the last day of any Interest Period, Agent or any of the Reference Banks (after consultation with Agent) shall determine that deposits of the applicable Alternative Currency will not be available to Agent or any of such Banks in the amounts and for the term(s) necessary to carry the outstanding principal Indebtedness of the Advance subject to such Interest Period for the next applicable Interest Period, then Agent shall so notify Company or the applicable Permitted Borrower and, subject to the terms hereof, Company or the applicable Permitted Borrower shall immediately select another Interest Period to be applicable as the next Interest Period. 4.9F Unavailability. If, prior to the last day of any Interest Period in respect of an Advance of a Term Loan hereunder, Agent or any of the Reference Banks (after consultation with Agent) shall determine that by reason of circumstances affecting the foreign exchange and interbank markets, generally, or for any of the reasons set forth in Sections 12.3 or 12.4 hereof, deposits of the applicable Alternative Currency will not be available to Agent and any of such Banks as of the last day of an applicable Interest Period in the amounts necessary to carry the outstanding principal of the Advances subject to such ending Interest Period in such Alternative Currency for any Interest Period, Agent shall notify the Company or the applicable Permitted Borrower and such Advances shall then be automatically converted to and carried in Dollars, in the Current Dollar Equivalent of the Indebtedness then outstanding, 69 81 and shall bear interest at the Prime-based Rate, until the first day of the next Interest Period, if any, selected pursuant to Section 4.9G hereof. 4.9G Reconversion to Applicable Alternative Currency and Eurocurrency-based Rate on Re-availability. In the event that, after a conversion of Indebtedness to Dollars pursuant to Section 4.9F hereof, Agent determines that deposits of the applicable Alternative Currency are again available to Agent and the Banks in the amounts necessary to carry the principal Indebtedness under the applicable Term Loan in such Alternative Currency for any Interest Period, Agent shall notify Company of the Interest Period(s) for which such deposits in such Alternative Currency are available and Company or the applicable Permitted Borrower shall immediately select the next Interest Period from among such available Interest Periods, in accordance with Section 4.9B hereof, and the Indebtedness previously converted from such Alternative Currency to Dollars under Section 4.9F hereof shall be reconverted to such Alternative Currency (in the amount of the Current Dollar Equivalent of such Indebtedness), all in accordance with and subject to Section 4.9H hereof, below. 4.9H Repayment on Reconversion. In the event that the currency in which any Term Loan is being carried is required to be changed from Dollars to an applicable Alternative Currency under Section 4.9G hereof, as aforesaid, and if the Current Dollar Equivalent of the principal amount of the Indebtedness under the applicable Term Loan outstanding upon such reconversion shall exceed the applicable Alternative Currency Principal Limit determined for such Term Loan, then concurrently with such reconversion, Company shall pay to Agent in immediately available funds, for the ratable benefit of the Banks, an amount in such Alternative Currency sufficient to reduce the then outstanding principal amount of such Term Loan to an amount not greater than the amount of applicable Alternative Currency Principal Limit. 4.9I Interest Payments on Conversions and Reconversions. Notwithstanding anything to the contrary in the preceding Sections, all accrued and unpaid interest on any Indebtedness converted or reconverted pursuant to the foregoing Sections or otherwise, shall be due and payable in full on the date of such conversion or reconversion. 4.10 Disbursement of Advances. (a) Upon receiving a Term Loan Request from Company or a Permitted Borrower in compliance with Sections 4.9A and/or 4.9B hereof, together with such other documents and instruments required thereunder, Agent shall promptly notify each Bank by wire, telex or by telephone (confirmed by wire, telecopy or telex) of the amount of such Advance to be made and the date such Advance is to be made by said Bank pursuant to its Percentage of the Advance. Unless such Bank's commitment to make Advances hereunder shall have been 70 82 suspended or terminated in accordance with this Agreement, each Bank shall make available to Agent the amount of its Percentage of the Advance in immediately available funds in the currency of such Advance, as follows: (i) for Prime-based Advances, at the office of Agent located at One Detroit Center, 500 Woodward Avenue, Detroit, Michigan 48226, not later than 2:00 p.m. (Detroit time) on the date of such Advance; and (ii) for Eurocurrency-based Advances or other Advances in any Alternative Currency, at the Agent's Correspondent for the account of the Eurocurrency Lending Office of the Agent, not later than 12 Noon (the time of the Agent's Correspondent) on the date of such Advance. (b) Subject to receipt of the Term Loan Requests, as applicable, and such other documents and instruments referred to in subparagraph 4.10(a) hereof (without exceptions noted in the compliance certifications therein), Agent shall make available to Company or the applicable Permitted Borrower, as the case may be, the aggregate of the amounts so received by it from the Banks in like funds and currencies: (i) for Prime-based Advances, not later than 4:00 p.m. (Detroit time) on the date of such Advance by deposit to an account of the Company or the applicable Permitted Borrower maintained with Agent, or to such other account or third party as Company or the applicable Permitted Borrower may reasonably direct; (ii) for Eurocurrency-based Advances or other Advances denominated in any Alternative Currency, not later than 4:00 p.m. (the time of the Agent's Correspondent) on the date of such Advance, by deposit to an account of the Company or the applicable Permitted Borrower, as the case may be, maintained with Agent's Correspondent, or to such other account or third party as Company or the applicable Permitted Borrower, as the case may be, may reasonably direct. (c) Agent shall deliver the documents and papers received by it for the account of each Bank to such Bank or upon its order. Unless Agent shall have been notified by any Bank prior to the date of any proposed Advance that such Bank does not intend to make available to Agent such Bank's Percentage of the Advance, Agent may assume that such Bank has 71 83 made such amount available to Agent on such date, as aforesaid and may, in reliance upon such assumption, make available to Company or the applicable Permitted Borrower a corresponding amount. If such amount is not in fact made available to Agent by such Bank, as aforesaid, Agent shall be entitled to recover such amount on demand from such Bank. If such Bank does not pay such amount forthwith upon Agent's demand therefor, the Agent shall promptly notify Company and Company or the applicable Permitted Borrower shall pay such amount to Agent. Agent shall also be entitled to recover from such Bank or Company (and the applicable Permitted Borrower), as the case may be, interest on such amount in respect of each day from the date such amount was made available by Agent to Company or the applicable Permitted Borrower to the date such amount is recovered by Agent, at a rate per annum equal to: (i) in the case of such Bank, with respect to Prime-based Advances, the Federal Funds Effective Rate, and with respect to Eurocurrency-based Advances or other Advances in any alternative currency, Agent's aggregate marginal cost (including the cost of maintaining any required reserves or deposit insurance and of any fees, penalties, overdraft charges or other costs or expenses incurred by Agent as a result of such failure to deliver funds hereunder) of carrying such amount; and (ii) in the case of Company, the rate of interest then applicable to such Term Loan. The obligation of any Bank to make any Advance hereunder shall not be affected by the failure of any other Bank to make any Advance hereunder, and no Bank shall have any liability to the Company or its Subsidiaries, the Agent, any other Bank, or any other party for another Bank's failure to make any loan or Advance hereunder. 4.11 Fixed Rate Election. (a) The Fixed Rate Election shall set forth the information required on the Fixed Rate Election form attached hereto as Exhibit "K" and shall constitute Company's or the applicable Permitted Borrower's certification that the conditions required under subparagraph (c), below, have been satisfied and that Company or the applicable Permitted Borrower is entitled, with respect to a specified Term Loan, to elect the Fixed Rate hereunder; (b) The Fixed Rate Election shall be delivered to Agent by 11:00 a.m. (Detroit time) not less than fourteen (14) nor greater than twenty (20) Business Days prior to the proposed effective date of such election, and once delivered to Agent by the 72 84 Company or the applicable Permitted Borrower, shall not be revocable by Company or the applicable Permitted Borrower; (c) In order for the Fixed Rate to become effective, the following conditions shall be satisfied by the Company or the applicable Permitted Borrower (unless waived by the Banks) on or before the proposed effective date of the Fixed Rate Election, and shall remain satisfied on the actual effective date thereof: (i) The Fixed Rate Election shall be made only with respect to the entire outstanding principal balance of a specified Term Loan, and not with respect to any particular Advance or portion of such Term Loan; (ii) Except with respect to a Term Loan carried in its entirety at the Prime-based Rate, the proposed effective date of the Fixed Rate Election (and the actual effective date thereof) shall occur only on the last day of a single Interest Period in which the entire principal balance of the applicable Term Loan (excluding any portion thereof carried at the Prime-based Rate) is then being carried; (iii) All accrued interest outstanding under the specified Term Loan as of the effective date of the Fixed Rate Election has been paid and discharged in full; (iv) Both before and after the effective date of such election, the obligations of Company and the Permitted Borrowers set forth in this Agreement are valid, binding and enforceable obligations of such parties and the representations and warranties contained in this Agreement and the other Loan Documents are true and correct in all material respects; and (v) There is no Default or Event of Default in existence, and none will exist upon the effective date of such election (both before and after giving effect to such Advance). (d) Subject to the foregoing, the Fixed Rate Election shall become effective (and the Fixed Rate shall become the Applicable Interest Rate for the specified Term Loan) on the proposed effective date of the Fixed Rate Election, as designated by the Company or the applicable Permitted Borrower therein, 73 85 whereupon Agent will notify Company and the Banks promptly of the Fixed Rate thereby established hereunder. (e) Once so elected, the Fixed Rate shall, subject to the terms hereof, remain the Applicable Interest Rate for the specified Term Loan so long as such Term Loan is outstanding hereunder. (f) Interest on each Term Loan accruing at the Fixed Rate shall be payable in immediately available funds quarterly commencing on the last day of the calendar quarter in which the Fixed Rate Election shall have been made by the Company or a Permitted Borrower hereunder, and continuing on the last day of each calendar quarter thereafter until the applicable Term Loan Maturity Date for such Term Loan, shall be computed on the basis of a 360-day year and assessed for the actual number of days elapsed. In the event and so long as any Event of Default shall have occurred and be continuing, interest shall be payable daily on each Term Loan from time to time outstanding for which the Applicable Interest Rate is the Fixed Rate at a per annum rate equal to the Fixed Rate, plus three percent (3%). 4.12 Prepayment. (a) Company or the applicable Permitted Borrower may prepay all or part of the outstanding balance of any Prime-based Advance(s) of a Term Loan at any time (subject to not less than one (1) Business Day's notice to Agent), provided that the amount of any partial prepayment by such party shall be at least One Million Dollars ($1,000,000) and the aggregate balance of Prime- based Advance(s) remaining outstanding on such Term Loan shall be at least Three Million Dollars ($3,000,000). Company may prepay all or part of any Eurocurrency-based Advance (subject to not less than three (3) Business Days' notice to Agent) only on the last day of the Interest Period applicable thereto, provided that the amount of any such partial prepayment by such party shall be at least One Million Dollars ($1,000,000) (or the equivalent thereof in the applicable Alternative Currency), and the unpaid portion of such Advance which is refunded or converted by such party under Section 4.9B hereof shall be at least Five Million Dollars ($5,000,000), or the equivalent thereof in any Alternative Currency. Any prepayment made in accordance with this Section shall be applied against principal installments due hereunder in the inverse order of their maturities, and shall be without premium or penalty (subject to Section 12 hereof), but there shall be no readvance or reborrowing of any principal reductions of the applicable Term Loan (whether or not such principal reductions constitute prepayments). (b) Once the Fixed Rate becomes the applicable Interest Rate for a Term Loan hereunder, at its option and upon not less than five (5) business days prior written notice to Agent, Company or the applicable Permitted Borrower may prepay the principal balance outstanding under such Term Loan in whole or in part, provided that the amount of any partial prepayment by such party shall be at least Five Million Dollars ($5,000,000) or the equivalent thereof in the applicable Alternative Currency and the aggregate principal 74 86 balance remaining outstanding under such Term Loan shall be at least Five Million Dollars ($5,000,000) or the equivalent thereof in any Alternative Currency, only upon payment to the Agent, for distribution to the Banks pro rata, of a Yield Maintenance Payment in an amount calculated by Agent to make the Banks whole (to the extent of the interest which would have been earned by the Banks but for the occurrence of such prepayment) on the basis of the discounted net present values of the interest payments that would otherwise be payable on the principal amount of the Term Loan being prepaid, after taking into account the amount of interest which would be payable on each interest payment due date if the principal amount being repaid were reinvested at the Current Market Rate (defined below). As used herein, "Current Market Rate" shall mean a per annum interest rate equal to one-half percentage point (.5%) above the rate reasonably determined by Agent (based on quotations from established dealers) to be in effect two (2) days prior to the repayment date in the secondary market for United States Treasury Securities of a comparable amount and with a comparable term to maturity as the principal amount being prepaid hereunder. For purposes of computation, the discount rate for each computation will be the Current Market Rate for the relevant principal installment. Upon any involuntary prepayment of any Term Loan for which the applicable Interest Rate is the Fixed Rate, whether by acceleration, or otherwise, the Company or the applicable Permitted Borrower shall pay to Agent, for distribution to the Banks pro rata, a Yield Maintenance Payment in an amount equal to the Yield Maintenance Payment which would have been due and payable hereunder if the Company or the applicable Permitted Borrower had voluntarily elected to prepay such Term Loan (in an amount equal to such involuntary prepayment) on such date of involuntary prepayment. Any partial prepayments hereunder shall be applied to payments due under the Term Loan in the inverse order of their maturities, and there shall be no readvance or reborrowing of any such principal reductions (whether or not such principal reductions constitute prepayments). 4.13 Purpose. Term Loans shall be available, subject to the terms hereof, to fund working capital needs or other general corporate purposes of the Company and the Permitted Borrowers or to renew and replace Advances of the Revolving Credit or Swing Line Advances refinanced thereby. 5. MARGIN ADJUSTMENTS; HLT DETERMINATION; SPECIAL LIMITATION 5.1 Margin Adjustments. Adjustments to the Applicable Margin, based on Schedule 5.1, shall be implemented as follows: (i) Such adjustments to the Applicable Margin shall be given prospective effect only, effective (A) as to all Prime-based Advances outstanding hereunder, immediately upon required 75 87 date of delivery of the financial statements required to be delivered under Section 8.3(b) and 8.3(c) hereof establishing applicability of the appropriate adjustments, if any, and (B) as to each Eurocurrency-based Advance outstanding hereunder, effective upon the expiration of the applicable Interest Period(s), if any, in effect on the required date of delivery of the latest of such financial statements required to be delivered hereunder during such Interest Period(s), as applicable, in each case with no retroactivity or claw-back. (ii) With respect to Eurocurrency-based Advances outstanding hereunder, an adjustment hereunder, after becoming effective, shall remain in effect only through the end of the applicable Interest Period(s) for such Eurocurrency-based Advances if any; provided, however, that upon the delivery of quarterly financial statements demonstrating any change in the Funded Debt Ratio, as aforesaid, or the occurrence of any other event which under the terms hereof causes such adjustment no longer to be applicable, then any such subsequent adjustment or no adjustment, as the case may be, shall be effective (and said pricing shall thereby be adjusted up or down, as applicable) with the commencement of each Interest Period following such change or event, all in accordance with the preceding subparagraph. 5.2 HLT Determination. In the event at any time of an HLT Determination, the Agent, the Banks and the Company shall commence negotiations in good faith to agree upon whether and, if so, the extent to which fees, interest rates and/or margins hereunder should be increased so as to reflect such HLT Determination and to compensate the Banks and Agent for additional costs, expenses and/or fees which result from or are associated with any such HLT Determination, including without limitation any costs resulting from any requirement that additional capital be allocated to the Indebtedness, or any portion thereof. If Company and the Majority Banks agree that fees, interest rates and/or margins should be increased, and agree on the amount of such increase or increases, this Agreement may be amended to give effect to such increase or increases as provided in Section 14.11 hereof. If Company and Majority Banks fail to agree on whether and, if so, the extent to which fees, interest rates and/or margins hereunder should be increased within 60 days after notice to Company of an HLT Determination as herein provided, then (i) the Agent shall, if requested by the Majority Banks, by written notice to the Company terminate the commitments of the Banks to fund and/or maintain Advances of the Revolving Credit and Swing Line Advances, and if still outstanding, any commitment to fund Term Loans, and such commitments shall thereupon terminate, (ii) Company shall be obligated to repay all outstanding Indebtedness at the end of the Interest Period applicable thereto and (iii) the Company may, at its option, on at least ten Business Days' written notice to the Agent (which shall promptly notify the Banks thereof) prepay all Indebtedness outstanding hereunder and under the other Loan Agreements by paying the aggregate principal amount thereof, together, with all accrued interest thereon to the date of 76 88 prepayment; provided that, if the Company prepays any Fixed Rate Advance or Advances carried at the Eurocurrency-based Rate, the Quoted Rate, or any comparable rate, pursuant to this Section 5.2, Company shall compensate the Banks for any resulting funding losses as provided in Section 12.1 hereof. Subject to compliance by Company and the Permitted Borrowers with this Section 5.2, the Banks acknowledge that an HLT Determination shall not constitute a Default or an Event of Default hereunder. 5.3 Special Limitation. In the event, as a result of increases in the value of any of the Alternative Currencies against the Dollar or for any other reason, the obligation of any of the Banks to advance additional funds hereunder (taking into account any other Indebtedness required to be aggregated under 12 USCA 84, as amended, the regulations promulgated thereunder, or other, similar applicable law) is determined by such Bank to exceed its then applicable legal lending limit under 12 USCA 84, as amended, and the regulations promulgated thereunder, or other, similar applicable laws, the amount of additional funds which such Bank shall be obligated to advance hereunder shall immediately be reduced to the maximum amount which such Bank may legally advance (as determined by such Bank), the obligation of each of the remaining Banks hereunder shall be proportionately reduced, based on the applicable Percentages, and, to the extent necessary under such laws and regulations (as determined by each of the Banks, with respect to the applicability of such laws and regulations to itself), the Company shall reduce, or cause to be reduced, complying to the extent practicable with the remaining provisions hereof, the Indebtedness outstanding hereunder by an amount sufficient to comply with such maximum amounts. Upon any such reduction in the obligations of the Banks under this Section 5.3, Company shall have the right, subject to the terms and conditions of this Agreement (but subsequent to Company's compliance with its obligation to reduce the Indebtedness outstanding hereunder), to add to the Banks providing financing hereunder a bank or banks reasonably acceptable to the Agent for the purpose of restoring the shortfall created by the reduction in such obligations of the Banks. 6. CONDITIONS. The obligations of Banks to make Advances or loans pursuant to this Agreement are subject to the following conditions, provided however that Sections 6.1 through 6.14 below shall only apply to the initial Advances or loans hereunder: 6.1 Execution of Notes, this Agreement and the other Loan Documents. The Company (on or before the date hereof) and the Permitted Borrowers (prior to requesting any Advance hereunder), as applicable, shall have executed and delivered to the Agent for the account of each Bank, the Revolving Credit Notes, the Term Notes (if applicable) for each Term Loan then in effect, the Swing Line Notes (solely for the account of the Swing Line Bank) and this Agreement (including all schedules, exhibits, certificates, opinions, financial statements and other documents to be delivered pursuant hereto) and the other Loan Documents, and, as applicable, 77 89 such Revolving Credit Notes, Term Notes and Swing Line Notes so executed hereunder, this Agreement and the other Loan Documents shall be in full force and effect. 6.2 Corporate Authority. Agent shall have received, with a counterpart thereof for each Bank: (i) certified copies of resolutions of the Board of Directors of the Company and each of the Permitted Borrowers evidencing approval of this Agreement, the Notes and the other Loan Documents to which such Person is a party and authorizing the execution and delivery thereof and the borrowing of Advances hereunder; (ii) (A) certified copies of the Company's and each Guarantor's articles of incorporation and bylaws or other constitutional documents certified as true and complete as of a recent date by the appropriate official of the jurisdiction of incorporation of each such entity (or, if unavailable in such jurisdiction, by a responsible officer of such entity); and (B) a certificate of good standing from the state or other jurisdictions of the Company's incorporation, and from the applicable states of incorporation or other jurisdictions of each of the Permitted Borrowers and the Guarantors and from every state or other jurisdiction in which the Company, each of the Permitted Borrowers or any of the Significant Subsidiaries is qualified to do business, if issued by such jurisdictions, subject to the limitations (as to qualification and authorization to do business) contained in Section 7.1, hereof. 6.3 Company Guaranty. As security for all Indebtedness of the Permitted Borrowers to the Banks hereunder and under the other Loan Documents, the Company shall have furnished, executed and delivered to Agent, prior to or concurrently with the initial borrowing hereunder, in form and substance satisfactory to Agent and the Banks and supported by appropriate resolutions in certified form authorizing same, the Company Guaranty. 6.4 Domestic Guaranty. As security for all Indebtedness of the Company and the Permitted Borrowers to the Banks hereunder and under the other Loan Documents, each of the Significant Domestic Subsidiaries shall have furnished, executed and delivered to Agent, prior to or concurrently with the initial borrowing hereunder, in form and substance satisfactory to Agent and the Banks and supported by appropriate resolutions in certified form authorizing same, the Domestic Guaranty. 6.5 Foreign Permitted Borrower Guaranty. As security for all Indebtedness of those Permitted Borrowers which are Foreign Subsidiaries to the Banks hereunder and under the other Loan Documents, each of the Significant Foreign Subsidiaries shall have furnished, executed and delivered to Agent, on or before the applicable dates set forth on Schedule 8.17 hereto, in form and substance satisfactory to Agent and the Banks and supported by appropriate resolutions in certified form authorizing same, the Permitted Borrower Guaranty. 78 90 6.6 Company Collateral Documents. As security for all Indebtedness of Company to the Banks hereunder, Company shall have furnished, executed and delivered to the Collateral Agent, or caused to be furnished, executed and delivered to the Collateral Agent, prior to or concurrently with the initial borrowing hereunder, in form and substance satisfactory to the Collateral Agent and the Banks and supported by appropriate resolutions in certified form authorizing same, the Company Collateral Documents. In addition, if required or advisable under applicable law to perfect the liens granted thereby, the Collateral Agent shall have received, concurrently with or prior to the making of Advances hereunder, proof that appropriate financing statements, collateral and other documents covering such Collateral have been executed and delivered by the appropriate parties and recorded or filed in such jurisdictions and such other steps have been taken as necessary to perfect the security interests, or other liens granted thereby. 6.7 Guarantor Collateral Documents. As security for all Indebtedness of Company to the Banks hereunder, each of the Guarantors shall have furnished, executed, and delivered to the Collateral Agent, or caused to be furnished, executed and delivered to the Collateral Agent, on or before the applicable dates set forth on Schedule 8.17 hereto, in form and substance satisfactory to Collateral Agent and the Banks and supported by appropriate resolutions in certified form authorizing same, the Guarantor Collateral Documents. In addition, if required or advisable under applicable law to perfect the liens granted thereby, the Collateral Agent shall have received, concurrently with the making of Advances hereunder proof that appropriate financing statements, collateral and other documents covering such Collateral have been executed and delivered by the appropriate parties and recorded or filed in such jurisdictions and such other steps have been taken as necessary to perfect the security interests or other liens granted thereby. 6.8 Representations and Warranties -- All Parties. The representations and warranties made by the Company, the Permitted Borrowers, the Significant Subsidiaries and any other party to any of the Loan Documents under this Agreement or any of the other Loan Documents (excluding the Banks), and the representations and warranties of any of the foregoing which are contained in any certificate, document or financial or other statement furnished at any time hereunder or thereunder or in connection herewith or therewith shall have been true and correct in all material respects when made and shall be true and correct in all material respects on and as of the date of the making of the initial Advance hereunder. 6.9 Compliance with Certain Documents and Agreements. The Company, the Permitted Borrowers and the Guarantors (and any of their respective Subsidiaries or Affiliates) shall have each performed and complied with all agreements and conditions contained in this Agreement, the other Loan Documents, or any agreement or other document executed hereunder or thereunder and required to be performed or complied with by each of them (as of the applicable date) and none of such parties shall be in default in the 79 91 performance or compliance with any of the terms or provisions hereof or thereof. 6.10 Opinion of Counsel. The Company, the Permitted Borrowers and the Guarantors shall have furnished Agent prior to the on or before the applicable dates set forth on Schedule 8.17 hereto with signed copies for each Bank (and addressed to each of the Banks) opinions of counsel given upon the express instructions of the Company, the Permitted Borrowers and the Guarantors, dated the date as of the applicable dates of delivery thereof, and covering such matters as required by and otherwise satisfactory in form and substance to the Agent and each of the Banks. 6.11 Intercreditor Agreement and Existing Senior Debt. The Intercreditor Agreement shall have been executed and delivered in form and substance satisfactory to the Banks and Agent providing, among other things, that the liens securing the Existing Senior Debt are in pari passu with the liens securing the Indebtedness, and the Existing Senior Noteholders shall have executed and delivered such acknowledgments, consent and approvals as required to effectuate the transactions contemplated by this Agreement and the other Loan Documents. 6.12 Company's Certificate. The Agent shall have received, with a signed counterpart for each Bank, a certificate of a responsible senior officer of Company, dated the date of the making of the initial Advances hereunder, stating that the conditions of paragraphs 6.1, 6.8, 6.9 and 6.15(a) through (c) hereof have been fully satisfied. 6.13 Payment of Agent's and Other Fees. Company shall have paid to the Agent the Closing Fee (for distribution to the Banks hereunder), and to the Agent, the Agent's Fees and all costs and expenses required hereunder. 6.14 Other Documents and Instruments. The Agent shall have received, with a photocopy for each Bank, such other instruments and documents as the Majority Banks may reasonably request in connection with the making of Advances hereunder, and all such instruments and documents shall be satisfactory in form and substance to the Majority Banks. 6.15 Continuing Conditions. Subject to the terms hereof, the obligations of the Banks to make any of the Advances or loans under this Agreement, including but not limited to the initial Advances of the Advances of the Revolving Credit, Swing Line Advances or Term Loans hereunder, shall be subject to the following continuing conditions: (a) No Default or Event of Default shall have occurred and be continuing as of the making of the proposed Advance (both before and after giving effect thereto); 80 92 (b) There shall have been no material adverse change in the condition (financial or otherwise), properties, business, results or operations of the Company and its Subsidiaries, taken as a whole, from December 31, 1994, except changes in the ordinary course of business (including without limitation the information set forth in the Consolidated financial statements of the Company and its Subsidiaries as of December 31, 1994), or any subsequent December 31st, if the Agent determines, with the concurrence of the Majority Banks, based on the Company's financial statements for such subsequent fiscal year that no material adverse change has occurred during such year, such determination being made solely for purposes of determining the applicable date under this paragraph to the date of the proposed Advance hereunder; (c) The representations and warranties contained in this Agreement and the other Loan Documents are true and correct in all material respects as of the making of the applicable Advance; and (d) All documents executed or submitted pursuant hereto shall be reasonably satisfactory in form and substance (consistent with the terms hereof) to Agent and its counsel and to each of the Banks; Agent and its counsel and each of the Banks and their respective counsel shall have received all information, and such counterpart originals or such certified or other copies of such materials, as Agent or its counsel and each of the Banks and their respective counsel may reasonably request; and all other legal matters relating to the transactions contemplated by this Agreement (including, without limitation, matters arising from time to time as a result of changes occurring with respect to any statutory, regulatory or decisional law applicable hereto) shall be satisfactory to counsel to Agent and counsel to each of the Banks. 7. REPRESENTATIONS AND WARRANTIES Each of the Company and the Permitted Borrowers represents and warrants and such representations and warranties shall be deemed to be continuing representations and warranties during the entire life of this Agreement: 7.1 Corporate Authority. Each of the Company, the Subsidiaries and the Permitted Borrowers is a corporation duly organized and validly existing in good standing under the laws of the applicable jurisdiction of organization, charter or incorporation; each of the Company, the Subsidiaries and the Permitted Borrower is duly qualified and authorized to do business as a corporation or foreign corporation in each jurisdiction where the character of its assets or the nature of its activities makes such qualification necessary, except where such failure to qualify and be authorized to do business could not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries, taken as a whole. 81 93 7.2 Due Authorization - Company. Execution, delivery and performance of this Agreement, the other Loan Documents, and any other documents and instruments required under or in connection with this Agreement, and the issuance of the Notes by the Company are within its corporate powers, have been duly authorized, are not in contravention of law or the terms of the Company's articles of incorporation or bylaws, and, except as have been previously obtained or as referred to in Section 7.15, below, do not require the consent or approval, material to the transactions contemplated by this Agreement, or the Loan Documents, of any governmental body, agency or authority. 7.3 Due Authorization -- Subsidiaries. Execution, delivery and performance of this Agreement, the other Loan Documents and any other documents and instruments required under or in connection with this Agreement by each of the Permitted Borrowers and the Guarantors, and the issuance of the Notes by the Permitted Borrowers and the Guaranties by the Guarantors, are (or will be, as of the applicable date(s) of delivery under Schedule 8.17 hereto) within its corporate powers, have been duly authorized, are not in contravention of law or the terms of its articles of incorporation or bylaws or other organic documents of the parties thereto, as applicable, and, except as have been previously obtained (or as referred to in Section 7.15, below), do not require the consent or approval, material to the transactions contemplated by this Agreement, or the other Loan Documents, of any governmental body, agency or authority. 7.4 Title to Property. Each of the Company, the Permitted Borrowers and the Subsidiaries has good and valid title to the property owned by it, which property (individually or in the aggregate) is material to the business or operations of the Company and its Subsidiaries, taken as a whole, excluding imperfections in title not material to the ownership, use and/or enjoyment of any such property. 7.5 Liens. There are no security interests in, Liens, mortgages or other encumbrances on and no financing statements on file with respect to any property of Company, the Permitted Borrowers or any of the Subsidiaries, except for those Liens permitted under Section 9.6 hereof. 7.6 Subsidiaries. As of the date of this Agreement, there are no directly or indirectly owned Subsidiaries of the Company, except for those Subsidiaries identified in Schedule 7.6, attached hereto (on which Schedule are identified, as of the date hereof, the Domestic Subsidiaries and the Foreign Subsidiaries, the Significant Domestic Subsidiaries and the Significant Foreign Subsidiaries and the Guarantors). 7.7 Taxes. The Company and its Subsidiaries each has filed on or before their respective due dates, all federal, state and foreign tax returns which are required to be filed or has obtained extensions for filing such tax returns and is not delinquent in 82 94 filing such returns in accordance with such extensions and has paid all taxes which have become due pursuant to those returns or pursuant to any assessments received by any such party, as the case may be, to the extent such taxes have become due, except to the extent such tax payments are being actively contested in good faith by appropriate proceedings and with respect to which adequate provision has been made on the books of the Company or its Subsidiaries, as applicable, as may be required by GAAP. 7.8 No Defaults. There exists no default under the provisions of any instrument evidencing any permitted Debt of the Company or its Subsidiaries or connected with any of the permitted Liens, or of any agreement relating thereto, except where such default could not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole and would not constitute a Default or an Event of Default under this Agreement or any of the other Loan Documents according to the terms thereof. 7.9 Enforceability of Agreement and Loan Documents -- Company. This Agreement, the Notes, the Company Guaranty, each of the other Loan Documents to which the Company is a party, and all other certificates, agreements and documents executed and delivered by Company under or in connection herewith or therewith have each been duly executed and delivered by duly authorized officers of the Company and constitute the valid and binding obligations of the Company, enforceable in accordance with their respective terms, except as enforcement thereof may be limited by applicable bankruptcy, reorganization, insolvency, moratorium, ERISA or similar laws affecting the enforcement of creditor's rights generally and by general principles of equity (whether enforcement is sought in a proceeding in equity or at law). 7.10 Enforceability of Loan Documents -- Significant Subsidiaries. This Agreement, the Notes, the Guaranties, each of the other Loan Documents to which any of the Permitted Borrowers or the Guarantors is a party, and all certificates, documents and agreements executed in connection herewith or therewith by any of the Permitted Borrowers or the Guarantors have each been duly executed and delivered by duly authorized officers of such parties and constitute the valid and binding obligations of the Permitted Borrowers and the Guarantors, enforceable in accordance with their respective terms, except as enforcement thereof may be limited by applicable bankruptcy, reorganization, insolvency, moratorium, ERISA or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (whether enforcement is sought in a proceeding in equity or at law). 7.11 Non-contravention -- Company. The execution, delivery and performance of this Agreement and the other Loan Documents and any other documents and instruments required under or in connection with this Agreement by the Company are not in contravention of the terms of any indenture, material agreement or material undertaking to which the Company is a party or by which it or its properties are bound or affected, except to the extent such terms have been 83 95 waived or are not material to the transactions contemplated by this Agreement and the other Loan Documents. 7.12 Non-contravention -- Subsidiaries. The execution, delivery and performance of this Agreement, those other Loan Documents signed by any of the Permitted Borrowers or the Guarantors, and any other documents and instruments required under or in connection with this Agreement by any of the Permitted Borrowers or the Guarantors are not in contravention of the terms of any indenture, material agreement or material undertaking to which any of the Permitted Borrowers or the Guarantors is a party or by which it or its properties are bound or affected, except to the extent such terms have been waived or are not material to the transaction contemplated by this Agreement and the other Loan Documents. 7.13 No Litigation -- Company. There is no suit, action, proceeding, including, without limitation, any bankruptcy proceeding, or governmental investigation pending against or, to the best knowledge of the Company, threatened or otherwise affecting the Company (other than any suit, action or proceeding in which the Company is the plaintiff and in which no counterclaim or cross- claim against Company has been filed), nor has the Company or any of its officers or directors been subject to any suit, action, proceeding or governmental investigation as a result of which any such officer or director is or may be entitled to indemnification by Company, except as otherwise disclosed in Schedule 7.13 attached hereto and except for miscellaneous suits, actions and proceedings which have a reasonable likelihood of being adversely determined, and which suits, if resolved adversely to the Company would not in the aggregate have a material adverse effect on the Company and its Subsidiaries, taken as a whole. Except as so disclosed, there is not outstanding against the Company any judgment, decree, injunction, rule, or order of any court, government, department, commission, agency, instrumentality or arbitrator, nor, to the best knowledge of the Company, is the Company in violation of any applicable law, regulation, ordinance, order, injunction, decree or requirement of any governmental body or court where such violation would have a material adverse effect on the Company and its Subsidiaries, taken as a whole. 7.14 No Litigation -- Other Parties. There is no suit, action, proceeding (other than any suit, action or proceeding in which any such party is the plaintiff and in which no counterclaim or cross-claim against any such party has been filed), including, without limitation, any bankruptcy proceeding, or governmental investigation pending against or, to the best knowledge of the Company, threatened or otherwise affecting any of the Subsidiaries or the Permitted Borrowers, nor has any such party or any of its officers or directors been subject to any suit, action, proceeding or governmental investigation as a result of which any such officer or director is or may be entitled to indemnification by such party, except as otherwise disclosed in Schedule 7.14 attached hereto and except for miscellaneous suits, actions and proceedings which have 84 96 a reasonable likelihood of being adversely determined, which suits, if resolved adversely to such party, would not in the aggregate have a material adverse effect on the Company and its Subsidiaries, taken as a whole. Except as so disclosed, there is not outstanding against any such party any judgment, decree, injunction, rule, or order of any court, government, department, commission, agency, instrumentality or arbitrator nor, to the best knowledge of the Company, is any such party in violation of any applicable law, regulation, ordinance, order, injunction, decree or requirement of any governmental body or court where such violation would have a material adverse effect on the Company and its Subsidiaries, taken as a whole. 7.15 Consents, Approvals and Filings, Etc. Except as have been previously obtained or as are required for the consummation of the Dyno Acquisition, no authorization, consent, approval, license, qualification or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency or regulatory authority or any securities exchange or any other person or party (whether or not governmental) is required in connection with the execution, delivery and performance: (i) by the Company, of this Agreement, any of the other Loan Documents to which it is a party or any other documents or instruments to be executed and/or delivered by the Company in connection therewith or herewith; and (ii) by each of the Permitted Borrowers and the Guarantors, of this Agreement, the other Loan Documents to which it is a party or any other documents or instruments to be executed and/or delivered by each of the Permitted Borrowers or the Guarantors in connection therewith or herewith. All such authorizations, consents, approvals, licenses, qualifications, exemptions, filings, declarations and registrations which have previously been obtained or made, as the case may be, are in full force and effect and are not the subject of any attack, or to the knowledge of the Company and the Permitted Borrowers, threatened attack (in any material respect) by appeal or direct proceeding or otherwise. 7.16 Agreements Affecting Financial Condition. Neither the Company nor any of the Permitted Borrowers (nor any of their respective Subsidiaries) is party to any agreement or instrument or subject to any charter or other corporate restriction which materially adversely affects the financial condition or operations of the Company and its Subsidiaries, taken as a whole. 7.17 No Investment Company; No Margin Stock. Neither the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, directly or indirectly, in the business of extending credit for the purpose of purchasing or carrying margin stock. None of the proceeds of any of the Advances will be used by the Company, the Permitted Borrowers or any of the Subsidiaries to purchase or carry margin stock or will be made available by the Company, the Permitted Borrowers or any of the Subsidiaries in any manner to any other Person to enable or assist such Person in purchasing or carrying margin stock. Terms for which meanings are provided in Regulation U of the Board of Governors of 85 97 the Federal Reserve System or any regulations substituted therefor, as from time to time in effect, are used in this paragraph with such meanings. Neither the Company nor any of the Permitted Borrowers (nor any of their respective Subsidiaries) is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 7.18 ERISA. Except to the extent that an occurrence could not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole: (a) neither a Reportable Event which is material to the Company and its Subsidiaries taken as a whole nor an accumulated funding deficiency (as defined in Section 412 of the Internal Revenue Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Pension Plan; (b) each Pension Plan has complied in all material respects with the applicable provisions of ERISA and the Internal Revenue Code and any applicable regulations thereof (and, if applicable, any comparable foreign law provisions), except to the extent that any noncompliance, individually or in the aggregate, would not have a material adverse effect upon the Company and its Subsidiaries, taken as a whole; (c) no termination of a Single Employer Plan has occurred, and no lien in favor of the PBGC or a Pension Plan has arisen, during such five-year period; (d) the present value of all accrued benefits under each Single Employer Plan maintained by the Company or any ERISA Affiliate did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Pension Plan allocable to such accrued benefits; (e) neither the Company nor any ERISA Affiliate has had a complete or partial withdrawal from any Multiemployer Plan within the five year period prior to the date of this Agreement, nor does the Company or any ERISA Affiliate presently intend to completely or partially withdraw from any Multiemployer Plan, and neither the Company nor any ERISA Affiliate would become subject to fines, penalties or any other liability under ERISA if the Company or any ERISA Affiliate were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date of this Agreement; (f) to the best of Company's knowledge, no such Multiemployer Plan is in bankruptcy or reorganization or insolvent; and (g) there is no pending or, to the best of Company's knowledge, threatened litigation or investigation questioning the form or operation of any Pension Plan, nor is there any basis for any such litigation or investigation which if adversely determined could have a material adverse effect upon the Company and its Subsidiaries, taken as a whole, as of the valuation date most closely preceding the date of this Agreement. 7.19 Environmental Matters and Safety Matters. (a) The Company and each Subsidiary is in compliance in all material respects with all applicable federal, state, provincial and local laws, ordinances and regulations relating to safety and industrial hygiene or to the environmental condition, including without limitation all applicable Hazardous Materials Laws in jurisdictions 86 98 in which the Company or any such Subsidiary owns or operates a facility or site, or arranges for disposal or treatment of hazardous substances, solid waste, or other wastes, accepts for transport any hazardous substances, solid wastes or other wastes or holds any interest in real property or otherwise, except for De Minimis Matters or as otherwise disclosed on Schedule 7.19 hereto, and as to any matters disclosed on such Schedule, none of such matters will, individually or in the aggregate, have a material adverse effect upon the financial condition or business of the Company and its Subsidiaries, taken as a whole. (b) All federal, state, provincial, local and foreign permits, licenses and authorizations required under the Hazardous Material Laws for present or (to the best knowledge of the Company and the Permitted Borrowers) past use of the facilities and other properties or activities of the Company and each Subsidiary have been obtained and are presently in effect, and there is and has been compliance in all material respects with all such permits, licenses or authorizations, except for De Minimis Matters or as otherwise disclosed on Schedule 7.19 hereto, and as to any matters disclosed on such Schedule, none of such matters, individually or in the aggregate will have a material adverse effect on the Company and its Subsidiaries taken as a whole. (c) No demand, claim, notice, suit (in law or equity), action, administrative action, investigation or inquiry (including, without limitation, the listing of any property by any domestic or foreign governmental entity which identifies sites for remedial, clean-up or investigatory action) whether brought by any governmental authority, private person or entity or otherwise, arising under or relating to or in connection with any applicable Hazardous Material Laws is pending or, to the best knowledge of the Company and the Permitted Borrowers, threatened against the Company or any of its Subsidiaries, any real property in which the Company or any such Subsidiary holds or, to the best of the Company's knowledge, has held an interest or any present or, to the best knowledge of the Company and the Permitted Borrowers, past operation of the Company or any such Subsidiary, except for De Minimis Matters or as otherwise disclosed on Schedule 7.19 hereto, and as to any matters disclosed on such Schedule, none of such matters, individually or in the aggregate will have a material adverse effect on the financial condition or business of the Company and its Subsidiaries, taken as a whole. (d) Neither the Company nor any of its Subsidiaries, whether with respect to present or, to the best knowledge of the Company and the Permitted Borrowers, past operations or properties, (i) is, to the best knowledge of the Company and the Permitted Borrowers, the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Materials into the environment, (ii) has received any notice of any Hazardous Materials in or upon any of its properties in violation of any applicable Hazardous Material Laws, or (iii) knows of any basis for any such investigation or 87 99 notice, or for the existence of such a violation, except for De Minimis Matters or as otherwise disclosed on Schedule 7.19 hereto, and as to any matters disclosed on such Schedule, none of such matters, individually or in the aggregate will have a material adverse effect on the financial condition or business of the Company and its Subsidiaries, taken as a whole. (e) No release, threatened release or disposal of any Hazardous Materials is occurring or has occurred on, under or to any real property in which the Company or any of its Subsidiaries holds any interest or performs any of its operations, in violation of any applicable Hazardous Material Laws, except for De Minimis Matters or as otherwise disclosed on Schedule 7.19 hereto, and as to any matters disclosed on such Schedule, none of such matters, individually or in the aggregate will have a material adverse effect on the financial condition or business of the Company and its Subsidiaries, taken as a whole. 7.20 Accuracy of Information. Each of the Company's audited or unaudited financial statements previously furnished to Agent and the Banks by the Company prior to the date of this Agreement, is complete and correct in all material respects and fairly presents the financial condition of the Company and its Subsidiaries, taken as a whole, and the results of their operations for the periods covered thereby; any projections of operations for future years previously furnished by Company to Agent or the Banks have been prepared as the Company's good faith estimate of such future operations, taking into account all relevant facts and matters known to Company; since December 31, 1994 there has been no material adverse change in the financial condition of the Company and its Subsidiaries, taken as a whole, except changes in the ordinary course of business (including without limitation the information set forth in the Consolidated financial statements of the Company and its Subsidiaries as of December 31, 1994); neither the Company, nor any of its Subsidiaries has any contingent obligations (including any liability for taxes) not disclosed by or reserved against in the December 31, 1994 balance sheet which is likely to have a material adverse effect on the Company and its Subsidiaries, taken as a whole. 8. AFFIRMATIVE COVENANTS Each of the Company and the Permitted Borrowers covenants and agrees that it will, and, as applicable, it will cause its Subsidiaries to, so long as any of the Banks are committed to make any Advances under this Agreement and thereafter so long as any Indebtedness remains outstanding under this Agreement: 8.1 Preservation of Existence, Etc. Subject to the terms of this Agreement: (i) preserve and maintain its existence and such of its rights, licenses, and privileges as are material to the business and operations conducted by it; (ii) qualify and remain qualified to do business in each jurisdiction in which such qualification is material to its business and operations or 88 100 ownership of its properties; (iii) continue to conduct and operate its businesses substantially as conducted and operated during the present and preceding fiscal years; (iv) at all times maintain, preserve and protect all of its franchises and trade names and preserve all the remainder of its property and keep the same in good repair, working order and condition; and (v) from time to time make, or cause to be made, all necessary or appropriate repairs, replacements, betterments and improvements thereto such that the businesses carried on in connection therewith may be properly and advantageously conducted at all times. 8.2 Keeping of Books. Keep proper books of record and account in which full and correct entries shall be made of all of its financial transactions and its assets and businesses so as to permit the presentation of financial statements prepared in accordance with GAAP. 8.3 Reporting Requirements. Furnish Agent with copies for each Bank: (a) as soon as possible, and in any event within three Business Days after becoming aware of the occurrence of each Default or Event of Default, a written statement of the chief financial officer of the Company (or in his or her absence, a responsible senior officer) setting forth details of such Default or Event of Default and the action which the Company or any Permitted Borrower has taken or has caused to be taken or proposes to take or cause to be taken with respect thereto; (b) as soon as available, and in any event within one hundred twenty (120) days after and as of the end of each of Company's fiscal years, (i) a detailed Consolidated audit report of Company certified to by independent certified public accountants satisfactory to Banks, together with an unaudited Consolidating report of Company and its Subsidiaries (or, in lieu of such Consolidating report, other financial reports as to the financial condition, on an individual basis, of each of the Permitted Borrowers and Guarantors, in form reasonably acceptable to Agent and the Majority Banks) certified by an authorized officer of Company as to consistency (with prior financial reports and accounting periods), accuracy and fairness of presentation; and (ii) a Covenant Compliance Report; (c) as soon as available, and in any event within sixty (60) days after and as of the end of each quarter, excluding the last quarter of each fiscal year, (i) a Consolidated financial report consisting of a balance sheet, income statement, statement of cash flows and statement of shareholder's equity of Company and its Subsidiaries certified by an authorized officer of Company as to consistency (with prior financial reports and accounting periods), accuracy and fairness of presentation and (ii) a Covenant Compliance Report; 89 101 (d) as soon as available, and in any event within thirty (30) days after the end of each calendar month, excluding those months ending on the last day of each fiscal quarter, a Consolidated and Consolidating balance sheet, income statement and statement of shareholder's equity of Company and its Subsidiaries certified by an authorized officer of Company as to consistency (with prior financial reports and accounting periods), accuracy and fairness of presentation; (e) as soon as possible, and in any event within three Business Days after becoming aware (i) of any material adverse change in the financial condition of the Company, any of its Subsidiaries or any of the Permitted Borrowers which could reasonably be expected to have a material adverse effect upon the Company and its Subsidiaries, taken as a whole, a certificate of the chief financial officer of Company (or in his or her absence, a responsible senior officer) setting forth the details of such change, and (ii) of the taking by the Internal Revenue Service or any foreign taxing jurisdiction of a written tax position which could reasonably be expected to have a material adverse effect upon the Company and its Subsidiaries, taken as a whole (or any such tax position taken by the Company or any of its Subsidiaries or the Permitted Borrowers) setting forth the details of such position and the financial impact thereof; (f) as soon as available (and with copies for each of the Banks), the Company's 8-K, 10-Q and 10-K Reports filed with the federal Securities and Exchange Commission, and in any event, with respect to the 10-Q Report, within sixty (60) days of the end of each of the Company's fiscal quarters, and with respect to the 10-K Report, within one hundred twenty (120) days after and as of the end of each of Company's fiscal years; and as soon as available, copies of all filings, reports or other documents filed by the Company or any of its Subsidiaries with the federal Securities and Exchange Commission or comparable agencies or authorities in foreign jurisdictions, or with any stock exchanges; (g) promptly as issued, all press releases and notices to shareholders transmitted by the Company or any of its Subsidiaries; and (h) promptly, and in form to be satisfactory to Agent and the requesting Bank or Banks, such other information as Agent or any of the Banks (acting through Agent) or the Collateral Agent may reasonably request from time to time. 8.4 Consolidated Tangible Net Worth. Maintain, and cause its Subsidiaries to maintain, at all times Consolidated Tangible Net Worth which on a Consolidated basis will at no time be less than Ninety-Five Million Dollars ($95,000,000), plus the sum of the Net Income Adjustment and the Equity Offering Adjustment. 90 102 8.5 Funded Debt Ratio. On a Consolidated basis, have and cause its Subsidiaries to have, as of the end of each fiscal quarter, a Funded Debt Ratio which will at no time exceed: (a) from the date hereof through December 30, 1995, 6.0 to 1.0; (b) from December 31, 1995 through March 30, 1996, 5.5 to 1.0; (c) from March 31, 1996 through June 29, 1996, 5.0 to 1.0; (d) from June 30, 1996 through September 29, 1996, 4.25 to 1.0; (e) from September 30, 1996 to December 30, 1996, 3.75 to 1.0; (f) from December 31, 1996 to December 30, 1997, 3.3 to 1.0; (g) from December 31, 1997 to December 30, 1998, 2.9 to 1.0; and (h) from and after December 31, 1998, 2.5 to 1.0. 8.6 Maintain Fixed Charge Coverage Ratio. On a Consolidated basis, have and cause its Subsidiaries to have, as of the end of each fiscal quarter, a Fixed Charge Coverage Ratio of not less than: (a) from the date hereof through March 30, 1996, 1.25 to 1.0; (b) from March 31, 1996 through September 29, 1996, 1.4 to 1.0; (c) from September 30, 1996 to December 30, 1996, 1.25 to 1.0; (d) from December 31, 1996 to December 30, 1997, 1.35 to 1.0; (e) from December 31, 1997 to December 30, 1998, 2.35 to 1.0; and (f) from and after December 31, 1998, 2.5 to 1.0. 8.7 Inspections. Permit Agent and each Bank, through their authorized attorneys, accountants and representatives to examine Company's and each of the Subsidiaries' books, accounts, records, ledgers and assets and properties of every kind and description wherever located, including without limitation the Collateral, at all reasonable times during normal business hours, upon oral or written request of Agent or such Bank; and permit Agent and each Bank or their authorized representatives, at reasonable times and intervals, to visit all of its offices, discuss its financial 91 103 matters with its officers and independent certified public accountants, and by this provision Company authorizes such accountants to discuss the finances and affairs of Company and its Subsidiaries (provided that Company is given an opportunity to participate in such discussions) and examine any of its or their books and other corporate records. An examination of the records or properties of Company or any of its Subsidiaries may require revealment of proprietary and/or confidential data and information, and the Agent and each of the Banks agrees upon request of the inspected party to execute a confidentiality agreement (reasonably satisfactory to Agent or the inspecting Bank, as the case may be, and such party) on behalf of the Agent or such inspecting Bank and all parties making such inspections or examinations under its authorization; provided however that such confidentiality agreement shall not prohibit Agent from revealing such information to Banks or prohibit the inspecting Bank from revealing such information to Agent or another Bank. Notwithstanding the foregoing, all information furnished to the Banks hereunder shall be subject to the undertakings of the Banks set forth in Section 14.13 hereof. 8.8 Taxes. Pay and discharge all taxes and other governmental charges, and all material contractual obligations calling for the payment of money, before the same shall become overdue, unless and to the extent only that such payment is being contested in good faith by appropriate proceedings and is reserved for, as required by GAAP on its balance sheet, or where the failure to pay any such matter could not have a material adverse effect on the Company and its Subsidiaries, taken as a whole. 8.9 Further Assurances; Financing Statements. Furnish to the Collateral Agent, at Company's sole expense, upon Majority Banks' (or Collateral Agent's) request, in form reasonably satisfactory to the Majority Banks, assignments, lien instruments or other security instruments, consents, acknowledgments, subordinations and financing statements covering any or all of the Collateral pledged, assigned, or encumbered pursuant to the Company Collateral Documents or the Guarantor Collateral Documents, of every nature and description, whether now owned or hereafter acquired (by Company or any Guarantor), to the extent that the Collateral Agent may reasonably require, and execute and deliver or cause to be executed and delivered such other documents or instruments as the Agent may reasonably require to effectuate more fully the purposes of this Agreement or the other Loan Documents. 8.10 Insurance. Maintain, with financially sound and reputable insurers, insurance with respect to its Material Property and business against such casualties and contingencies, of such types (including, without limitation, insurance with respect to losses arising out of such property loss or damage, public liability, business interruption, larceny, workers' compensation, embezzlement or other criminal misappropriation) and in such amounts as is customary in the case of corporations of established reputations engaged in the same or similar business and similarly situated. 92 104 8.11 Indemnification. With respect to the Company, indemnify and save Agent and each of the Banks (and their respective officers, directors, agents, employees and other representatives) harmless from all reasonable loss, cost, damage, liability or expenses, including reasonable attorneys' fees and disbursements, incurred by Agent and each of the Banks (and their respective officers, directors, agents, employees and other representatives) by reason of an Event of Default or enforcing the obligations of the Company, the Permitted Borrowers or any of the Significant Subsidiaries under this Agreement or the other Loan Documents, or in the prosecution or defense of any action or proceeding concerning any matter growing out of or connected with this Agreement or any of the other Loan Documents (including, without limitation, the Agent's confidential information memorandum dated May 24, 1995, the New Senior Debt Documents and any Offering Memorandum distributed in connection therewith, the Existing Senior Debt Documents and the Dyno Acquisition Agreement) other than resulting from the gross negligence or willful misconduct of Agent or such Bank or Banks, as the case may be; and, with respect to each of the Permitted Borrowers and the Significant Subsidiaries, indemnify and save Agent and each of the Banks (and their respective officers, directors, agents, employees and other representatives) harmless from all reasonable loss, cost, damage, liability or expenses, including reasonable attorneys' fees and disbursements, incurred by Agent and each of the Banks (and their respective officers, directors, agents, employees and other representatives) with respect to such parties by reason of an Event of Default or enforcing the obligations of such parties under this Agreement or the other Loan Documents or in the prosecution or defense of any action or proceeding concerning any matter growing out of or connected with this Agreement or any of the other Loan Documents (including, without limitation, the Agent's confidential information memorandum dated May 24, 1995, the New Senior Debt Documents and any Offering Memorandum distributed in connection therewith, the Existing Senior Debt Documents and the Dyno Acquisition Agreement), other than resulting from the gross negligence or willful misconduct of Agent or such Bank or Banks, as the case may be. 8.12 Governmental and Other Approvals. Apply for, obtain and/or maintain in effect, as applicable, all material authorizations, consents, approvals, licenses, qualifications, exemptions, filings, declarations and registrations (whether with any court, governmental agency, regulatory authority, securities exchange or otherwise) which are necessary in connection with the execution, delivery and performance of this Agreement, the other Loan Documents, or any other documents or instruments to be executed and/or delivered by the Company or the Permitted Borrower, as the case may be, in connection therewith or herewith, and, upon and after the consummation thereof, in connection with the Dyno Acquisition. 8.13 Compliance with Contractual Obligations and Laws. Comply in all material respects with all Contractual Obligations and with 93 105 all applicable laws, rules, regulations and orders of any governmental authority, whether federal, state, local or foreign (including without limitation Hazardous Material Laws and any consumer protection, truth in lending, disclosure and other similar laws and regulations governing the provision of financing to consumers), in effect from time to time, except to the extent that failure to comply therewith could not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, operations, property or financial or other condition of the Company, the Permitted Borrowers and their respective Subsidiaries, taken as a whole, and could not reasonably be expected to materially adversely affect the ability of any of the Company, the Permitted Borrowers or the Significant Subsidiaries to perform their respective obligations under any of the Loan Documents to which they are a party. 8.14 ERISA. Comply in all material respects with all requirements imposed by ERISA as presently in effect or hereafter promulgated or the Internal Revenue Code (or comparable laws in applicable jurisdictions outside the United States of America relating to foreign Pension Plans) and promptly notify Banks upon the occurrence of any of the following events: (a) the termination of any Pension Plan pursuant to Subtitle C of Title IV of ERISA or otherwise (other than any defined contribution plan not subject to Section 412 of the Internal Revenue Code and any Multiemployer Plan); (b) the appointment of a trustee by a United States District Court to administer any Pension Plan pursuant to ERISA; (c) the commencement by the PBGC, or any successor thereto, of any proceeding to terminate any Pension Plan; (d) the failure of the Company or any ERISA Affiliate to make any payment in respect of any Pension Plan required under Section 412 of the Internal Revenue Code; (e) the withdrawal of the Company or any ERISA Affiliate from any Multiemployer Plan; (f) the occurrence of an accumulated funding deficiency (defined in Section 7.18 hereof) or a Reportable Event; or (g) the occurrence of a Prohibited Transaction which could reasonably be expected to have a material adverse effect upon the Company and its Subsidiaries, taken as a whole. 8.15 Environmental Matters. (a) Promptly notify the Agent and the Banks in writing of: (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted or completed pursuant to any applicable Hazardous Material Laws; (ii) any and all claims made by 94 106 any Person against the Company, any of its Subsidiaries, the Permitted Borrowers or Dyno, or any of its other property (whether real or personal, or any portion thereof) relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Material (provided that, until the Dyno Acquisition, notification to Agent of claims against Dyno shall not be required except for claims of which Company has actual knowledge) which could reasonably be expected to have a material adverse effect on the Company and its Subsidiaries, taken as a whole; and (iii) Company's discovery of any occurrence or condition on any real property or fixtures constituting a part of, adjoining or in the vicinity of any of its property that could cause any such property (or any part thereof) to be subject to any material restrictions on the ownership, occupancy, transferability or use thereof under any Hazardous Material Laws, it being understood and agreed that the Agent, on behalf of the Banks, shall have the right to join and participate in, as a party if it or they so elect, any legal proceedings or actions initiated in connection with any of the matters described in subparagraphs (a) (i) or (a) (ii), above, and the Company agrees, provided that an Event of Default has occurred and is continuing, to pay the Agent's reasonable attorneys fees in connection therewith. (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions necessary to clean-up and remove all Hazardous Materials on or affecting any premises owned or occupied by Company or any of its Subsidiaries, whether resulting from conduct of Company or any of its Subsidiaries or any other Person, if required by Hazardous Material Laws, all such actions to be taken in accordance with such laws; (c) From and after the Dyno Acquisition, with respect to the properties and operations of Dyno, commence and diligently proceed to completion, in accordance with applicable Hazardous Material Laws, with the necessary remedial, corrective or other actions identified in any Schedule or other written disclosure delivered to Agent and the Banks in connection with the consummation of the Dyno Acquisition, as applicable, or as required under the Dyno Acquisition Agreement, and cause Dyno, or its Subsidiaries, (to the extent of its obligations under the Dyno Acquisition Agreement) to do so, according to the time periods specified therein, or if no time periods are so specified, as soon as reasonably practicable; provided that Company's obligations under this subparagraph (c) shall not reduce or otherwise affect Company's other obligations hereunder. (d) Defend, indemnify and hold harmless Agent and each of the Banks, and their respective employees, agents, officers and directors from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs or expenses of whatever kind or nature arising out of or related to (i) the presence, disposal, release or threatened release of any Hazardous Materials in violation of any applicable Hazardous Material Laws 95 107 on, from or affecting any premises owned or occupied by Company or any of its Subsidiaries, (ii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Materials, (iii) any lawsuit or other proceeding brought or threatened, settlement reached or governmental order or decree relating to such Hazardous Materials, (iv) the cost of removal of all Hazardous Materials from all or any portion of any premises owned by Company or its Subsidiaries, (v) the taking of necessary precautions to protect against the release of Hazardous Materials in violation of any applicable Hazardous Material Laws on or affecting any premises owned by Company or any of its Subsidiaries, (vi) complying with all Hazardous Material Laws and/or (vii) any material violation by Company or any of its Subsidiaries of Hazardous Material Laws, including without limitation, reasonable attorneys and consultants fees, investigation and laboratory fees, environmental studies required by Agent or any Bank (whether before or after the occurrence of any Default or Event of Default hereunder), court costs and litigation expenses; and, if so requested by Agent or any Bank, Company shall execute, and shall cause each of the Permitted Borrowers to execute, separate indemnities covering the foregoing matters. The obligations of Company and Permitted Borrowers under this Section 8.15 shall be in addition to any and all other obligations and liabilities the Company or the Permitted Borrowers may have to Agent or any of the Banks at common law or pursuant to any other agreement. (e) Following the occurrence and during the continuance of a Default or Event of Default, Agent may retain (on its own behalf and on behalf of the Banks, but at Company's sole expense) such environmental auditors as reasonably necessary to evaluate and/or confirm Company's environmental responses, reports or other matters, including Company's compliance with Hazardous Material Laws generally, under this Section 8.15, or elsewhere herein. 8.16 Power of Attorney. Subject to the Intercreditor Agreement (and the rights and powers of Collateral Agent thereunder), Company does hereby make, constitute and appoint any officer or agent of Agent as its true and lawful attorney-in-fact, with power, upon the occurrence of any Event of Default (exercisable so long as such Event of Default is continuing and with full power of substitution), to endorse its name, or the names of any of its officers or agents, upon any notes, checks, drafts, money orders, or other instruments of payment (including payments payable under any policy of insurance) or Collateral that may come into possession of the Agent in full or part payment of any amounts owing to the Banks; to sign and endorse the name of Company, and/or any of its officers or agents, upon any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts of the Company, and any instrument or document relating thereto or to Company's rights therein; to execute on behalf of Company any financing statements, amendments, subordinations or other filings pursuant to this Agreement or any of the Loan 96 108 Documents, granting unto Agent, as the attorney-in-fact of Company, full power to do any and all things necessary to be done in and about the Company's or any Subsidiary's premises as fully and effectually as Company might or could do, and hereby ratifying all that any said attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney described herein shall be deemed coupled with an interest and shall be irrevocable until the payment in full of all the Indebtedness, the expiration of any commitments to lend hereunder (or otherwise) and the performance by Company, the Permitted Borrowers and the Guarantors of all other obligations under this Agreement and the Loan Documents; Agent may, at any time after the occurrence of an Event of Default, but before the expiration of any applicable cure period or delivery of any required notice, notify Account Debtors that Collateral has been assigned to Agent on behalf of the Banks and that payments shall be made directly to Agent. Upon request of the Agent, Company will so notify such Account Debtors and will indicate on all billings to such Account Debtors that their accounts must be paid to or as directed by Agent. Upon the occurrence and during the continuance of any Event of Default, the Agent acting on behalf of the Banks shall have full power to collect, compromise, endorse, sell or otherwise deal with the Collateral or proceeds thereof in the name of the Agent or in the name of Company, provided only that Agent shall act in a commercially reasonable manner. 8.17 Significant Subsidiaries; Joinder Agreements. (a) With respect to Walbro Netherlands, Walbro England, Walbro France, Walbro Belgium and Walbro Spain (collectively, the "Specified Guarantors"), as soon as practicable under local law (as determined by Agent, in its reasonable discretion), but in any event prior to the applicable date(s) set forth on Schedule 8.17 hereto, and with respect to each Subsidiary which becomes a Significant Subsidiary subsequent to the date of this Agreement, within thirty days of the date a Subsidiary becomes a Significant Subsidiary or a new Subsidiary is created or acquired which is a Significant Subsidiary, as the case may be, cause such Subsidiary to execute and deliver to Agent, for and on behalf of each of the Banks, a Joinder Agreement whereby such Subsidiary becomes obligated as a Guarantor under the Domestic Guaranty or the Permitted Borrowers Guaranty, as applicable, and with respect to each Significant Domestic Subsidiary a joinder agreement whereby such Subsidiary becomes obligated under the Collateral Documents as then in effect, or, to the extent necessary or appropriate (as determined by the Majority Banks or Collateral Agent), executes and delivers new Collateral Documents, in each and all such cases accompanied by such supporting documentation, including without limitation corporate authority items, certificates and opinions of counsel, as reasonably required by Agent and the Majority Banks. Until the Joinder Agreements (and supporting documents) required from the Specified Guarantors under this Section 8.17(a) have been received by Agent, no Advances shall be requested by or made to any of the Foreign Subsidiaries, other than Walbro Japan. 97 109 (b) With respect to the share capital of Walbro Netherlands, Company shall cause Walbro Automotive to execute and deliver to Collateral Agent (on or before the applicable date set forth on Schedule 8.17 hereto) a stock pledge encumbering 65% of the share capital of Walbro Netherlands, in form and substance satisfactory to Collateral Agent and the Majority Banks. Furthermore, with respect to each Subsidiary which becomes a Significant Subsidiary subsequent to the date hereof and the capital stock or share capital of which is owned by Company or a Significant Domestic Subsidiary, Company or such Significant Domestic Subsidiary, as the case may be, shall promptly execute and deliver to Collateral Agent such Collateral Documents as necessary to encumber (i) 100% of the capital stock or share capital thereof (in the case of the pledge of share capital or capital stock of any Significant Domestic Subsidiary) and (ii) 65% of the capital stock or share capital thereof (in the case of the pledge of share capital or capital stock of any Significant Foreign Subsidiary). Such Collateral Documents shall in each case be accompanied by such supporting documentation, including without limitation corporate authority items, certificates and opinions of counsel, as reasonably required by Agent and the Majority Banks. 8.18 Financial Covenant Amendments. In the event that, at any time while this Agreement is in effect, the Company shall issue any indebtedness for borrowed money which is not by its terms subordinate and junior to other indebtedness of Company and its Subsidiaries for borrowed money and such indebtedness shall include, or be issued pursuant to a trust indenture or other agreement which includes, financial covenants which are not substantially identical to the financial covenants set forth in this Agreement, the Company shall so advise the Agent in writing. Such notice shall be accompanied by a copy of the applicable agreement containing such financial covenants. The Agent shall promptly furnish a copy of such notice and the applicable agreement to each of the Banks. If the Majority Banks determine in their sole discretion that some or all of the financial covenants set forth in such agreement are more favorable to the lender thereunder than the financial covenants set forth in this Agreement ("More Favorable Terms") and that the Majority Banks desire that this Agreement be amended to incorporate the More Favorable Terms, then the Agent shall give written notice of such determination to the Company. Thereupon, and in any event within thirty (30) days following the date of notice by Agent to the Company, Company, the Permitted Borrowers and the Banks shall enter into an amendment to this Agreement incorporating, on terms and conditions acceptable to the Majority Banks, the More Favorable Terms. 9. NEGATIVE COVENANTS Company covenants and agrees that, so long as any of the Banks are committed to make any Advances under this Agreement and thereafter so long as any Indebtedness remains outstanding, it will not, and it will not allow its Subsidiaries, without the prior written consent of the Majority Banks, to: 9.1 Capital Structure and Redemptions. Purchase, acquire or redeem any of its capital stock or make any material change in its capital structure, provided however that the issuance of additional voting common stock shall not be deemed to constitute a material change in capital structure; and provided further that, with 98 110 respect to the Significant Subsidiaries owned by Company or any of its Domestic Subsidiaries, any increase in the share capital (or the creation of any new share capital) of any of such Significant Subsidiaries shall be permitted only if, at the time of any such increase or the creation of any new shares, as the case may be, such shares are immediately subjected to a pledge and security interest in favor of the Collateral Agent, for and on behalf of the Lenders, pursuant to the applicable Collateral Documents (to the extent required thereunder), and all steps are taken as necessary under applicable law to perfect each such pledge and security interest. 9.2 Business Purposes. Make any material change in its general business objects or purposes from those existing as of the date hereof or enter into any business, directly or through any Subsidiary, except for those businesses in which the Company and its Subsidiaries are engaged on the date of this Agreement or other businesses which are directly related thereto. 9.3 Mergers or Dispositions. Enter into any merger or consolidation, except for any Permitted Merger, or sell, lease, transfer, relocate or dispose of all, substantially all, or any material part of its assets, except for Permitted Transfers. 9.4 Guaranties. Guarantee, endorse, or otherwise become liable for or upon the obligations of others, except by endorsement of cash items for deposit in the ordinary course of business and except for the Guaranties and the Permitted Guaranties. 9.5 Debt. Become or remain obligated for any indebtedness for borrowed money, or for any indebtedness incurred in connection with the acquisition of any property, real or personal, tangible or intangible, or for any other Debt, except for: (a) Indebtedness to Banks hereunder; (b) current unsecured trade, utility or non-extraordinary accounts payable arising in the ordinary course of Company's or any Subsidiary's businesses; (c) purchase money debt for fixed assets (including capitalized leases or other non-cancelable leases having a term of twelve months or longer) not to exceed an aggregate amount, for the Company and its Subsidiaries incurred while no Default or Event of Default exists under this Agreement or the other Loan Documents, of Twenty Million Dollars ($20,000,000) (or the equivalent thereof in any other currency, as applicable) at any one time outstanding; (d) the Existing Senior Debt, the New Senior Debt, the Subordinated Debt and such other debt set forth in Schedule 9.5 attached hereto, if any (in addition to any other matters set forth in this Section 9.5), and any renewals or refinancing of such indebtedness in amounts not exceeding the scheduled amounts (less any required amortization according to the terms thereof) on 99 111 substantially the same terms and otherwise in compliance with this Agreement; (e) other Debt for borrowed money in an amount not to exceed in the aggregate for the Company and its Subsidiaries at any time outstanding, the sum of Five Million Dollars ($5,000,000) (or the equivalent thereof in any other currency, as applicable), which Debt shall be neither secured nor subject to any guaranty; and (f) Intercompany Loans, but only to the extent permitted under the other applicable terms and limitations of this Agreement, including but not limited to Section 9.8 hereof. 9.6 Liens. Permit or suffer any Lien to exist on any of its properties, real, personal or mixed, tangible or intangible, whether now owned or hereafter acquired, except: (a) in favor of Collateral Agent, as security in pari passu for the Indebtedness and the Lender Debt, in accordance with the Intercreditor Agreement; (b) purchase money security interests in fixed assets to secure the purchase money indebtedness permitted in Section 9.5(c) hereof, provided that each such security interest is created substantially contemporaneously with the acquisition of such fixed assets and does not extend to any property other than the fixed asset so financed and provided further that the sum of all such purchase money indebtedness outstanding at any time shall not exceed the aggregate amount set forth in Section 9.5(c), hereof; and (c) any lien securing Debt assumed pursuant to a Permitted Acquisition, provided that such Lien is limited to the property so acquired, and was not entered into, extended or renewed in contemplation of such acquisition; and (d) Permitted Liens. 9.7 Acquisitions. Other than any Permitted Acquisition, purchase or otherwise acquire or become obligated for the purchase of all or substantially all or any material portion of the assets or business interests of any Person, firm or corporation, or any shares of stock (or other ownership interests) of any corporation, trusteeship or association, or any business or going concern, or in any other manner effectuate or attempt to effectuate an expansion of present business by acquisition. 9.8 Investments. Make or allow to remain outstanding any Investment in, or any loans or advances to, any Person, firm, corporation or other entity or association, other than: (a) any loan or other advance by Company or a Subsidiary, as the case may be, to any and all of its officers or employees, as the case may be, in the normal course of business, so 100 112 long as the aggregate of all such loans or advances by the Company and its Subsidiaries does not exceed One Million Dollars ($1,000,000) (or the equivalent thereof in any Alternative Currency) at any time outstanding, plus reasonable, reimbursable business and travel expenses; (b) Permitted Investments at any time outstanding or in effect; (c) Investments in Company's Subsidiaries existing as of the date of this Agreement; (d) The existing investments, loans and/or advances set forth on Schedule 9.8 hereto, in addition to any other matters set forth in this Section 9.8); (e) Intercompany Loans, Advances, or Investments to Company's Significant Domestic Subsidiaries; (f) Intercompany Loans, Advances, or Investments to Company's Significant Foreign Subsidiaries without regard to any repayment of such loans, advances, or investments (other than the repayment or recovery of capital or principal), in an aggregate amount at any time outstanding not to exceed (absent the consent of the Majority Banks), exclusive of the investments permitted under subsections (a) through (c) and (l) of this Section 9.8, but including any such loans, advances or investments permitted under any other provision of this Agreement, the difference between (i) Sixty Million Dollars ($60,000,000) (or the equivalent thereof in any other currency, as applicable) and (ii) the aggregate amount of Advances outstanding to the Significant Foreign Subsidiaries at such time, determined as aforesaid; (g) Intercompany Loans, Advances, or Investments to Company's Subsidiaries which are not Significant Subsidiaries without regard to any repayment of such loans, advances, or investments (other than the repayment or recovery of capital or principal), in an aggregate amount at any time outstanding not to exceed (absent the consent of the Majority Banks), exclusive of the investments permitted under subsections (a) through (c) and (l) of this Section 9.8, but including any such loans, advances or investments permitted under any other provision of this Agreement, Five Million Dollars ($5,000,000) (or the equivalent thereof in any Alternative Currency); (h) loans, advances or investments (without regard to any repayment of such loans, advances or investments, other than the repayment of capital or principal) to any Joint Venture or Subsidiary which does not constitute a 100% Subsidiary, including without limitation (i) loans, advances or investments permitted under any other provision of this Agreement and (ii) guaranties by the Company or any Subsidiary (valued on the basis of the aggregate amount of such indebtedness covered by a guaranty) of third-party indebtedness of any such Joint Venture or non-100% Subsidiary, in 101 113 an aggregate amount, for all such loans, advances and investments under this subsection (h), at any time not to exceed twenty percent (20%) of Consolidated Tangible Net Worth; (i) subject to the terms and conditions of this Agreement, including without limitation Sections 8.4 through 8.6 hereof, foreign currency investments and other hedging instruments intended solely to protect the Company from foreign currency fluctuations directly related to any Permitted Acquisition, or otherwise in the ordinary course of its business operations; (j) other short term investments (excluding investments in Subsidiaries, Affiliates or Joint Ventures) made or maintained by any Foreign Subsidiary outside of the United States of America in the ordinary course of its business, consistent with the present investment practices of the Company and its Subsidiaries as of the date hereof (generally, and as to the individual and aggregate amounts and other terms thereof); (k) investments, whether by acquisition of shares of Capital Stock, indebtedness or other obligations or security of, any Person (other than a Subsidiary or an Affiliate) which is a customer of the Company or any Subsidiary, which investment was made in exchange for amounts owed by such customer to the Company or any Subsidiary (and incurred in the ordinary course of business) or as an advance on the provision of goods and services in the ordinary course of business; and (l) the Dyno Acquisition, to the extent such acquisition shall be deemed to constitute an Investment. In valuing any Investments for the purpose of applying the limitations set forth in this Section 9.8 (except as otherwise expressly provided herein), such Investment shall be taken at the original cost thereof, without allowance for any subsequent write-offs or appreciation or depreciation, but less any amount repaid or recovered on account of capital or principal. 9.9 Accounts Receivable. Sell or assign any account, note or trade acceptance receivable, except to Agent on behalf of the Banks. 9.10 Transactions with Affiliates. Enter into any transaction with any of its or their stockholders or officers or its or their Affiliates, except in the ordinary course of business and on terms not less favorable than would be usual and customary in similar transactions between Persons dealing at arm's length. 9.11 Dyno Capital Expenditures. Incur or make Dyno Capital Expenditures (determined on a Consolidated basis) in aggregate amounts greater than (a) from the date of the Dyno Acquisition, if the same shall occur, through December 31, 1995, the sum of Fifteen Million Dollars ($15,000,000) (or the equivalent thereof in any other currency, as applicable) and (b) from January 1, 1996 through 102 114 (and including) June 30, 1996, the sum of Ten Million Dollars ($10,000,000) (or the equivalent thereof in any other currency, as applicable), in each case on a non-cumulative basis. 9.12 No Further Negative Pledges. Enter into or become subject to any agreement (other than loan documents evidencing or otherwise related to the Existing Senior Debt, the New Senior Debt, or any purchase money Debt permitted under this Agreement or the other Loan Documents, but only to the extent of the property acquired with the proceeds of such purchase money Debt) (i) prohibiting the guaranteeing by the Company or any Subsidiary of any obligations, (ii) prohibiting the creation or assumption of any lien or encumbrance upon the properties or assets of the Company or any Subsidiary, whether now owned or hereafter acquired, or (iii) requiring an obligation to become secured (or further secured) if another obligation is secured or further secured. 9.13 Prepayment of Debts. Prepay, purchase, redeem or defease any Debt for money borrowed or any capital leases (including without limitation the Existing Senior Debt, the New Senior Debt and the Subordinated Debt), excluding, subject to the terms hereof, the Indebtedness, and excluding paydowns from time to time of permitted working capital facilities or other revolving debt. 9.14 Amendment of Existing Senior Debt Documents and New Senior Debt Documents and Subordinated Debt. Amend, modify or otherwise alter (or suffer to be amended, modified or altered) any of the material terms and conditions of those documents or instruments evidencing or otherwise related to the New Senior Debt or any Subordinated Debt or waive (or permit to be waived) any provision thereof in any material respect, without the prior written approval of Agent and the Majority Banks, and amend, modify or otherwise alter (or suffer to be amended, modified or altered) any of the terms of the Existing Senior Debt Documents, the amendment, modification or alteration of which are restricted by Section 2.1(a) of the Intercreditor Agreement, except in compliance therewith. For purposes of those documents or instruments evidencing or otherwise related to such Debt (other than the Existing Senior Debt), any increase in the original interest rate or principal amount, any shortening of the original amortization, any change in any default, remedial or other repayment terms and any change in or waiver of conditions contained therein which are required under or necessary for compliance with this Agreement or the other Loan Documents or, with respect to the Subordinated Debt, any change in the subordination provisions contained therein, shall (without reducing the scope of this Section 9.14) be deemed to be material. 10. DEFAULTS 10.1 Events of Default. Any of the following events is an "Event of Default": 103 115 (a) non-payment when due of the principal or interest under any of the Notes issued hereunder in accordance with the terms thereof or of any reimbursement obligation under Section 3.6 hereof, and in the case of interest payments, continuance thereof for three (3) Business Days; (b) default in the payment of any money by Company or any of the Permitted Borrowers under this Agreement (other than as set forth in subsection (a), above), within three (3) days of the date the same is due and payable; (c) default in the observance or performance of any of the other conditions, covenants or agreements set forth in this Agreement or any of the other Loan Documents by any party thereto (provided that, with respect to the covenants set forth in Sections 8.8, 8.10, 8.13, 8.14 and 8.15(b) hereof, such event has continued for thirty (30) consecutive days) or the occurrence of any other default or event of default, as the case may be, hereunder or thereunder; (d) any representation or warranty made by Company or any of the Permitted Borrowers herein or in any instrument submitted pursuant hereto or by any other party to the Loan Documents proves untrue in any material adverse respect when made or deemed made; (e) default in the observance or performance of or failure to comply with any of the conditions, covenants or agreements of Company or any Guarantor set forth in any of the other Loan Documents (including without limitations any of the Collateral Documents), and the continuance thereof beyond any period of grace or cure specified in any such document; (f) any provision of the Company Guaranty, the Domestic Guaranty or the Permitted Borrower Guaranty shall at any time for any reason cease to be valid and binding and enforceable against the Company or any of the Guarantors, as applicable, or the validity, binding effect or enforceability thereof shall be contested by any Person, or the Company or any of the Guarantors shall deny that it has any or further liability or obligation under the Company Guaranty, the Domestic Guaranty or the Permitted Borrower Guaranty, as applicable, or the Company Guaranty, the Domestic Guaranty or the Permitted Borrower Guaranty shall be terminated, invalidated, revoked or set aside or in any way cease to give or provide to the Banks and the Agent the benefits purported to be created thereby; (g) any default in the observance, payment or performance of or failure to comply with any of the conditions, covenants or agreements of Company or any of its Subsidiaries under the Existing Senior Debt Documents, the New Senior Debt Documents or any Subordinated Debt Documents, and the continuance thereof beyond any period of grace or cure specified in any such document; 104 116 (h) any default in the payment of any other obligation of Company or any of its Subsidiaries for borrowed money or under a capital lease in an amount, individually or in the aggregate in excess of Five Million Dollars ($5,000,000), or the equivalent thereof in any other currency, as applicable, and the continuance thereof beyond any applicable period of grace or cure; or any default in the observance or performance of any conditions, covenants or agreements related or given with respect to any other obligations for borrowed money or under a capital lease in an amount, individually or in the aggregate, in excess of Five Million Dollars ($5,000,000), or the equivalent thereof in any other currency, as applicable, sufficient to permit the holder thereof to accelerate the maturity of such obligation; (i) a final judgment or final judgments for the payment of money aggregating in excess of Five Million Dollars ($5,000,000), or the equivalent thereof in any other currency, as applicable, shall be outstanding against any one or more of the Company and its Subsidiaries and any one of such judgments shall have been outstanding for more than thirty (30) days from the date of its entry, except to the extent that any such judgment is being contested in good faith by appropriate proceedings which provide for a stay of any enforcement action against the Company or such Subsidiary during the pendency of such proceedings and for which adequate reserves have been established and where nonpayment of such judgment could not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole; (j) (i) any Person shall engage in any Prohibited Transaction involving any Pension Plan, (ii) any accumulated funding deficiency (as defined in Section 7.18 hereof), whether or not waived, shall exist with respect to any Pension Plan or any Lien in favor of the PBGC or a Pension Plan shall arise on the assets of the Company or any ERISA Affiliate, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA or (v) the Company or any ERISA Affiliate shall, or in the reasonable opinion of the Majority Banks is likely to, incur any liability in connection with a withdrawal from, or the insolvency, bankruptcy or reorganization of, a Multiemployer Plan and in each case in clauses (i) through (v) above, (x) a period of sixty (60) days, or more, has elapsed from the occurrence of such event or condition and (y) such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a material adverse effect upon the Company and its Subsidiaries, taken as a whole; (k) (i) any Person or "group" (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, 105 117 as amended), other than the Current Shareholder and Management Group, shall either (i) acquire beneficial ownership of more than fifty percent (50%) of any outstanding class of common stock of the Company having ordinary voting power in the election of the directors of the Company or (ii) obtain the power (whether or not exercised) to elect a majority of the Company's board of directors; or (ii) the board of directors of the Company shall not consist of a majority of Continuing Directors; or (iii) a "Change in Control" shall occur under the Existing Senior Debt Documents or the New Senior Debt Documents, as the case may be, or the Company has issued any "Change of Control Notice" or "Control Change" Notice hereunder; and (l) if a receiver, liquidator, custodian or trustee of the Company, any Guarantor, any Permitted Borrower or any Significant Subsidiary, or of all or any part of the property of the Company, any Guarantor, any Permitted Borrower or any Significant Subsidiary, shall be appointed by court order and such order shall remain in effect for more than sixty (60) days, or an order for relief shall be entered with respect to the Company, any Guarantor, any Permitted Borrower or any Significant Subsidiary, or the Company or any Subsidiary shall be adjudicated a bankrupt or insolvent; or any of the property of the Company, any Guarantor, any Permitted Borrower or any Significant Subsidiary shall be sequestered by court order and such order shall remain in effect for more than sixty (60) days; or a petition shall be filed against the Company, any Guarantor, any Permitted Borrower or any Significant Subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect, and shall not be dismissed within sixty (60) days after such filing; or if the Company, any Guarantor, any Permitted Borrower or any Significant Subsidiary shall file a petition in voluntary bankruptcy or seeking relief under any provision of any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect, or shall consent to the filing of any petition against it under any such law; or if the Company, any Guarantor, any Permitted Borrower or any Significant Subsidiary shall make an assignment for the benefit of its creditors, or shall admit in writing its inability, or shall fail, to pay its debts generally as they become due, or shall consent to the appointment of a receiver, liquidator or trustee of the Company, any Guarantor, any Permitted Borrower or any Significant Subsidiary or of all or any part of the property of the Company, any Guarantor, any Permitted Borrower or any Significant Subsidiary. 10.2 Exercise of Remedies. If an Event of Default has occurred and is continuing hereunder: (a) the Agent shall, if directed to do so by the Majority Banks, declare any commitment of the Banks 106 118 (including the Swing Line Bank) to lend hereunder immediately terminated; (b) the Agent shall, if directed to do so by the Majority Banks, declare the entire unpaid principal Indebtedness, including the Notes, immediately due and payable, without presentment, notice or demand, all of which are hereby expressly waived by Company and each of the Permitted Borrowers; (c) upon the occurrence of any Event of Default specified in subsection 10.1 (l), above, and notwithstanding the lack of any declaration by Agent under preceding clause (b), the entire unpaid principal Indebtedness, including the Notes, shall become automatically due and payable; (d) the Agent shall, upon being directed to do so by the Majority Banks, demand immediate delivery of cash collateral, and the Company and each Account Party agrees to deliver such cash collateral upon demand, in an amount equal to the maximum amount that may be available to be drawn at any time prior to the stated expiry of all outstanding Letters of Credit, and (e) the Agent shall, if directed to do so by the Majority Banks or the Banks, as applicable (subject to the terms hereof), exercise any remedy permitted by this Agreement, the other Loan Documents or law. 10.3 Rights Cumulative. No delay or failure of Agent and/or Banks in exercising any right, power or privilege hereunder shall affect such right, power or privilege, nor shall any single or partial exercise thereof preclude any other or further exercise thereof, or the exercise of any other power, right or privilege. The rights of Banks under this Agreement are cumulative and not exclusive of any right or remedies which Banks would otherwise have. 10.4 Waiver by Company and the Permitted Borrowers of Certain Laws. To the extent permitted by applicable law, Company and the Permitted Borrowers hereby agree to waive, and do hereby absolutely and irrevocably waive and relinquish the benefit and advantage of any valuation, stay, appraisement, extension or redemption laws now existing or which may hereafter exist, which, but for this provision, might be applicable to any sale made under the judgment, order or decree of any court, on any claim for interest on the Notes, AND FURTHER HEREBY IRREVOCABLY AGREE TO WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY AND ALL ACTIONS OR PROCEEDINGS IN WHICH AGENT OR THE BANKS (OR ANY OF THEM), ON ONE HAND, AND THE COMPANY OR THE PERMITTED BORROWER, ON THE OTHER HAND, ARE PARTIES, WHETHER OR NOT SUCH ACTIONS OR PROCEEDINGS ARISE OUT OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR OTHERWISE. These waivers have been voluntarily given, with full knowledge of the consequences thereof. 10.5 Waiver of Defaults. No Event of Default shall be waived by the Banks except in a writing signed by an officer of the Agent in accordance with Section 13.14 hereof. No single or partial exercise of any right, power or privilege hereunder, nor any delay in the exercise thereof, shall preclude other or further exercise of the Banks' rights by Agent. No waiver of any Event of Default shall extend to any other or further Event of Default. No forbearance on the part of the Agent in enforcing any of the Banks' 107 119 rights shall constitute a waiver of any of their rights. Company and each of the Permitted Borrowers expressly agree that this Section may not be waived or modified by the Banks or Agent by course of performance, estoppel or otherwise. 11. PAYMENTS, RECOVERIES AND COLLECTIONS. 11.1 Payment Procedure. (a) All payments by Company and/or by the Permitted Borrowers of principal of, or interest on, the Revolving Credit Notes, the Swing Line Note, any Term Notes or of Fees shall be made without setoff or counterclaim on the date specified for payment under this Agreement not later than 12:00 noon (Detroit time) in Dollars in immediately available funds to Agent, for the ratable account of the Banks, at Agent's office located at One Detroit Center, Detroit, Michigan 48226, in respect of Domestic Advances. Payments made in respect of any Advance in any Alternative Currency shall be made in such Alternative Currency in immediately available funds for the account of Agent's Eurocurrency Lending Office, at the Agent's Correspondent, for the ratable account of the Banks, not later than 12:00 noon (the time of Agent's Correspondent). Upon receipt of each such payment, the Agent shall make prompt payment to each Bank, or, in respect of Eurocurrency-based Advances, such Bank's Eurocurrency Lending Office, in like funds and currencies, of all amounts received by it for the account of such Bank. (b) Unless the Agent shall have been notified by the Company prior to the date on which any payment to be made by the Company or a Permitted Borrower is due that the Company or such Permitted Borrower does not intend to remit such payment, the Agent may, in its discretion, assume that the Company or the applicable Permitted Borrower has remitted such payment when so due and the Agent may, in reliance upon such assumption, make available to each Bank on such payment date an amount equal to such Bank's share of such assumed payment. If the Company or such Permitted Borrower has not in fact remitted such payment to the Agent, each Bank shall forthwith on demand repay to the Agent in the applicable currency the amount of such assumed payment made available to such Bank, together with the interest thereon, in respect of each day from and including the date such amount was made available by the Agent to such Bank to the date such amount is repaid to the Agent at a rate per annum equal to (i) for Domestic Advances, the Federal Funds Effective Rate, as the same may vary from time to time, and (ii) with respect to Eurocurrency-based Advances or Advances in any Alternative Currency, Agent's aggregate marginal cost (including the cost of maintaining any required reserves or deposit insurance and of any fees, penalties, overdraft charges or other costs or expenses incurred by Agent) of carrying such amount. 108 120 (c) Whenever any payment to be made hereunder (other than payments in respect of any Eurocurrency-based Advance) shall otherwise be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing interest, if any, in connection with such payment. Whenever any payment of principal of, or interest on, a Eurocurrency-based Advance shall be due on a day which is not a Business Day the date of payment thereof shall be extended to the next succeeding Business Day unless as a result thereof it would fall in the next calendar month, in which case it shall be shortened to the next preceding Business Day and, in the case of a payment of principal, interest thereon shall be payable for such extended or shortened time, if any. (d) All payments to be made by the Company or any of the Permitted Borrowers under this Agreement or any of the Notes (including without limitation payments under the Swing Line Note) shall be made without set-off or counterclaim, as aforesaid, and without deduction for or on account of any present or future withholding or other taxes of any nature imposed by any governmental authority or of any political subdivision thereof or any federation or organization of which such governmental authority may at the time of payment be a member, unless Company or the applicable Permitted Borrower, as the case may be, is compelled by law to make payment subject to such tax. In such event, Company and the applicable Permitted Borrower shall: (i) pay to the Agent for Agent's own account and/or, as the case may be, for the account of the Banks (and, in the case of any Swing Line Advances, pay to the Swing Line Bank which funded such Advances) such additional amounts as may be necessary to ensure that the Agent and/or such Bank or Banks receive a net amount in the applicable Permitted Currency equal to the full amount which would have been receivable had payment not been made subject to such tax; and (ii) remit such tax to the relevant taxing authorities according to applicable law, and send to the Agent or the applicable Bank (including the Swing Line Bank) or Banks, as the case may be, such certificates or certified copy receipts as the Agent or such Bank or Banks shall reasonably require as proof of the payment by the Company or the applicable Permitted Borrower of any such taxes payable by the Company or the applicable Permitted Borrower. 109 121 As used herein, the terms "tax", "taxes" and "taxation" include all existing taxes, levies, imposts, duties, charges, fees, deductions and withholdings and any restrictions or conditions resulting in a charge together with interest thereon and fines and penalties with respect thereto which may be imposed by reason of any violation or default with respect to the law regarding such tax, assessed as a result of or in connection with the transactions in any Alternative Currency hereunder, or the payment and or receipt of funds in any Alternative Currency hereunder, or the payment or delivery of funds into or out of any jurisdiction other than the United States (whether assessed against Company, any of the Permitted Borrowers, Agent or any of the Banks). 11.2 Application of Proceeds. Notwithstanding anything to the contrary in this Agreement, after an Event of Default, the proceeds of any offsets, voluntary payments by the Company or any of the Permitted Borrowers or others and any other sums received or collected in respect of the Indebtedness, shall be applied, first, to the Notes in such order and manner as determined by the Majority Banks (subject, however, to the applicable Percentages of the Indebtedness held by each of the Banks), next, to any other Indebtedness on a pro rata basis, and then, if there is any excess, to the Company or the Permitted Borrowers, as the case may be. The application of such proceeds and other sums to the Notes shall be based on each Bank's Percentage of the aggregate Indebtedness. 11.3 Pro-rata Recovery. If any Bank shall obtain any payment or other recovery (whether voluntary, involuntary, by application of offset or otherwise) on account of principal of, or interest on, any of the Notes in excess of its pro rata share of payments then or thereafter obtained by all Banks upon principal of and interest on all Notes, such Bank shall purchase from the other Banks such participations in the Notes held by them as shall be necessary to cause such purchasing Bank to share the excess payment or other recovery ratably in accordance with the Percentages with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing holder, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 11.4 Deposits and Accounts. In addition to and not in limitation of any rights of any Bank or other holder of any of the Notes under applicable law, each Bank and each other such holder shall, upon acceleration of the indebtedness under the Notes and without notice or demand of any kind, have the right to set-off, appropriate and apply to the payment of the Notes owing to it (whether or not then due) any and all balances, credits, deposits, accounts or moneys of Company or any of the Permitted Borrowers then or thereafter with such Bank or other holder; provided, however, that any such amount so applied by any Bank or other holder on any of the Notes owing to it shall be subject to the provisions of Section 11.3 hereof. 110 122 12. CHANGES IN LAW OR CIRCUMSTANCES; INCREASED COSTS. 12.1 Reimbursement of Prepayment Costs. If Company or any of the Permitted Borrowers makes any payment of principal with respect to any Eurocurrency-based Advance or Quoted Rate Advance on any day other than the last day of the Interest Period applicable thereto (whether voluntarily, by acceleration, or otherwise) or converts or refunds, (or attempt to convert or refund) any such Advance, or if Company or any of the Permitted Borrowers fails to borrow, refund or convert any Eurocurrency-based Advance or Quoted Rate Advance after notice has been given by Company or such Permitted Borrower to Agent in accordance with the terms hereof requesting such Advance, or if Company or any of the Permitted Borrowers fails to make any payment of principal or interest in respect of a Eurocurrency-based Advance or Quoted Rate Advance when due, Company and the applicable Permitted Borrower shall reimburse Agent and Banks, as the case may be on demand for any resulting loss, cost or expense incurred by Agent or any of the Banks, as the case may be as a result thereof, including, without limitation, any such loss, cost or expense incurred in obtaining, liquidating, employing or redeploying deposits from third parties, whether or not Agent and such Banks, as the case may be, shall have funded or committed to fund such Advance, but excluding loss of the Applicable Margin. Such amount payable by Company and the applicable Permitted Borrower to Agent and Banks, as the case may be, may include, without limitation, an amount equal to the excess, if any, of (a) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, refunded or converted, for the period from the date of such prepayment or of such failure to borrow, refund or convert, through the last day of the relevant Interest Period, at the applicable rate of interest for said Advance(s) provided under this Agreement (excluding the Applicable Margin, if any), over (b) the amount of interest (as reasonably determined by Agent and or any of the Banks, as the case may be) which would have accrued to Agent or such Bank(s), as the case may be, on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurocurrency market. Calculation of any amounts payable to any Bank under this paragraph shall be made as though each such Bank shall have actually funded or committed to fund the relevant Advance through the purchase of an underlying deposit in an amount equal to the amount of such Advance and having a maturity comparable to the relevant Interest Period; provided, however, that any Bank may fund any Eurocurrency-based Advance or Quoted Rate Advance in any manner it deems fit and the foregoing assumptions shall be utilized only for the purpose of the calculation of amounts payable under this paragraph. Upon the written request of Company, Agent and the applicable Bank(s) shall deliver to Company a certificate setting forth in reasonable detail the basis for determining such losses, costs and expenses, which certificate shall be rebuttably presumptive evidence thereof, absent demonstrable error. 12.2 Eurocurrency Lending Office. For any Advance in any Alternative Currency or to which the Eurocurrency-based Rate is 111 123 applicable, if Agent or a Bank, as applicable, shall designate a Eurocurrency Lending Office which maintains books separate from those of the rest of Agent or such Bank, Agent or such Bank, as the case may be, shall have the option of maintaining and carrying the relevant Advance on the books of such Eurocurrency Lending Office. 12.3 Availability of Alternative Currency. The Agent and the Banks shall not be required to make any Advance requested to be made in an Alternative Currency if, at any time prior to making such Advance, the Agent or any of the Reference Banks (after consultation with Agent) shall determine, in its or their sole discretion, that (i) deposits in the applicable Alternative Currency in the amounts and maturities required to fund such Advance will not be available to the Agent and the Banks; (ii) a fundamental change has occurred in the foreign exchange or interbank markets with respect to the applicable Alternative Currency (including, without limitation, changes in national or international financial, political or economic conditions or currency exchange rates or exchange controls); or (iii) it has become otherwise materially impracticable for the Agent or the Banks, as applicable, to make such Advance in the applicable Alternative Currency. The Agent or the applicable Bank, as the case may be, shall promptly notify the Company and Banks of any such determination. 12.4 Refunding Advances in Same Currency. If pursuant to any provisions of this Agreement, the Company or any of the Permitted Borrowers repays one or more Advances and on the same day borrows an amount in the same currency, the Agent (or the Swing Line Bank, in the case of a Swing Line Advance) shall apply the proceeds of such new borrowing to repay the principal of the Advance or Advances being repaid and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be remitted by the Agent to the Company or the applicable Permitted Borrower, or by the Company or the applicable Permitted Borrower to the Agent, as the case may be. 12.5 Circumstances Affecting Eurocurrency-based Rate or Alternative Currency Availability. If with respect to any Interest Period Agent or any of the Reference Banks (after consultation with Agent) shall determine that, by reason of circumstances affecting the foreign exchange and interbank markets generally, deposits in eurodollars or in any applicable Alternative Currency, as the case may be, in the applicable amounts are not being offered to the Agent or such Bank for such Interest Period, then Agent shall forthwith give notice thereof to the Company and the applicable Permitted Borrower. Thereafter, until Agent notifies Company and the applicable Permitted Borrower that such circumstances no longer exist, (i) the obligation of Banks to make Eurocurrency-based Advances (other than in any applicable Alternative Currency with respect to which deposits are available, as required hereunder), and the right of Company or any Permitted Borrower to convert an Advance to or refund an Advance as a Eurocurrency-based Advance, as the case may be (other than in any applicable Alternative Currency 112 124 with respect to which deposits are available, as required hereunder), shall be suspended, and (ii) the Company and the applicable Permitted Borrower shall repay in full (or cause to be repaid in full) the then outstanding principal amount of each such Eurocurrency-based Advance covered hereby in the applicable Permitted Currency, together with accrued interest thereon, any amounts payable under Sections 12.1 and 12.6, hereof, and all other amounts payable hereunder on the last day of the then current Interest Period applicable to such Advance. Upon the date for repayment as aforesaid and unless Company or the applicable Permitted Borrower notifies Agent to the contrary within two (2) Business Days after receiving a notice from Agent pursuant to this Section, such outstanding principal amount shall be converted to a Prime-based Advance (based on the Current Dollar Equivalent of any Advance denominated in an Alternative Currency) as of the last day of such Interest Period. 12.6 Laws Affecting Eurocurrency-based or Alternative Currency Advance Availability. If, after the date hereof, the introduction of, or any change in, any applicable law, rule or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by any of the Banks (or any of their respective Eurocurrency Lending Offices) with any request or directive (whether or not having the force of law) of any such authority, shall make it unlawful or impossible for any of the Banks (or any of their respective Eurocurrency Lending Offices) to honor its obligations hereunder to make or maintain any Advance with interest at the Eurocurrency-based Rate or in an Alternative Currency, such Bank shall forthwith give notice thereof to Company and to Agent. Thereafter, (a) the obligations of Banks to make Eurocurrency-based Advances or Advances in any such Alternative Currency and the right of Company to convert an Advance into or refund an Advance as a Eurocurrency-based Advance or as an Advance in any such Alternative Currency shall be suspended and thereafter Company may select as Applicable Interest Rates or as Alternative Currencies only those which remain available and which are permitted to be selected hereunder, and (b) if any of the Banks may not lawfully continue to maintain an Advance to the end of the then current Interest Period applicable thereto as a Eurocurrency-based Advance or in such Alternative Currency, the applicable Advance shall immediately be converted to a Prime-based Advance (based on the Current Dollar Equivalent of any Advances denominated in any Alternative Currency) and the Prime-based Rate shall be applicable thereto for the remainder of such Interest Period. For purposes of this Section, a change in law, rule, regulation, interpretation or administration shall include, without limitation, any change made or which becomes effective on the basis of a law, rule, regulation, interpretation or administration presently in force, the effective date of which change is delayed by the terms of such law, rule, regulation, interpretation or administration. 12.7 Increased Cost of Eurocurrency-based or Alternative Currency Advances. If the adoption after the date hereof, or any 113 125 change after the date hereof in, any applicable law, rule or regulation of or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Agent or any of the Banks (or any of their respective Eurocurrency Lending Offices) with any request or directive (whether or not having the force of law) made by any such authority, central bank or comparable agency after the date hereof: (a) shall subject any of the Banks (or any of their respective Eurocurrency Lending Offices) to any tax, duty or other charge with respect to any Advance or any Note or shall change the basis of taxation of payments to any of the Banks (or any of their respective Eurocurrency Lending Offices) of the principal of or interest on any Advance or any Note or any other amounts due under this Agreement in respect thereof (except for changes in the rate of tax on the overall net income of any of the Banks or any of their respective Eurocurrency Lending Offices imposed by the jurisdiction in which such Bank's principal executive office or Eurocurrency Lending Office is located); or (b) shall impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by any of the Banks (or any of their respective Eurocurrency Lending Offices) or shall impose on any of the Banks (or any of their respective Eurocurrency Lending Offices) or the foreign exchange and interbank markets any other condition affecting any Advance or any of the Notes; and the result of any of the foregoing is to increase the costs to any of the Banks of maintaining any part of the Indebtedness hereunder as a Eurocurrency-based Advance or as an Advance in any Alternative Currency or to reduce the amount of any sum received or receivable by any of the Banks under this Agreement or under the Notes in respect of a Eurocurrency-based Advance or any Advance in an Alternative Currency, whether with respect to Advances to Company or to any of the Permitted Borrowers, then such Bank shall promptly notify Agent (or, in the case of a Swing Line Advance, shall notify Company and the applicable Permitted Borrower directly, with a copy of such notice to Agent), and Agent (or such Bank, as aforesaid) shall promptly notify Company and the applicable Permitted Borrower of such fact and demand compensation therefor and, within thirty (30) days after such notice, Company and the applicable Permitted Borrowers agree to pay to such Bank such additional amount or amounts as will compensate such Bank or Banks for such increased cost or reduction. Agent will promptly notify Company and the applicable Permitted Borrower of any event of which it has knowledge which will entitle Banks to compensation pursuant to this Section, or which will cause Company or Permitted Borrower to incur additional liability under Sections 12.1 and 12.8 114 126 hereof, provided that Agent shall incur no liability whatsoever to the Banks, Company or any of the Permitted Borrowers in the event it fails to do so. A certificate of Agent (or such Bank, if applicable) setting forth in reasonable detail the basis for determining such additional amount or amounts necessary to compensate such Bank or Banks shall be presumed to be correct, save for demonstrable error. For purposes of this Section, a change in law, rule, regulation, interpretation, administration, request or directive shall include, without limitation, any change made or which becomes effective on the basis of a law, rule, regulation, interpretation, administration, request or directive presently in force, the effective date of which change is delayed by the terms of such law, rule, regulation, interpretation, administration, request or directive. 12.8 Indemnity. The Company and each of the Permitted Borrowers will indemnify Agent and each of the Banks against any loss or expense which may arise or be attributable to the Agent's and each Bank's obtaining, liquidating or employing deposits or other funds acquired to effect, fund or maintain the Advances (a) as a consequence of any failure by the Company or the applicable Permitted Borrower to make any payment when due of any amount due hereunder in connection with a Eurocurrency-based Advance or Advance in any Alternative Currency, (b) due to any failure of the Company or the applicable Permitted Borrower to borrow, refund or convert on a date specified therefor in a Request for Advance or request for Swing Line Advance or (c) due to any payment, prepayment or conversion of any Eurocurrency-based Advance or Advance in any Alternative Currency on a date other than the last day of the Interest Period for such Advance. Such loss or expense shall be calculated based upon the present value, as applicable, of payments due from the Company or the applicable Permitted Borrower with respect to a deposit obtained by the Agent or any of the Banks in order to fund such Advance to the Company or to the applicable Permitted Borrower. The Agent's and each Bank's, as applicable, calculations of any such loss or expense shall be furnished to the Company in reasonable detail and shall be presumed correct, absent demonstrable error. 12.9 Judgment Currency. The obligation of the Company and Permitted Borrowers to make payments of the principal of and interest on the Notes and any other amounts payable hereunder in the currency specified for such payment herein or in the Notes shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment, which is expressed in or converted into any other currency, except to the extent that such tender or recovery shall result in the actual receipt by each of the Banks of the full amount of the particular Permitted Currency expressed to be payable herein or in the Notes. The Agent (or the Swing Line Bank, as applicable) shall, using all amounts obtained or received from the Company and from the Permitted Borrowers pursuant to any such tender or recovery in payment of principal of and interest on the Notes, promptly purchase the applicable Permitted Currency at the most favorable spot exchange rate determined by the Agent (or 115 127 the Swing Line Bank, as applicable) to be available to it. The obligation of the Company and the Permitted Borrowers to make payments in the applicable Permitted Currency shall be enforceable as an alternative or additional cause of action solely for the purpose of recovering in the applicable Permitted Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Permitted Currency expressed to be payable herein or in the Notes. 12.10 Other Increased Costs. In the event that at any time after the date of this Agreement any change in law such as described in Section 12.7 hereof, shall require that the Revolving Credit, the Swing Line, the Banks' commitments to fund Term Loans hereunder or any other Indebtedness or commitment under this Agreement or any of the other Loan Documents be treated as an asset or otherwise be included for purposes of calculating the appropriate amount of capital to be maintained by each of the Banks or any corporation controlling such Banks, as the case may be (or shall increase the amount of capital required under such law, as of the date hereof, to be so maintained), the Agent, in consultation with the Banks, shall notify the Company. The Company and the Agent shall thereafter negotiate in good faith an agreement to increase the Revolving Credit Commitment Fee or other fees payable to the Agent, for the benefit of the Banks under this Agreement, which in the opinion of the Agent (in consultation with the Banks), will adequately compensate the Banks for the costs associated with such change in law. If such increase is approved in writing by the Company within thirty (30) days from the date of the notice to the Company from the Agent, the Revolving Credit Commitment Fee or other fees (if applicable) payable by the Company under this Agreement shall, effective from the date of such agreement, include the amount of such agreed increase. If the Company and the Agent are unable to agree on such an increase within thirty (30) days from the date of the notice to the Company, the Company shall have the option, exercised by written notice to the Agent within forty-five (45) days from the date of the aforesaid notice to the Company from the Agent, to terminate the Revolving Credit, the Swing Line or any commitments to fund Term Loans hereunder, as the case may be, or other commitments if applicable, in which event, all sums then outstanding to Banks and to Agent hereunder shall be due and payable in full. If (a) the Company and the Agent (in consultation with the Banks) fail to agree on an increase in the Revolving Credit Commitment Fee or other fees (if applicable) and (b) the Company fails to give timely notice that it has elected to exercise its option to terminate the Revolving Credit, the Swing Line or any commitments to fund Term Loans hereunder or other commitments, if applicable, as set forth above, then the Revolving Credit, the Swing Line or any commitments to fund Term Loans hereunder and/or such other commitments shall automatically terminate as of the last day of the aforesaid forty-five (45) day period, in which event all sums then outstanding to Banks and to Agent hereunder shall be due and payable in full. 13. AGENT 116 128 13.1 Appointment of Agent. Each Bank and the holder of each Note appoints and authorizes Agent to act on behalf of such Bank or holder under the Loan Documents and to exercise such powers hereunder and thereunder as are specifically delegated to or required of Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Bank agrees (which agreement shall survive any termination of this Agreement) to reimburse Agent for all reasonable out-of-pocket expenses (including in-house and outside attorneys' fees) incurred by Agent hereunder or in connection herewith or with an Event of Default or in enforcing the obligations of Company or any of the Permitted Borrowers under this Agreement or the other Loan Documents or any other instrument executed pursuant hereto, and for which Agent is not reimbursed by Company or any of Permitted Borrowers, pro rata according to such Bank's Percentage, but excluding any such expenses resulting from Agent's gross negligence or willful misconduct. Agent shall not be required to take any action under the Loan Documents, or to prosecute or defend any suit in respect of the Loan Documents, unless indemnified to its satisfaction by the Banks against loss, costs, liability and expense (excluding liability resulting from its gross negligence or willful misconduct). If any indemnity furnished to Agent shall become impaired, it may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. 13.2 Deposit Account with Agent. Company and each of the Permitted Borrowers may, by written notice to Agent, authorize Agent to charge their respective general deposit accounts, if any, maintained with Agent for the amount of any principal, interest, or other amounts or costs due under this Agreement when the same shall become due and payable under the terms of this Agreement or the Notes. 13.3 Exculpatory Provisions. Agent agrees to exercise its rights and powers, and to perform its duties, as Agent hereunder and under the other Loan Documents in accordance with its usual customs and practices in bank-agency transactions, but only upon and subject to the express terms and conditions of this Section 13 (and no implied covenants or other obligations shall be read into this Agreement against the Agent); neither Agent nor any of its directors, officers, employees or agents shall be liable to any Bank for any action taken or omitted to be taken by it or them under this Agreement or any document executed pursuant hereto, or in connection herewith or therewith, except for its or their own willful misconduct or gross negligence, nor be responsible for any recitals or warranties herein or therein, or for the effectiveness, enforceability, validity or due execution of this Agreement or any document executed pursuant hereto, or any security thereunder, or to make any inquiry respecting the performance by Company, any of its Subsidiaries or the Permitted Borrowers of their respective obligations hereunder or thereunder. Nor shall Agent have, or be deemed to have, a fiduciary relationship with any Bank by reason of this Agreement. Agent shall be entitled to rely upon advice of 117 129 counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which it believes to be genuine and to have been presented by a proper person. 13.4 Successor Agents. Agent may resign as such at any time upon at least 30 days prior notice to Company and all Banks. If Agent at any time shall resign or if the office of Agent shall become vacant for any other reason, Majority Banks shall, by written instrument, appoint a successor Agent (consisting of Co-Agent, or of any other Bank or financial institution satisfactory to such Majority Banks and, provided that no Default or Event of Default has occurred and is continuing, to Company, such approval of Company not to be unreasonably withheld or delayed) which shall thereupon become Agent hereunder and shall be entitled to receive from the prior Agent such documents of transfer and assignment as such successor Agent may reasonably request. Such successor Agent shall succeed to all of the rights and obligations of the retiring Agent as if originally named. The retiring Agent shall duly assign, transfer and deliver to such successor Agent all moneys at the time held by the retiring or removed Agent hereunder after deducting therefrom its expenses for which it is entitled to be reimbursed. Upon such succession of any such successor Agent, the retiring agent shall be discharged from its duties and obligations hereunder, except for its gross negligence or willful misconduct arising prior to its retirement hereunder, and the provisions of this Section 13 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 13.5 Loans by Agent. Agent shall have the same rights and powers with respect to the credit extended by it and the Notes held by it as any Bank and may exercise the same as if it were not Agent, and the term "Bank" and, when appropriate, "holder" shall include Agent in its individual capacity. 13.6 Credit Decisions. Each Bank acknowledges that it has, independently of Agent and each other Bank and based on the financial statements of Company, the Permitted Borrowers and their respective Subsidiaries and such other documents, information and investigations as it has deemed appropriate, made its own credit decision to extend credit hereunder from time to time. Each Bank also acknowledges that it will, independently of Agent and each other Bank and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any document executed pursuant hereto. 13.7 Notices by Agent. Agent shall give prompt notice to each Bank of its receipt of each notice or request required or permitted to be given to Agent by Company or any of the Permitted Borrowers pursuant to the terms of this Agreement and shall promptly distribute to the Banks any reports received from the Company or any of its Subsidiaries or the Permitted Borrowers under the terms 118 130 hereof, or other material information or documents received by Agent, in its capacity as Agent, from the Company, its Subsidiaries or the Permitted Borrowers. 13.8 Agent's Fees. Commencing on August 1, 1996 and on each succeeding anniversary date thereof until the Indebtedness has been repaid and no commitment to fund any loan hereunder is outstanding, the Company and the Permitted Borrowers, jointly and severally, shall pay to Agent an annual agency fee set forth (or to be set forth from time to time) in a letter agreement between or among Company, Permitted Borrowers and Agent. The Agent's Fees described in this Section 13.8 shall not be refundable under any circumstances. 13.9 Nature of Agency. The appointment of Agent as agent hereunder is for the convenience of Banks, Company and the Permitted Borrowers in making Advances of the Revolving Credit, the Swing Line, Term Loans and any other Indebtedness of Company or the Permitted Borrowers hereunder, and collecting fees and principal and interest on the Indebtedness. No Bank is purchasing any Indebtedness from Agent and this Agreement is not intended to be, and shall not constitute, a purchase or participation agreement. 13.10 Actions; Confirmation of Agent's Authority to Act in Event of Default. Subject to the terms and conditions of this Agreement (including without limitation any required approval or direction of the Majority Banks or Banks, as applicable, to be obtained by or given to Agent hereunder) Agent (in its capacity as Agent, but not in its capacity as issuing bank under any Letter of Credit) is hereby expressly authorized to act in all litigation by or against Agent and in all other respects as the representative of the Banks to the full extent of any approval or direction of the Majority Banks or the Banks, as applicable, obtained by or given to Agent hereunder. Without necessarily accepting service of process or designating Agent to do so in its stead, each Bank hereby agrees with each other Bank and with Agent, but without intending to confer or conferring any rights on any other party, (a) that it shall be bound by any litigation brought by or against Agent by the Company, any Subsidiary, any of the Permitted Borrowers or any other party in connection with the Indebtedness or any other rights, duties or obligations arising hereunder or under this Agreement or the other Loan Documents and (b) that it now irrevocably waives the defense of procedural impediment or failure to name or join such Bank as an indispensable party. In conducting such litigation hereunder on behalf of the Banks, Agent shall at all times be indemnified by the Banks as provided in Sections 13.1 and 13.12 hereof. Agent shall undertake to give each Bank prompt written notice of any litigation commenced against Agent and/or the Banks with respect to this Agreement or the other Loan Documents or any matter referred to herein or therein. 13.11 Authority of Agent to Enforce Notes and This Agreement. Each Bank, subject to the terms and conditions of this Agreement (including without limitation any required approval or 119 131 direction of the Majority Banks or the Banks, as applicable, to be obtained by or given to the Agent hereunder), authorizes the Agent with full power and authority as attorney-in-fact to institute and maintain actions, suits or proceedings for the collection and enforcement of the Notes, this Agreement and the other Loan Documents and to file such proofs of debt or other documents as may be necessary to have the claims of the Banks allowed in any proceeding relative to the Company, any of its Subsidiaries, any of the Permitted Borrowers or each such party's creditors or affecting each such party's properties, and to take such other actions which Agent considers to be necessary or desirable for the protection, collection and enforcement of the Notes, this Agreement or the other Loan Documents, but in each case only to the extent of any required approval or direction of the Majority Banks or the Banks, as applicable, obtained by or given to the Agent hereunder. 13.12 Indemnification. The Banks agree to indemnify the Agent in its capacity as such, to the extent not reimbursed by the Company or the Permitted Borrowers, pro rata according to their respective Percentages, from and against any and all claims, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted to be taken or suffered in good faith by the Agent hereunder, provided that no Bank shall be liable for any portion of any of the foregoing items resulting from the gross negligence or willful misconduct of the Agent or any of its officers, employees, directors or agents. 13.13 Knowledge of Default. It is expressly understood and agreed that the Agent shall be entitled to assume that no Default or Event of Default has occurred and is continuing, unless the officers of the Agent immediately responsible for matters concerning this Agreement shall have actual (rather than constructive) knowledge of such occurrence or shall have been notified in writing by a Bank that such Bank considers that a Default or an Event of Default has occurred and is continuing, and specifying the nature thereof. Upon obtaining actual knowledge of any Default or Event of Default as described above, the Agent shall promptly, but in any event within three (3) Business Days after obtaining knowledge thereof, notify each Bank of such Default or Event of Default and the action, if any, the Agent proposes be taken with respect thereto. 13.14 Agent's Authorization; Action by Banks. Except as otherwise expressly provided herein, whenever the Agent is authorized and empowered hereunder on behalf of the Banks to give any approval or consent, or to make any request, or to take any other action on behalf of the Banks (including without limitation the exercise of any right or remedy hereunder or under the other Loan Documents), the Agent shall be required to give such approval or consent, or to make such request or to take such other action 120 132 only when so requested in writing by the Majority Banks or the Banks, as applicable hereunder. Action that may be taken by Majority Banks or all of the Banks, as the case may be (as provided for hereunder), may be taken (i) pursuant to a vote at a meeting (which may be held by telephone conference call) as to which all of the Banks have been given reasonable advance notice (subject to the requirement that amendments, waivers or consents under Section 14.11 hereof be made in writing by the Majority Banks or all of the Banks, as applicable), or (ii) pursuant to the written consent of the requisite Percentages of the Banks as required hereunder, provided that all of the Banks are given reasonable advance notice of the requests for such consent. 13.15 Enforcement Actions by the Agent. Except as otherwise expressly provided under this Agreement or in any of the other Loan Documents and subject to the terms hereof, Agent will take such action, assert such rights and pursue such remedies under this Agreement and the other Loan Documents as the Majority Banks or all of the Banks, as the case may be (as provided for hereunder), shall direct. Except as otherwise expressly provided in any of the Loan Documents, Agent will not (and will not be obligated to) take any action, assert any rights or pursue any remedies under this Agreement or any of the other Loan Documents in violation or contravention of any express direction or instruction of the Majority Banks or all of the Banks, as the case may be (as provided for hereunder). Agent may refuse (and will not be obligated) to take any action, assert any rights or pursue any remedies under this Agreement or any of the other Loan Documents in the absence of the express written direction and instruction of the Majority Banks or all of the Banks, as the case may be (as provided for hereunder). In the event Agent fails, within a commercially reasonable time, to take such action, assert such rights, or pursue such remedies as the Majority Banks or all of the Banks, as the case may be (as provided for hereunder), shall direct in conformity with this Agreement, the Majority Banks or all of the Banks, as the case may be (as provided for hereunder), shall have the right to take such action, to assert such rights, or pursue such remedies on behalf of all of the Banks unless the terms hereof otherwise require the consent of all the Banks to the taking of such actions (in which event all of the Banks must join in such action). 13.16 Co-Agent. Harris Bank has been designated by the Company as "Co-Agent" under this Agreement. Other than its rights and remedies as a Bank hereunder, Co-Agent shall have no administrative, collateral or other rights or responsibilities, provided, however, that Co-Agent shall be entitled to the benefits afforded to Agent under Sections 13.5 and 13.6 hereof. 14. MISCELLANEOUS 14.1 Accounting Principles. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation 121 133 is required to be made for the purposes of this Agreement, it shall be done in accordance with GAAP. 14.2 Consent to Jurisdiction. The Company and each of the Permitted Borrowers hereby irrevocably submit to the non-exclusive jurisdiction of any United States Federal or Michigan state court sitting in Detroit in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents and the Company and each of the Permitted Borrowers hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in any such United States Federal or Michigan state court. Each of the Permitted Borrowers irrevocably appoints the Company as its agent for service of process. The Company and each of the Permitted Borrowers irrevocably consent to the service of any and all process in any such action or proceeding brought in any court in or of the State of Michigan by the delivery of copies of such process to the Company at its address specified on the signature page hereto or by certified mail directed to such address. Nothing in this Section shall affect the right of the Banks and the Agent to serve process in any other manner permitted by law or limit the right of the Banks or the Agent (or any of them) to bring any such action or proceeding against the Company or any of the Permitted Borrowers or any of its or their property in the courts of any other jurisdiction. The Company and each of the Permitted Borrowers hereby irrevocably waive any objection to the laying of venue of any such suit or proceeding in the above described courts. 14.3 Law of Michigan. This Agreement, the Notes and the other Loan Documents have been delivered at Detroit, Michigan, and shall be governed by and construed and enforced in accordance with the laws of the State of Michigan, except to the extent that the Uniform Commercial Code, other personal property law or real property law of a jurisdiction where Collateral is located is applicable and except as and to the extent expressed to the contrary in any of the Loan Documents. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 14.4 Interest. In the event the obligation of the Company or the Permitted Borrowers to pay interest on the principal balance of any of the Notes is or becomes in excess of the maximum interest rate which the Company or any of the Permitted Borrowers is permitted by law to contract or agree to pay, giving due consideration to the execution date of this Agreement, then, in that event, the rate of interest applicable with respect to such Bank's Percentage shall be deemed to be immediately reduced to such maximum rate and all previous payments in excess of the maximum 122 134 rate shall be deemed to have been payments in reduction of principal and not of interest. 14.5 Closing Costs; Other Costs. Each of the Company and the Permitted Borrowers, jointly and severally, shall pay or reimburse (a) Agent for payment of, on demand, all reasonable closing costs and expenses, including, by way of description and not limitation, reasonable in-house and outside attorney fees and advances, appraisal and accounting fees, lien search fees, and required travel costs, incurred by Agent in connection with the commitment, consummation and closing of the loans or advances contemplated hereby, or in connection with any refinancing or restructuring of the loans or Advances provided under this Agreement or the other Loan Documents, or any amendment thereof requested by Company or any of the Permitted Borrowers, and (b) Agent and each of the Banks, as the case may be, for all stamp and other taxes and duties payable or determined to be payable in connection with the execution, delivery, filing or recording of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby, and any and all liabilities with respect to or resulting from any delay in paying or omitting to pay such taxes or duties. Furthermore, all reasonable costs and expenses, including without limitation attorney fees, incurred by Agent and, after the occurrence and during the continuance of an Event of Default, by the Banks, in revising, preserving, protecting, exercising or enforcing any of its or any of the Banks' rights against Company or any of the Permitted Borrowers, or otherwise incurred by Agent and the Banks in connection with any Event of Default or the enforcement of the loans (whether incurred through negotiations, legal proceedings or otherwise), including by way of description and not limitation, such charges in any court or bankruptcy proceedings or arising out of any claim or action by any person against Agent or any Bank which would not have been asserted were it not for Agent's or such Bank's relationship with Company and the Permitted Borrowers hereunder or otherwise, shall also be paid by Company and each of the Permitted Borrowers. All of the amounts required to be paid by Company and Permitted Borrowers hereunder and not paid forthwith upon demand, as aforesaid, shall bear interest, from the date incurred to the date payment is received by Agent, at the Prime-based Rate, plus two percent (2%). 14.6 Notices. Except as otherwise provided herein, all notices or demand hereunder to the parties hereto shall be sufficient if made in writing and delivered by messenger or deposited in the mail, postage prepaid, certified mail, and addressed to the parties as set forth on the signature pages of this Agreement and to each of the Permitted Borrowers at the Company's address. Any notice or demand given to the Company hereunder shall be deemed given to each of the Permitted Borrowers, whether or not said notice or demand is addressed to or received by such Permitted Borrowers. 14.7 Further Action. Company and each of the Permitted Borrowers, from time to time, upon written request of Agent, will 123 135 make, execute, acknowledge and deliver or cause to be made, executed, acknowledged and delivered, all such further and additional instruments, and take all such further action, as may be reasonably required to carry out the intent and purpose of this Agreement, and to provide for Advances under and payment of the Notes, according to the intent and purpose herein and therein expressed. 14.8 Successors and Assigns; Assignments and Participations. (a) This Agreement shall be binding upon and shall inure to the benefit of Company and the Permitted Borrowers and the Banks and their respective successors and assigns. (b) The foregoing shall not authorize any assignment by Company or any of the Permitted Borrowers, of its rights or duties hereunder, and no such assignment shall be made (or effective) without the prior written approval of the Banks. (c) The Company, the Permitted Borrowers and Agent acknowledge that each of the Banks may at any time and from time to time, subject to the terms and conditions hereof, assign or grant participations in such Bank's rights and obligations hereunder and under the other Loan Documents to any commercial bank, the identity of which institution is approved by Company and Agent, such approval not to be unreasonably withheld or delayed; provided, however, that (i) the approval of Company shall not be required upon the occurrence and during the continuance of a Default or Event of Default and (ii) the approval of Company and Agent shall not be required for any such sale, transfer, assignment or participation to the Affiliate of an assigning Bank, any other Bank or any such sale, transfer, assignment, participation or pledge to any Federal Reserve Bank ("Federal Reserve Transfer"); and provided further that, absent the prior written approval of Company (which shall not be required upon the occurrence and during the continuance of a Default or Event of Default) and Agent, the aggregate assignments and participation interests sold by a Bank (other than pursuant to subparagraph (ii) of this Section 14.8(c)) do not exceed fifty percent (50%) of its original interest therein. The Company and each of the Permitted Borrowers authorize each Bank to disclose to any prospective assignee or participant, once approved by Company and Agent, any and all financial information in such Bank's possession concerning the Company and the Permitted Borrowers which has been delivered to such Bank pursuant to this Agreement; provided that each such prospective participant shall execute a confidentiality agreement consistent with the terms of Section 14.13 hereof. (d) Each assignment by a Bank of any portion of its rights and obligations hereunder and under the other Loan Documents (other than any Federal Reserve Transfer) shall be made pursuant to an Assignment Agreement substantially (as determined by Agent) in the form attached hereto as Exhibit "N" (with appropriate 124 136 insertions acceptable to Agent) and shall be subject to the terms and conditions hereof, and to the following restrictions: (i) each assignment shall cover all of the Notes issued by Company and the Permitted Borrowers hereunder to the assigning Bank (and not any particular note or notes), and shall be for a fixed and not varying percentage thereof, with the same percentage applicable to each such Note; (ii) each assignment shall be in a minimum amount of Ten Million Dollars ($10,000,000) or, as applicable, the Alternative Currency equivalent thereof; (iii) no assignment shall violate any "blue sky" or other securities law of any jurisdiction or shall require the Company, the Permitted Borrowers or any other Person to file a registration statement or similar application with the United States Securities and Exchange Commission (or similar state regulatory body) or to qualify under the "blue sky" or other securities laws of any jurisdiction; and (iv) no assignment shall be effective unless Agent has received from the assignee (or from the assigning Bank) an assignment fee of $3,500 for each such assignment, and the assignee has executed and delivered an Assumption Agreement as required under the Intercreditor Agreement (as defined therein). In connection with any such assignment, Company, the Permitted Borrowers and Agent shall be entitled to continue to deal solely and directly with the assigning Bank in connection with the interest so assigned until (x) the Agent shall have received a notice of assignment duly executed by the assigning Bank and an Assignment Agreement (with respect thereto) duly executed by the assigning Bank and each assignee; and (y) the assigning Bank shall have delivered to the Agent the original of each Note held by the assigning Bank under this Agreement. From and after the date on which the Agent shall notify Company and the assigning Bank that the foregoing conditions shall have been satisfied and all consents (if any) required shall have been given, the assignee thereunder shall be deemed to be a party to this Agreement. To the extent that rights and obligations hereunder shall have been assigned to such assignee as provided in such notice of assignment (and Assignment Agreement), such assignee shall have the rights and obligations of a Bank under this Agreement and the other Loan Documents(including without limitation the right to receive fees payable hereunder in respect of the period following such assignment). In addition, the assigning Bank, to the extent that rights and obligations hereunder 125 137 shall have been assigned by it as provided in such notice of assignment and the Assignment Agreement, but not otherwise, shall relinquish its rights and be released from its obligations under this Agreement and the other Loan Documents. It is acknowledged and agreed by the parties hereto that any Bank which makes a Federal Reserve Transfer shall remain fully obligated hereunder. Within five (5) Business Days following Company's receipt of notice from the Agent that Agent has accepted and executed a notice of assignment and the duly executed Assignment Agreement, Company and the Permitted Borrowers shall, to the extent applicable, execute and deliver to the Agent in exchange for any surrendered Note(s), new Note(s) payable to the order of the assignee in an amount equal to the amount assigned to it pursuant to such notice of assignment (and Assignment Agreement), and with respect to the portion of the Indebtedness retained by the assigning Bank, to the extent applicable, new Note(s) payable to the order of the assigning Bank in an amount equal to the amount retained by such Bank hereunder shall be executed and delivered by the Company and each of the Permitted Borrowers, and applicable Agent, the Banks and the Company and the Permitted Borrowers acknowledge and agree that any such new Note(s) shall be given in renewal and replacement of the surrendered Notes and shall not effect or constitute a novation or discharge of the Indebtedness evidenced by any surrendered Note, and each such new Note may contain a provision confirming such agreement. In addition, promptly following receipt of such Notes, Agent shall prepare and distribute to Company, the Permitted Borrowers and each of the Banks a revised Exhibit C to this Agreement setting forth the applicable new Percentages of the Banks (including the assignee Bank), taking into account such assignment. (e) Each Bank agrees that any participation agreement permitted hereunder shall comply with all applicable laws and shall be subject to the following restrictions (which shall be set forth in the applicable participation agreement): (i) such Bank shall remain the holder of its Notes hereunder, notwithstanding any such participation; (ii) except as expressly set forth in this Section 14.8(e) with respect to rights of setoff and the benefits of Section 12 hereof, a participant shall have no direct rights or remedies hereunder; (iii) a participant shall not reassign or transfer, or grant any sub-participations in its participation interest hereunder or any part thereof; and (iv) such Bank shall retain the sole right and responsibility to enforce the obligations of the Company and Permitted Borrowers relating 126 138 to the Notes and the other Loan Documents, including, without limitation, the right to proceed against any Guaranties, or cause Agent to do so (subject to the terms and conditions hereof), and the right to approve any amendment, modification or waiver of any provision of this Agreement without the consent of the participant, except for those matters covered by Section 14.11(a) through (e) and (h) hereof (provided that a participant may exercise approval rights over such matters only on an indirect basis, acting through such Bank, and Company, the Permitted Borrowers, Agent and the other Banks may continue to deal directly with such Bank in connection with such Bank's rights and duties hereunder), and shall otherwise be in form satisfactory to Agent. Company and the Permitted Borrowers each agrees that each participant shall be deemed to have the right of setoff under Section 11.4 hereof in respect of its participation interest in amounts owing under this Agreement and the other Loan Documents to the same extent as if the Indebtedness were owing directly to it as a Bank under this Agreement, shall be subject to the pro rata recovery provisions of Section 11.3 hereof and that each participant shall be entitled to the benefits of Section 12 hereof. The amount, terms and conditions of any participation shall be as set forth in the participation agreement between the issuing Bank and the Person purchasing such participation, and none of the Company, the Permitted Borrowers, the Agent and the other Banks shall have any responsibility or obligation with respect thereto, or to any Person to whom any such participation may be issued. No such participation shall relieve any issuing Bank of any of its obligations under this Agreement or any of the other Loan Documents, and all actions hereunder shall be conducted as if no such participation had been granted. (f) Nothing in this Agreement, the Notes or the other Loan Documents expressed or implied, is intended to or shall confer on any Person other than the respective parties hereto and thereto and their successors and assignees permitted hereunder and thereunder any benefit or any legal or equitable right, remedy or other claim under this Agreement, the Notes or the other Loan Documents. 14.9 Indulgence. No delay or failure of Agent and the Banks in exercising any right, power or privilege hereunder shall affect such right, power or privilege, nor shall any single or partial exercise thereof preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights of Agent and the Banks hereunder are cumulative and are not exclusive of any rights or remedies which Agent and the Banks would otherwise have. 127 139 14.10 Counterparts. This Agreement may be executed in several counterparts, and each executed copy shall constitute an original instrument, but such counterparts shall together constitute but one and the same instrument. 14.11 Amendment and Waiver. No amendment or waiver of any provision of this Agreement or any other Loan Document, or consent to any departure by the Company or any of the Permitted Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Banks, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Banks, do any of the following: (a) subject any of the Banks to any additional obligations, (b) reduce the principal of, or interest on, the Notes or any Letter of Credit Obligations or any Fees or other amounts payable hereunder, (c) postpone any date fixed for any payment of principal of, or interest on, the Notes or any Fees or other amounts payable hereunder, (d) waive any Event of Default specified in or grace period provided under Sections 10.1(a) or (b) hereof, (e) release or defer the granting or perfecting of a lien or security interest in any Collateral or release any Guaranty, indemnity or similar undertaking provided by any Person, except as shall be otherwise expressly provided in this Agreement or any other Loan Document, (f) take any action which requires the signing of all Banks pursuant to the terms of this Agreement or any other Loan Document, (g) change the aggregate unpaid principal amount of the Notes which shall be required for the Banks or any of them to take any action under this Agreement or any other Loan Document, (h) change the definitions of "Majority Banks", "Alternative Currency" or "Subordinated Debt" or (i) change this Section 14.11, and provided further, however, that no amendment, waiver, or consent shall, unless in writing and signed by the Agent in addition to all the Banks, affect the rights or duties of the Agent under this Agreement or any other Loan Document, whether in its capacity as Agent or Issuing Bank, or as Collateral Agent under the Intercreditor Agreement. All references in this Agreement to "Banks" or "the Banks" shall refer to all Banks, unless expressly stated to refer to Majority Banks. 14.12 Taxes and Fees. Should any tax (other than a tax based upon the net income of any Bank or Agent by any jurisdiction where a Bank or Agent is located), recording or filing fee become payable in respect of this Agreement or any of the other Loan Documents or any amendment or modification hereto or thereto, or supplement hereof or thereof, the Company and each of the Permitted Borrowers, jointly and severally, agrees to pay the same, together with any interest or penalties thereon (unless the failure to pay such tax on a timely basis is not due to the action or inaction of the Company or any of its Subsidiaries) and agrees to hold the Agent and the Banks harmless with respect thereto. 14.13 Confidentiality. Each Bank agrees that without the prior consent of Company, it will not disclose (other than to its 128 140 employees, to another Bank or to its auditors or counsel) any information with respect to the Company or any of its Subsidiaries or any of the Permitted Borrowers which is furnished pursuant to the terms and conditions of this Agreement or any of the other Loan Documents or which is designated (in writing) by Company or any of the Permitted Borrowers to be confidential; provided that any Bank may disclose any such information (a) as has become generally available to the public or has been lawfully obtained by such Bank from any third party under no duty of confidentiality to the Company, (b) as may be required in any report, statement or testimony submitted to, or in respect of any inquiry, by, any municipal, state or federal regulatory body having or claiming to have jurisdiction over such Bank, including the Board of Governors of the Federal Reserve System of the United States or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required in respect of any summons or subpoena or in connection with any litigation, (d) in order to comply with any law, order, regulation or ruling applicable to such Bank, and (e) to any permitted transferee or assignee or to any approved participant of, or with respect to, the Notes, as aforesaid. 14.14 Withholding Taxes. If any Bank is not incorporated under the laws of the United States or a state thereof, such Bank shall promptly deliver to the Agent two executed copies of (i) Internal Revenue Service Form 1001 specifying the applicable tax treaty between the United States and the jurisdiction of such Bank's domicile which provides for the exemption from withholding on interest payments to such Bank, (ii) Internal Revenue Service Form 4224 evidencing that the income to be received by such Bank hereunder is effectively connected with the conduct of a trade or business in the United States or (iii) other evidence satisfactory to the Agent that such Bank is exempt from United States income tax withholding with respect to such income. Such Bank shall amend or supplement any such form or evidence as required to insure that it is accurate, complete and non-misleading at all times. Promptly upon notice from the Agent of any determination by the Internal Revenue Service that any payments previously made to such Bank hereunder were subject to United States income tax withholding when made, such Bank shall pay to the Agent the excess of the aggregate amount required to be withheld from such payments over the aggregate amount actually withheld by the Agent. In addition, from time to time upon the reasonable request and at the sole expense of the Company or any of the Permitted Borrowers, each Bank and the Agent shall (to the extent it is able to do so based upon applicable facts and circumstances), complete and provide the Company or any of the Permitted Borrowers with such forms, certificates or other documents as may be reasonably necessary to allow the Company or the Permitted Borrower, as applicable, to make any payment under this Agreement or the other Loan Documents without any withholding for or on the account of any tax under Section 11.1(d) hereof (or with such withholding at a reduced rate), provided that the execution and delivery of such forms, certificates or other documents does not adversely affect or 129 141 otherwise restrict the right and benefits (including without limitation economic benefits) available to such Bank or the Agent, as the case may be, whether under this Agreement or any of the other Loan Documents or otherwise, or whether under or in connection with any transactions not related to the transactions contemplated hereby. 14.15 Effective Upon Execution. This Agreement shall become effective upon the execution hereof by Banks, Agent and the Company and the issuance by the Company of the Revolving Credit Notes and the Swing Line Note hereunder, and shall remain effective until the Indebtedness has been repaid and discharged in full and no commitment to extend any credit hereunder remains outstanding. By execution of the aforesaid Notes, together with any applicable Term Notes, the Permitted Borrowers shall become obligated hereunder. 14.16 Severability. In case any one or more of the obligations of the Company or any of the Permitted Borrowers under this Agreement, the Notes or any of the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining obligations of the Company or the Permitted Borrowers shall not in any way be affected or impaired thereby, and such invalidity, illegality or unenforceability in one jurisdiction shall not affect the validity, legality or enforceability of the obligations of the Company or the Permitted Borrowers under this Agreement, the Notes or any of the other Loan Documents in any other jurisdiction. 14.17 Table of Contents and Headings. The table of contents and the headings of the various subdivisions hereof are for convenience of reference only and shall in no way modify or affect any of the terms or provisions hereof. 14.18 Construction of Certain Provisions. If any provision of this Agreement or any of the other Loan Documents refers to any action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person, whether or not expressly specified in such provision. 14.19 Independence of Covenants. Each covenant hereunder shall be given independent effect (subject to any exceptions stated in such covenant) so that if a particular action or condition is not permitted by any such covenant (taking into account any such stated exception), the fact that it would be permitted by an exception to, or would be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or such condition exists. 14.20 Reliance on and Survival of Various Provisions. All terms, covenants, agreements, representations and warranties of the Company or any party to any of the Loan Documents made herein or in any of the other Loan Documents or in any certificate, report, 130 142 financial statement or other document furnished by or on behalf of the Company, any such party in connection with this Agreement or any of the other Loan Documents shall be deemed to have been relied upon by the Banks, notwithstanding any investigation heretofore or hereafter made by any Bank or on such Bank's behalf, and those covenants and agreements of the Company and the Permitted Borrowers set forth in Section 12.8 hereof (together with any other indemnities of the Company or the Permitted Borrowers contained elsewhere in this Agreement or in any of the other Loan Documents) and of Banks set forth in Section 14.13 hereof shall, notwithstanding anything to the contrary contained in this Agreement, survive the repayment in full of the Indebtedness and the termination of any commitments to make Advances hereunder. 14.21 Complete Agreement; Amendment and Restatement. This Agreement, the Notes, any requests for Advances or Letters of Credit hereunder, the other Loan Documents and any agreements, certificates, or other documents given to secure the Indebtedness, contain the entire agreement of the parties hereto with respect to the transactions contemplated hereby, and none of the parties hereto shall be bound by anything not expressed in writing. This Agreement constitutes an amendment and restatement of the Prior Credit Agreement, which Prior Credit Agreement is fully superseded and amended and restated in its entirety hereby; provided, however, that the Indebtedness governed by the Prior Credit Agreement and the liens and security interests created pursuant to the Prior Credit Agreement remain outstanding and in full force and effect and provided further that this Agreement does not constitute a novation of such Indebtedness or such liens and security interests. WITNESS the due execution hereof as of the day and year first above written. COMPANY: AGENT: WALBRO CORPORATION COMERICA BANK, As Agent By: By: --------------------------- ---------------------------- Its: Its: -------------------------- --------------------------- 6242 Garfield Street One Detroit Center Cass City, MI 48726 500 Woodward Avenue Attention: Detroit, Michigan 48226 ------------------- Attention: Renee D. Weinman 131 143 BANKS: COMERICA BANK By: ----------------------- Its: ---------------------- One Detroit Center 500 Woodward Avenue Detroit, Michigan 48226 Attention: Renee D. Weinman Fax No.: (313) ----------- HARRIS TRUST & SAVINGS BANK By: --------------------------- Its: -------------------------- 2 West 111 W. Monroe Chicago, Illinois 60690 Attn: Peter Dancy Fax No.: (312) 461-2591 NATIONAL CITY BANK By: --------------------------- Its: -------------------------- 1900 East 9th Street Cleveland, Ohio 44114 Attn: Andrew Walshaw Fax No.: (216) 575-9396 132 144 THE MITSUBISHI BANK, LIMITED, CHICAGO BRANCH By: --------------------------- Its: -------------------------- Suite 2100 115 South LaSalle Street Chicago, Illinois 60603 Attn: Diane Tkach Fax No.: (312) 263-2555 THE BANK OF NEW YORK By: --------------------------- Its: -------------------------- 22nd Floor One Wall Street New York, New York 10286 Attn: William M. Barnum Fax No.: (212) 635-6434 SOCIETE GENERALE By: --------------------------- Its: -------------------------- 181 West Madison Street Chicago, Illinois 60602 Attn: Joseph A. Philbin Fax No.: (312) 578-5099 133 145 COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A. "RABOBANK NEDERLAND", NEW YORK BRANCH By: --------------------------- Its: -------------------------- And By: ------------------------ Its: -------------------------- 245 Park Avenue New York, New York 10167 Attn: Corporate Services Department Fax No.: (212) 818-0233 134 146 EXHIBIT C
BANKS PERCENTAGES Comerica Bank 33.32% Harris Trust & Savings Bank 14.81% National City Bank 11.11% Societe Generale 10.19% The Mitsubishi Bank 10.19% Rabobank Nederland 10.19% The Bank of New York 10.19% Total 100%
135 EX-4.3 3 PURCHASE AGREEMENT 1 EXHIBIT 4.3 $110,000,000 WALBRO CORPORATION 9-7/8% SENIOR NOTES DUE 2005 PURCHASE AGREEMENT July 21, 1995 SMITH BARNEY INC. A.G. EDWARDS & SONS, INC. McDONALD & COMPANY SECURITIES, INC. STIFEL, NICOLAUS AND COMPANY, INCORPORATED c/o Smith Barney Inc. 388 Greenwich Street New York, New York 10013 Dear Sirs: Walbro Corporation, a Delaware corporation (the "Company"), proposes, upon the terms and conditions set forth herein, to issue and sell to the initial purchasers listed on Schedule I hereto (the "Initial Purchasers"), $110,000,000 aggregate principal amount of its 9-7/8% Senior Notes due 2005 (the "Senior Notes"). The Senior Notes will be issued pursuant to the provisions of an indenture, to be dated as of July 27, 1995 (the "Indenture"), among the Company, the Guarantors (as defined herein) and Bankers Trust Company, as trustee (the "Trustee"). Initially, the Senior Notes will be guaranteed (the "Guarantees" and, together with the Senior Notes, the "Securities") on a senior unsecured basis by each of Walbro Automotive Corporation, Walbro Engine Management Corporation, Sharon Manufacturing Co. and Whitehead Engineering Products, Inc. (collectively, the "Guarantors" and, together with the Company, the "Issuers"). The Company has entered into a Purchase and Sale Agreement dated as of April 7, 1995 by and between the Company and Dyno Industrier A.S (as the same may be supplemented and amended until the Closing Date (as defined herein), the "Acquisition Agreement") pursuant to which the Company has agreed to acquire (the "Acquisition") from Dyno Industrier A.S and certain of its subsidiaries (collectively, "Dyno"), either directly or as part of the Purchased Subsidiaries (as defined in the Acquisition Agreement), all of the assets, properties, rights and business and certain related liabilities (the "Dyno Assets") of Dyno relating to developing, manufacturing, 2 -2- distributing and selling plastic fuel tank systems and other blow-molded technical parts supplied to the automotive industry and certain other nonautomotive blow-molded fuel tank systems and blow-molded technical parts supplied to the automotive industry by Dyno (other than products produced by Dynoplast OY or at the Moss plants referred to in Sections 4.24 and 4.25 of the Acquisition Agreement) at production facilities in Norway, Great Britain, Germany, France, Belgium, and Spain. This Agreement, the Indenture, the Securities, the Registration Rights Agreement (as defined herein), the Acquisition Agreement and the Credit Agreement (as defined in the Indenture) are herein collectively referred to as the "Transaction Documents." The Issuers wish to confirm as follows their agreement with the Initial Purchasers in connection with the purchase and resale of the Securities. 1. Preliminary Offering Memorandum and Offering Memorandum. The Securities will be offered and sold to the Initial Purchasers without registration under the Securities Act of 1933, as amended (the "Act"), in reliance on an exemption pursuant to Section 4(2) under the Act. The Company has prepared a preliminary offering memorandum, dated July 5, 1995 (the "Preliminary Offering Memorandum"), and an offering memorandum, dated July 21, 1995 (the "Offering Memorandum"), setting forth information regarding the Issuers and the Securities. Unless stated herein to the contrary, all references herein to the Offering Memorandum are to the Offering Memorandum at the date hereof and are not meant to include any supplement or amendment subsequent thereto. The Company hereby confirms that it has authorized the use of the Preliminary Offering Memorandum and the Offering Memorandum in connection with the offering and resale of the Securities by the Initial Purchasers. The Issuers understand that the Initial Purchasers propose to make offers and sales (the "Exempt Resales") of the Securities purchased by the Initial Purchasers hereunder only on the terms and in the manner set forth in the Offering Memorandum and Section 2 hereof, as soon as the Initial Purchasers deem advisable after this Agreement has been executed and delivered, (i) to persons in the United States whom the Initial Purchasers reasonably believe to be qualified institutional buyers ("Qualified Institutional Buyers") as defined in Rule 144A under the Act, as such rule may be amended from time to time ("Rule 144A"), in transactions under Rule 144A, (ii) to a limited number of other institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) and (7) under Regulation D of the Act) ("Accredited Investors") in private sales exempt from registration under the Act and (iii) outside the United States to persons other than U.S. persons in reliance upon Regulation S ("Regulation S") under the Act (such persons specified in clauses (i), (ii) and (iii) being referred to herein as the "Eligible Purchasers"). As used herein the terms "United States" and "U.S. persons" have the meaning given them in Regulation S. 3 -3- It is understood and acknowledged that upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Act, each of the Securities (and each security issued in exchange therefor or in substitution thereof) shall bear the following legend: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES TO PERSONS OTHER THAN U.S. PERSONS IN OFFSHORE TRANSACTIONS MEETING THE REQUIREMENTS OF RULE 904 UNDER REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. It is also understood and acknowledged that holders (including subsequent transferees) of the Securities will have the registration 4 -4- rights set forth in the registration rights agreement (the "Registration Rights Agreement") substantially in the form attached hereto as Exhibit A, to be dated the date hereof by and among the Issuers and the Initial Purchasers. 2. Agreements to Sell, Purchase and Resell. (a) The Issuers hereby agree, subject to all the terms and conditions set forth herein, to issue and sell to the Initial Purchasers and, upon the basis of the representations, warranties and agreements of the Issuers herein contained and subject to all the terms and conditions set forth herein, each Initial Purchaser agrees to purchase from the Issuers, severally and not jointly, at a purchase price of 97.15% of the principal amount thereof, the principal amount of Senior Notes (together with the Guarantees) set forth opposite such Initial Purchaser's name in Schedule I hereto. (b) The Initial Purchasers represent and warrant to the Issuers that they are Qualified Institutional Buyers and have advised the Issuers that they propose to offer the Securities for sale upon the terms and conditions set forth in this Agreement and in the Offering Memorandum. The Initial Purchasers hereby represent and warrant to, and agree with, the Issuers that the Initial Purchasers (i) will not solicit offers for, or offer to sell, the Securities by means of any form of general solicitation or general advertising or in any manner involving a public offering within the meaning of Section 4(2) of the Act (including, but not limited to, (A) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (B) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising; provided, however, that such limitation shall not preclude the Initial Purchasers from placing any tombstone announcement with respect to the resale by the Initial Purchasers of the Securities, provided that such announcement is not prohibited by Regulation S), and (ii) will solicit offers for the Securities only from, and will offer, sell or deliver the Securities as part of their initial offering, only to (A) persons in the United States whom the Initial Purchasers reasonably believe to be Qualified Institutional Buyers, or if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to the Initial Purchasers that each such account is a Qualified Institutional Buyer, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, in each case, in transactions under Rule 144A, (B) to a limited number of Accredited Investors that make the representations to and agreements with the Initial Purchasers specified in Annex A to the Offering Memorandum in private sales exempt from registration under the Act and (C) outside the United States to persons other than U.S. persons in reliance on Regulation S. The Initial Purchasers have advised the Issuers that they will offer the Securities to Eligible 5 -5- Purchasers at a price initially equal to 99.65% of the principal amount thereof, plus accrued interest, if any, from the date of issuance of the Securities. (c) The Initial Purchasers represent and warrant that (i) they have not offered or sold, and will not offer or sell, directly or indirectly, any of the Securities in the United Kingdom by means of any document, other than to persons whose ordinary business it is to buy or sell shares or debentures whether as principal or agent (except in circumstances which do not constitute an offer to the public within the meaning of the Companies Act of 1985), (ii) they have complied with and will comply with all applicable provisions of the Financial Services Act of 1986 with respect to anything done by the Initial Purchasers in relation to the Securities in, from or otherwise involving the United Kingdom and (iii) they have only issued or passed on and will only issue or pass on in or from the United Kingdom to any persons any document received by the Initial Purchasers in connection with the issue of the Securities if the recipient is of a kind described in Article 9(3) of the Financial Services Act of 1986 (Investment Advertisements) (Exemptions) Order 1988, as amended. (d) The Initial Purchasers represent and warrant that with respect to Securities offered and sold or to be offered and sold pursuant to Regulation S they have offered and sold the Securities and agree that they will offer and sell the Securities (i) as part of their initial distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering of the Securities and the Closing Date (as defined herein), only in accordance with Rule 903 of Regulation S or as otherwise permitted pursuant to paragraph (c) above. Accordingly, the Initial Purchasers represent and agree that with respect to Securities offered and sold or to be offered and sold pursuant to Regulation S none of the Initial Purchasers, their affiliates or any persons acting on their behalf or on behalf of their affiliates have engaged or will engage in any directed selling efforts in the United States with respect to the Securities, and they and their affiliates have complied and will comply with the offering restrictions requirements of Regulation S. The Initial Purchasers agree that, at or prior to confirmation of any sale of Securities pursuant to Regulation S, they will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases such Securities from the Initial Purchasers during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the "Act"), and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their initial distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, except in either case in accordance with Regulation S or 6 -6- Rule 144A under the Act. Terms used above have the respective meanings given to them in Regulation S under the Act." The Initial Purchasers understand that the Issuers and, for the purposes of the opinions to be delivered to the Initial Purchasers pursuant to Section 7(d)(xvi) and 7(e) hereof, counsel to the Issuers and counsel to the Initial Purchasers, will rely upon the accuracy and truth of the foregoing representations and agreements and the Initial Purchasers hereby consent to such reliance. 3. Delivery of the Securities and Payment Therefor. Delivery to the Initial Purchasers of and payment for the Securities shall be made at the office of Cahill Gordon & Reindel, at 7:30 A.M., New York City time, on July 27, 1995 (the "Closing Date"). The place of closing for the Securities and the Closing Date may be varied by agreement between the Initial Purchasers and the Issuers. The Securities will be delivered to the Initial Purchasers against payment of the purchase price therefor by federal funds certified check of immediately available funds payable in accordance with written instructions from the Company. The Issuers agree to reimburse the Initial Purchasers for their cost of obtaining such immediately available funds. The Securities will be evidenced by a single global security (the "Global Security") and/or by additional certificated securities, and will be registered, in the case of a Global Security, in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC"), and in the other cases, in such names and in such denominations as the Initial Purchasers shall request prior to 1:00 p.m., New York City time, on the third business day preceding the Closing Date. The Securities to be delivered to the Initial Purchasers shall be made available to the Initial Purchasers in New York City for inspection and packaging not later than 9:30 a.m., New York City time, on the business day next preceding the Closing Date. 4. Agreements of the Issuers. The Issuers agree with the Initial Purchasers as follows: (a) Until the completion of the distribution of the Securities by the Initial Purchaser to Eligible Purchasers, the Issuers will advise each of the Initial Purchasers promptly and, if requested by any of them, will confirm such advice in writing, of any change in the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company, the Subsidiaries (as defined herein) and the Dyno Assets, taken as a whole, or of the happening of any event or the existence of any condition which requires any amendment or supplement to the Offering Memorandum (as then amended or supplemented) so that the Offering Memorandum (x) will not contain any untrue statement of a material fact or omit to state a material fact required 7 -7- to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (y) will comply with applicable law. (b) The Issuers will furnish to the Initial Purchasers, without charge, such number of copies of the Offering Memorandum, as may then be amended or supplemented, as they may reasonably request. (c) The Issuers will not make any amendment or supplement to the Preliminary Offering Memorandum or to the Offering Memorandum of which each of the Initial Purchasers shall not previously have been advised or to which any of them shall object after being so advised. (d) Prior to the execution and delivery of this Agreement, the Issuers have delivered or will deliver to the Initial Purchasers, without charge, in such reasonable quantities as the Initial Purchasers shall have requested or may hereafter request, copies of the Preliminary Offering Memorandum. The Issuers consent to the use, in accordance with the securities or Blue Sky laws of the jurisdictions in which the Securities are offered by the Initial Purchasers and by dealers, prior to the date of the Offering Memorandum, of each Preliminary Offering Memorandum so furnished by the Issuers. The Issuers consent to the use of the Offering Memorandum (and of any amendment or supplement thereto prepared in accordance with Section 4(c)) in accordance with the securities or Blue Sky laws of the jurisdictions in which the Securities are offered by the Initial Purchasers and by all dealers to whom Securities may be sold, in connection with the offering and sale of the Securities. (e) If, at any time prior to completion of the distribution of the Securities by the Initial Purchasers to Eligible Purchasers, any event shall occur or condition shall exist that in the judgment of the Issuers or in the opinion of the Initial Purchasers requires any amendment or supplement to the Offering Memorandum (as then amended or supplemented) so that the Offering Memorandum (x) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (y) will comply with applicable law, the Issuers will, in each such case subject to Section 4(c), forthwith prepare an appropriate supplement or amendment thereto, and will expeditiously furnish to the Initial Purchasers and dealers that number of copies thereof as they shall reasonably request. (f) The Issuers will cooperate with the Initial Purchasers and with their counsel in connection with the qualification of the Securities for offering and sale by the Initial Purchasers and by dealers under the securities or Blue Sky laws of such 8 -8- jurisdictions as the Initial Purchasers may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such qualification; provided that in no event shall any of the Issuers be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject. (g) So long as any of the Securities are outstanding, the Issuers will furnish to the Initial Purchasers (i) as soon as available, a copy of each report of the Issuers mailed to stockholders or filed with the Securities and Exchange Commission (the "Commission"), and (ii) from time to time such other information concerning the Issuers as the Initial Purchasers may reasonably request. (h) The Issuers will apply the net proceeds from the sale of the Securities to be sold by them hereunder and amounts borrowed under the Credit Agreement on the Closing Date in accordance with the description set forth under "Use of Proceeds" in the Offering Memorandum. (i) Except as stated in this Agreement and in the Offering Memorandum, the Issuers have not taken, nor will they take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Securities to facilitate the sale or resale of the Securities. Except as permitted by the Act, the Issuers will not distribute any offering material in connection with the Exempt Resales. The Issuers will not solicit any offers to buy and will not offer to sell the Securities by means of any form of general solicitation or general advertising (within the meaning of Regulation D) or by means of any directed selling efforts (as defined under Regulation S and the Commission's releases related thereto). (j) The Issuers will use their best efforts to cause the Securities to be eligible for trading on The PORTAL Market. (k) From and after the Closing Date, so long as any of the Securities are outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Act or, if earlier, until three years after the Closing Date, and during any period in which the Company is not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company will furnish to holders of the Securities and prospective purchasers of Securities designated by such holders, upon request of such holders or such prospective purchasers, the information required to be delivered pursuant to Rule 144A(d)(4) under the Act to permit compliance with Rule 144A in connection with resales of the Securities. 9 -9- (l) The Issuers agree not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Act) that would be integrated with the sale of the Securities in a manner that would require the registration under the Act of the sale by the Issuers to the Initial Purchasers or by the Initial Purchasers to the Eligible Purchasers of the Securities. (m) The Issuers agree to comply with all of the terms and conditions of the Registration Rights Agreement, and all agreements set forth in the representation letters of the Issuers to DTC relating to the approval of the Securities by DTC for "book entry" transfer. (n) The Issuers agree that prior to any registration of the Securities pursuant to the Registration Rights Agreement, or at such earlier time as may be so required, the Indenture shall be qualified under the Trust Indenture Act of 1939 (the "1939 Act") and will cause to be entered into any necessary supplemental indentures in connection therewith. (o) The Issuers shall not, and shall not permit any of their respective affiliates to, resell any Securities that have been acquired by any of them. (p) Prior to the Closing Date, the Issuers will furnish to the Initial Purchasers, as soon as they have been prepared by the Company and Dyno, a copy of any unaudited interim consolidated financial statements of the Company and unaudited interim combined financial statements of the Dyno Assets for any period subsequent to the period covered by the most recent consolidated financial statements of the Company and combined financial statements of the Dyno Assets appearing in the Offering Memorandum. (q) The Company shall not amend, supplement or grant any waiver with respect to any material provision of the Acquisition Agreement without the prior written consent of each of the Initial Purchasers, which consents shall not be unreasonably withheld. 5. Representations and Warranties of the Issuers. The Issuers, jointly and severally, represent and warrant to the Initial Purchasers that: (a) No order or decree preventing the use of the Preliminary Offering Memorandum or the Offering Memorandum or any amendment or supplement thereto, or any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act has been issued and no proceeding for that 10 -10- purpose has commenced or is pending or, to the knowledge of the Issuers, is contemplated. (b) The Preliminary Offering Memorandum and the Offering Memorandum as of their respective dates and the Offering Memorandum as of the Closing Date, did not or will not at any time contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except that this representation and warranty does not apply to statements in or omissions from the Preliminary Offering Memorandum and Offering Memorandum made in reliance upon and in conformity with information relating to any Initial Purchaser furnished to the Issuers in writing by or on behalf of an Initial Purchaser expressly for use therein. (c) The Company has the requisite power and authority to execute, deliver and perform its obligations under the Acquisition Agreement; the execution and delivery of, and the performance by the Company of its obligations under, the Acquisition Agreement have been duly and validly authorized by the Company, and the Acquisition Agreement has been duly executed and delivered by the Company and constitutes the valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity. (d) The Indenture has been duly and validly authorized by each of the Issuers and, upon its execution, delivery and performance by each of the Issuers and assuming due authorization, execution, delivery and performance by the Trustee, will be a valid and binding agreement of each of the Issuers, enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity; the Indenture conforms in all material respects to the description thereof in the Offering Memorandum; and no qualification of the Indenture under the 1939 Act is required in connection with the offer and sale of the Securities contemplated hereby or in connection with the Exempt Resales. (e) The Senior Notes and the Guarantees have been duly authorized by the Company and each of the Guarantors, respectively, and, when executed by the Company and each of the Guarantors, respectively, and, in the case of the Senior Notes, authenticated by the Trustee in accordance with the Indenture and delivered to the Initial Purchasers against payment therefor in accordance with the terms hereof, will have been validly issued and delivered, and will constitute valid and binding obligations of the Company and each of the Guarantors, respectively, entitled to the benefits of the 11 -11- Indenture and enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity, and the Securities conform in all material respects to the description thereof in the Offering Memorandum. (f) All the outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights. (g) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify would not have a material adverse effect on the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company, the Subsidiaries and the Dyno Assets, taken as a whole (a "Material Adverse Effect"). (h) All of the Company's "significant subsidiaries" (as defined in the Act) are referred to herein individually as a "Subsidiary" and collectively as the "Subsidiaries." Each Subsidiary is a corporation or partnership duly organized, validly existing and in good standing in the jurisdiction of its incorporation or formation, with full corporate or partnership power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify or be in good standing could not have a Material Adverse Effect. All of the outstanding shares of capital stock or partnership interests of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, and are wholly owned by the Company directly or indirectly through one of the other Subsidiaries, free and clear of any lien, adverse claim, security interest, equity or other encumbrance, except as described in the Offering Memorandum. (i) There are no legal or governmental proceedings pending or, to the knowledge of the Issuers, threatened, against the Company, any of the Subsidiaries or, to the knowledge of the Issuers, Dyno, with respect 12 -12- to the Dyno Assets, or to which the Company, any of the Subsidiaries or, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, or to which any of the respective properties of the Company or any of the Subsidiaries, is subject, that are not disclosed in the Offering Memorandum and which, if adversely decided, could cause a Material Adverse Effect or materially affect the issuance of the Securities or the consummation of any of the transactions contemplated by the Transaction Documents. There are no agreements, contracts, indentures, leases or other instruments of the Company, any of the Subsidiaries or, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, that are material to the Company, the Subsidiaries and Dyno, taken as a whole, which are not described in the Offering Memorandum. Neither the Company, any Subsidiary nor, to the Company's knowledge, Dyno, with respect to the Dyno Assets, is involved in any strike, job action or labor dispute with any group of employees, and, to the knowledge of the Issuers, no such action or dispute is threatened. (j) Neither the Company nor any of the Subsidiaries nor, to the knowledge of the Issuers, Dyno is (i) in violation of its certificate or articles of incorporation or by laws or other organizational documents, or of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, or of any decree of any court or governmental agency or body having jurisdiction over the Company, any of the Subsidiaries or, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, except where any such violation or violations in the aggregate could not have a Material Adverse Effect or (ii) in default in any material respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any material agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of the Company and the Subsidiaries or any of their respective properties or the Dyno Assets may be bound, except as may be disclosed in the Offering Memorandum and except where any such default or defaults in the aggregate would not have a Material Adverse Effect. (k) Neither the issuance, offer, sale or delivery of the Securities, the execution, delivery or performance of the Transaction Documents by the Company or the Subsidiaries a party thereto nor the consummation by the Company and such Subsidiaries of the transactions contemplated hereby or thereby (i) requires any consent, approval, authorization or other order of, or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may have been obtained or may be required in connection with the registration under the Act of the Securities in accordance with the Registration Rights Agreement, the qualification of the Indenture under the 1939 Act and except for compliance with the securities or Blue Sky laws of various jurisdictions) or conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the certificate or articles of incorporation 13 -13- or bylaws, or other organizational documents, of the Company, any of the Subsidiaries or, to the knowledge of the Issuers, Dyno, except any such conflicts and breaches that in the aggregate would not have a Material Adverse Effect, or (ii) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, in any material respect, any material agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of the respective properties of the Company or any of the Subsidiaries or the Dyno Assets may be bound, except any such conflict or conflicts that in the aggregate could not have a Material Adverse Effect, or (iii) violates or will violate in any material respect any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Company, any of the Subsidiaries or, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, or any of the respective properties of the Company or any of the Subsidiaries, except any such violation or violations that in the aggregate could not have a Material Adverse Effect, or (iv) will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries or, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, pursuant to the terms of any agreement or instrument to which any of them is a party or by which any of them may be bound or to which any of the property or assets of any of them is subject. (l) Each of Arthur Andersen LLP, who has certified or shall certify the consolidated financial statements of the Company included as part of the Offering Memorandum and each of Deloitte & Touche, LLP and Arthur Andersen & Co. GmbH, each of whom has certified or shall certify the financial statements of the Dyno Assets included as part of the Offering Memorandum, are independent public accountants under Rule 101 of the AICPA's Code of Professional Conduct, and its interpretation and rulings. (m) The consolidated financial statements of the Company and the combined financial statements of the Dyno Assets included in the Offering Memorandum, together with the related notes thereto, present fairly the financial position, results of operations and cash flows of the Company and the Dyno Assets, at the dates and for the periods to which they relate, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis ("GAAP"). The pro forma financial statements and other pro forma financial information (including the notes thereto) included in the Offering Memorandum (A) present fairly in all material respects the information shown therein, (B) have been prepared in all material respects in accordance with applicable requirements of Rule 11-02 of Regulation S-X promulgated under the Act, and (C) have been properly computed on the basis described therein, and (ii) the assumptions used in the preparation of the pro forma financial statements and other pro forma financial information included in the Offering Memorandum are 14 -14- reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (n) Each of the Company and the Guarantors has all the requisite power and authority to execute, deliver and perform its obligations under this Agreement and the Registration Rights Agreement; the execution and delivery of, and the performance by each of the Company and the Guarantors of its obligations under, this Agreement and the Registration Rights Agreement have been duly and validly authorized by each of the Company and the Guarantors, and each of this Agreement and the Registration Rights Agreement has been duly executed and delivered by each of the Company and the Guarantors and constitutes the valid and legally binding agreement of each of the Company and the Guarantors, enforceable against each of the Company and the Guarantors in accordance with its terms, except as the enforcement hereof and thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity, and except as rights to indemnity and contribution hereunder and thereunder may be limited by Federal or state securities laws or principles of public policy. (o) Each of the Company and the Subsidiaries party to the Credit Agreement has all the requisite power and authority to execute, deliver and perform its obligations under the Credit Agreement; the execution and delivery of, and performance by the Company and such Subsidiaries of their respective obligations under, the Credit Agreement have been duly and validly authorized by each of the Company and such Subsidiaries and, assuming due authorization, execution, delivery and performance by the other parties thereto, the Credit Agreement, when executed and delivered by the Company and such Subsidiaries, will constitute the valid and legally binding agreement of each of the Company and such Subsidiaries, enforceable against each of the Company and such Subsidiaries in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity. (p) Except as disclosed in the Offering Memorandum, subsequent to the date as of which such information is given in the Offering Memorandum, none of the Company, any of the Subsidiaries or, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, has incurred any liability or obligation, direct or contingent, or entered into any transaction, not in the ordinary course of business, that is material to the Company, the Subsidiaries and the Dyno Assets taken as a whole, and there has not been any material change in the capital stock, or material increase in the short-term or long-term debt, of the Company or any of the Subsidiaries, or any material adverse change, or any development involving or which could reasonably be expected to involve a prospective material adverse change, in the condition (financial or other), business, 15 -15- properties, net worth or results of operations of the Company, the Subsidiaries and the Dyno Assets, taken as a whole. (q) The Company, the Subsidiaries and, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, have and, after giving effect to the Acquisition, the Company and the Subsidiaries will have good and marketable title to all property (real and personal) described in the Offering Memorandum as being owned by them, free and clear of all material liens, claims, security interests or other encumbrances except such as are described in the Offering Memorandum, and all the property described in the Offering Memorandum as being held under lease by each of the Company, the Subsidiaries and, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, is held by it under valid, subsisting and enforceable leases, with only such exceptions as in the aggregate are not materially burdensome and do not interfere in any material respect with the conduct of the business of the Company, the Subsidiaries and the Dyno Assets taken as a whole. (r) Except as permitted by the Act, the Issuers have not distributed and, prior to the later to occur of the Closing Date and completion of the distribution of the Securities, will not distribute any offering material in connection with the offering and sale of the Securities other than the Preliminary Offering Memorandum and Offering Memorandum (and any amendment or supplement thereto in accordance with Section 4(c) hereof). (s) The Company and the Subsidiaries and, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, have and, after giving effect to the Acquisition, the Company and the Subsidiaries will have such permits, licenses, franchises, certificates of need and other approvals or authorizations of governmental or regulatory authorities ("Permits") as are necessary under applicable law to own their respective properties and to conduct their respective businesses in the manner described in the Offering Memorandum except to the extent that the failure to have such Permits could not have a Material Adverse Effect; the Company, each of the Subsidiaries and, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, have fulfilled and performed in all material respects, all their respective material obligations with respect to the Permits, and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be set forth in the Offering Memorandum and except to the extent that any such revocation or termination would not have a Material Adverse Effect; and, except as described in the Offering Memorandum, none of the Permits contains any restriction that is materially burdensome to the Company, any of the Subsidiaries or, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets. 16 -16- (t) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions of the Company and the Subsidiaries are executed in accordance with management's general or specific authorization; (ii) transactions of the Company and the Subsidiaries are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets of the Company and the Subsidiaries is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets of the Company and the Subsidiaries is compared with existing assets of the Company and the Subsidiaries at reasonable intervals and appropriate action is taken with respect to any differences. (u) Neither the Company nor any of the Subsidiaries, nor to the knowledge of the Issuers, any employee or agent of the Company or any Subsidiary has made any payment of funds of the Company or any Subsidiary or received or retained any funds in violation of any law, rule or regulation, which violation could have a Material Adverse Effect. (v) Except as disclosed in the Offering Memorandum, the Company and each of the Subsidiaries have filed all tax returns required to be filed, which returns are true and correct in all material respects, and neither the Company nor any Subsidiary is in default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto, except where the failure to file such returns and make such payments could not have a Material Adverse Effect. (w) No holder of any security of the Issuers (other than holders of the Securities) has any right to request or demand registration of any security of the Issuers because of the consummation of the transactions contemplated by the Transaction Documents. Except as described in the Offering Memorandum, there are no outstanding options, warrants or other rights calling for the issuance of, and there are no commitments, plans or arrangements to issue, any shares of capital stock of the Company or any of the Subsidiaries or any security convertible into or exchangeable or exercisable for capital stock of the Company or any of the Subsidiaries. (x) The Company, the Subsidiaries and, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, own or possess and, after giving effect to the Acquisition, the Company and the Subsidiaries will own, possess or possess adequate rights to use all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Offering Memorandum as being owned by any of them or necessary for the conduct of their respective businesses, and the Issuers are not aware of any claim to 17 -17- the contrary or any challenge by any other person to the rights of the Company, the Subsidiaries or Dyno with respect to the foregoing. (y) The Issuers are not and, upon sale of the Securities to be issued and sold thereby in accordance herewith and the application of the net proceeds to the Issuers of such sale as described in the Offering Memorandum under the caption "Use of Proceeds," will not be an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (z) When the Securities are issued and delivered pursuant to this Agreement, such Securities will not be of the same class (within the meaning of Rule 144A(d)(3) under the Act) as any security of the Issuers that is listed on a national securities exchange registered under Section 6 of the Exchange Act or that is quoted in a United States automated interdealer quotation system. (aa) None of the Issuers nor any of their respective affiliates (as defined in Rule 501(b) of Regulation D under the Act) has directly, or through any agent (provided that no representation is made as to the Initial Purchasers or any person acting on any of their behalf), (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Act) which is or will be integrated with the offering and sale of the Securities in a manner that would require the registration of the Securities under the Act or (ii) engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Act) in connection with the offering of the Securities. (ab) The Issuers are not required to deliver the information specified in Rule 144A(d)(4) in connection with the offering and resale of the Securities by the Initial Purchasers. (ac) Assuming (i) that the representations and warranties of the Initial Purchasers in Section 2 hereof are true and correct in all material respects, (ii) the Initial Purchasers comply with the covenants set forth in Section 2 hereof (iii) compliance by the Initial Purchasers with the offering and transfer procedures and restrictions described in the Offering Memorandum, (iv) the accuracy of the representations and warranties made in accordance with this Agreement and the Offering Memorandum by purchasers to whom the Initial Purchasers initially resells Securities and (v) purchasers to whom the Initial Purchasers initially resells Securities receive a copy of the Offering Memorandum prior to such sale, the purchase and sale of the Securities pursuant hereto (including the Initial Purchasers' proposed offering of the Securities on the terms and in the manner set forth in the Offering Memorandum and Section 2 hereof) do not require registration under the Act. 18 -18- (ad) The execution and delivery of this Agreement and the other Transaction Documents and the sale of the Securities to the Initial Purchasers by the Issuers or by the Initial Purchasers to Eligible Purchasers will not involve any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code. The representations made by the Issuers in the preceding sentence is made in reliance upon and subject to the accuracy of, and compliance with, the representations and covenants made or deemed made by the Eligible Purchasers as set forth in the Offering Memorandum under the section entitled "Notice to Investors." (ae) The Company, the Subsidiaries and, to the knowledge of the Issuers, Dyno, with respect to the Dyno Assets, are and, after giving effect to the Acquisition, the Company and the Subsidiaries will be in compliance with, and not subject to any liability under, the common law and all applicable federal, state, local and foreign laws, regulations, rules, codes, ordinances, directives, and orders relating to pollution or to protection of public or employee health or safety or to the environment, including, without limitation, those that relate to any Hazardous Material (as defined herein) ("Environmental Laws"), except, in each case, where noncompliance or liability, individually or in the aggregate, could not be have a Material Adverse Effect. The term "Hazardous Material" means any pollutant, contaminant or waste, or any hazardous, dangerous, or toxic chemical, material, waste, substance or constituent subject to regulation under any Environmental Law. (af) The Issuers have delivered to the Initial Purchasers true, correct and complete execution copies of the Acquisition Agreement and, to the knowledge of the Issuers, each of the representations and warranties of Dyno Industrier A.S contained in the Acquisition Agreement are not untrue or incorrect in any true and correct material respect. 6. Indemnification and Contribution. (a) Each of the Issuers, jointly and severally, agrees to indemnify and hold harmless the Initial Purchasers and each person, if any, who controls any of the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum or Offering Memorandum or in any amendment or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except, with respect to any Initial Purchaser, insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been 19 -19- made therein or omitted therefrom in reliance upon and in conformity with the information relating to such Initial Purchaser furnished in writing to the Issuers by or on behalf of such Initial Purchaser expressly for use in connection therewith; provided, however, that the indemnification contained in this paragraph (a) with respect to the Preliminary Offering Memorandum shall not inure to the benefit of an Initial Purchaser (or to the benefit of person controlling such Initial Purchaser) on account of any such loss, claim, damage, liability or expense arising from the sale of the Securities by such Initial Purchaser to any person if the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in the Preliminary Offering Memorandum was corrected in the Offering Memorandum and such Initial Purchaser sold Securities to that person without sending or giving at or prior to the written confirmation of such sale, a copy of the Offering Memorandum (as then amended or supplemented). The foregoing indemnity agreement shall be in addition to any liability which the Issuers may otherwise have. (b) If any action, suit or proceeding shall be brought against any of the Initial Purchasers or any person who controls any of the Initial Purchasers in respect of which indemnity may be sought against the Issuers, any such Initial Purchaser or any such person who controls an Initial Purchaser shall promptly notify in writing the parties against whom indemnification is being sought (the "indemnifying parties"), and such indemnifying parties shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses. Any of the Initial Purchasers or any person who controls an Initial Purchaser shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Initial Purchaser or any such person who controls an Initial Purchaser unless (i) the indemnifying parties have agreed in writing to pay such fees and expenses, (ii) the indemnifying parties have failed to assume the defense and employ counsel on a timely basis and such failure to assume the defense is reasonably likely to adversely affect the preparation for or conduct of such action, suit or proceeding, or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both such Initial Purchaser or any such person who controls an Initial Purchaser and any of the indemnifying parties and such Initial Purchaser or any such person who controls an Initial Purchaser shall have been advised by its counsel that representation of such indemnified party and any such indemnifying party by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the indemnifying party shall not have the right to assume the defense of such action, suit or proceeding on behalf of such Initial Purchaser or any such person who controls an Initial Purchaser). It is understood, however, that the indemnifying parties shall, in connection with any one such action, suit or proceeding or separate but substantially similar or 20 -20- related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and reasonable expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for any Initial Purchaser and any such person who controls an Initial Purchaser not having actual or potential differing interests with such indemnifying parties or another Initial Purchaser, which firm shall be designated in writing by Smith Barney Inc., and that all such reasonable fees and reasonable expenses shall be reimbursed on a monthly basis as provided in paragraph (a) hereof. The indemnifying parties shall not be liable for any settlement of any such action, suit or proceeding effected without their written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the indemnifying parties agree to indemnify and hold harmless the Initial Purchasers, to the extent provided in paragraph (a), and any person who controls an Initial Purchaser from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment. (c) Each of the Initial Purchasers, severally and not jointly, agrees to indemnify and hold harmless the Issuers, and their respective directors and officers, and any person who controls an Issuer within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to the same extent as the indemnity from an Issuer to the Initial Purchasers set forth in paragraph (a) hereof, but only with respect to information relating to such Initial Purchaser furnished in writing by or on behalf of such Initial Purchaser expressly for use in the Preliminary Offering Memorandum or Offering Memorandum or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against any of the Issuers, any of their respective directors or officers, or any such controlling person based on the Preliminary Offering Memorandum or Offering Memorandum, or any amendment or supplement thereto, and in respect of which indemnity may be sought against an Initial Purchaser pursuant to this paragraph (c), such Initial Purchaser shall have the rights and duties given to the Issuers by paragraph (b) above (except that if the Issuers shall have assumed the defense thereof such Initial Purchaser shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Initial Purchaser's expense), and the Issuers, their respective directors and officers, and any such controlling person shall have the rights and duties given to the Initial Purchasers by paragraph (b) above. The foregoing indemnity agreement shall be in addition to any liability which the Initial Purchasers may otherwise have. (d) If the indemnification provided for in this Section 6 is unavailable to an indemnified party under paragraphs (a) or (c) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or 21 -21- expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Issuers on the one hand and an Initial Purchaser on the other hand from the offering of the Securities, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Issuers on the one hand and such Initial Purchaser on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Issuers on the one hand and an Initial Purchaser on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Issuers bear to the total discounts and commissions received by such Initial Purchaser, in each case as set forth in the table on the cover page of the Offering Memorandum. The relative fault of the Issuers on the one hand and an Initial Purchaser on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand or by such Initial Purchaser on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Issuers and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by a pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating any claim or depending on any such action, suit or proceeding. Notwithstanding the provisions of this Section 6, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price of the Securities purchased by it exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 6 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 6 and the representations and warranties of the Issuers set forth 22 -22- in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any of the Initial Purchasers or any person who controls an Initial Purchaser, the Issuers, their respective directors or officers or any person controlling the Issuers, (ii) acceptance of any Securities and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to an Initial Purchaser or any person who controls an Initial Purchaser, or to an Issuer, their respective directors or officers or any person controlling an Issuer, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 6. (g) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. 7. Conditions of the Initial Purchasers' Obligations. The obligations of the Initial Purchasers to purchase and pay for the Securities on the Closing Date hereunder is subject to the fulfillment, in the Initial Purchasers' sole discretion, of the following conditions: (a) At the time of execution of this Agreement and on the Closing Date, no order or decree preventing the use of the Offering Memorandum or any amendment or supplement thereto, or any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Issuers, be contemplated. No order suspending the sale of the Securities in any jurisdiction shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Issuers, shall be contemplated. (b) On the Closing Date, the Issuers shall have delivered to each of the Initial Purchasers true, correct and complete conformed copies of the Credit Agreement; each of the representations and warranties given by the Company and its Subsidiaries party thereto in the Credit Amendment shall be true and correct in all material respects on and as of the Closing Date; on and as of the Closing Date (after giving effect to the consummation of the transactions contemplated by this Agreement, including the Acquisition) there shall not exist any condition which would constitute a Default or an Event of Default (as defined in the Credit Agreement); and each condition to the initial 23 -23- funding under the Credit Agreement shall have been satisfied and the Company shall have received borrowings of at least $30 million thereunder. (c) Subsequent to the date hereof, (i) there shall not have occurred any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), business, properties, assets, net worth or results of operations of the Company, the Subsidiaries or the Dyno Assets which, in the opinion of the Initial Purchasers, would materially adversely affect the market for the Securities, or (ii) the Offering Memorandum shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading if amending or supplementing the Offering Memorandum to correct such misstatement or omission would, in the sole discretion of the Initial Purchasers, materially adversely affect the marketability of the Securities. (d) The Initial Purchasers shall have received on the Closing Date an opinion of Katten Muchin & Zavis, counsel for the Issuers, dated the Closing Date and addressed to the Initial Purchasers, in the form of Exhibit A hereto. (e) The Initial Purchasers shall have received on the Closing Date an opinion of Cahill Gordon & Reindel, counsel for the Initial Purchasers, dated the Closing Date, and addressed to the Initial Purchasers, with respect to such matters as the Initial Purchasers may request. (f) The Initial Purchasers shall have received letters addressed to the Initial Purchasers, and dated the date hereof and the Closing Date, from Arthur Andersen LLP, independent certified public accountants, substantially in the forms heretofore approved by the Initial Purchasers. (g) (i) There shall not have been any change in the capital stock of the Company nor any material increase in the consolidated short-term or consolidated long-term debt of the Company (other than in the ordinary course of business) from that set forth or contemplated in the Offering Memorandum (or any amendment or supplement thereto); (ii) there shall not have been, since the respective dates as of which information is given in the Offering Memorandum, except as may otherwise be stated in the Offering Memorandum, any material adverse change in the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company, the Subsidiaries and the Dyno Assets, taken as a whole; (iii) the Company, the Subsidiaries and the Dyno Assets shall not have any liabilities or obligations, direct or contingent (whether or not in the ordinary course of business), that are material to the Company, the Subsidiaries and the Dyno Assets, taken as a whole, other than those 24 -24- reflected in the Offering Memorandum; (iv) all the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date; and (v) the Initial Purchasers shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the chief accounting officer of the Company (or such other officers as are acceptable to the Initial Purchasers), to the effect set forth in this Section 7(g) and in Section 7(h) hereof. (h) The Issuers shall not have failed at or prior to the Closing Date to have performed or complied with any of their agreements herein contained and required to be performed or complied with by them hereunder at or prior to the Closing Date. (i) There shall not have been any announcement by any "nationally recognized statistical rating organization," as defined for purposes of Rule 436(g) under the Act, that (i) it is downgrading its rating assigned to any class of securities of the Company, or (ii) it is reviewing its ratings assigned to any class of securities of the Company with a view to possible downgrading, or with negative implications, or direction not determined. (j) The Securities shall have been approved for trading on PORTAL. (k) Each of the conditions to closing contained in the Acquisition Agreement (other than the payment of the Purchase Price (as defined in the Acquisition Agreement)) shall have been satisfied or, with the consent of the Initial Purchasers, not to be unreasonably withheld, waived. (l) The Issuers shall have furnished or caused to be furnished to the Initial Purchasers such further certificates and documents as the Initial Purchasers shall have reasonably requested. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to the Initial Purchasers and counsel for the Initial Purchasers. Any certificate or document signed by any officer of an Issuer and delivered to the Initial Purchasers, or to counsel for the Initial Purchasers, shall be deemed a representation and warranty by the Issuers to the Initial Purchasers as to the statements made therein. 8. Expenses. (a) Whether or not the purchase and sale of the Securities hereunder is consummated or this Agreement is terminated pursuant to Section 9 hereof, 25 -25- the Issuers agree, jointly and severally, to pay the following costs and expenses and all other costs and expenses incident to the performance by them of their obligations hereunder: (i) the preparation, printing or reproduction of the Preliminary Offering Memorandum and the Offering Memorandum (including financial statements thereto), and each amendment or supplement to any of them, this Agreement, the Registration Rights Agreement and the Indenture; (ii) the delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Offering Memorandum, the Preliminary Offering Memorandum and all amendments or supplements as may be reasonably requested for use in connection with the offering and sale of the Securities; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Securities, including any stamp taxes in connection with the original issuance and sale of the Securities; (iv) the printing (or reproduction) and delivery of the preliminary and supplemental Blue Sky Memoranda and all other agreements and documents printed (or reproduced) and delivered in connection with the offering of the Securities; (v) the application for quotation of the Securities on PORTAL; (vi) the qualification of the Securities for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 4(f) hereof (including the reasonable fees, expenses and disbursements of counsel for the Initial Purchasers relating to the preparation, printing or reproduction, and delivery of the preliminary and supplemental Blue Sky Memoranda and such qualification); (vii) the performance by the Issuers of their obligations under the Registration Rights Agreement; and (viii) the fees and expenses of the Issuers' accountants and the fees and expenses of counsel (including local and special counsel) for the Issuers. The Issuers hereby agree that they will pay in full on the Closing Date the fees and expenses referred to in clause (vi) of this Section 8 by delivering to counsel for the Initial Purchasers on such date a check payable to such counsel in the requisite amount. (b) If the purchase and sale of the Securities hereunder is not consummated because any condition to the obligations of the Initial Purchasers set forth in Section 7 hereof is not satisfied, because this Agreement is terminated pursuant to Section 9 hereof or because of any failure, refusal or inability on the part of the Issuers to perform all obligations and satisfy all conditions on their part to be performed or satisfied hereunder other than by reason of a default by the Initial Purchasers in payment for the Securities on the Closing Date, the Issuers shall reimburse the Initial Purchasers promptly upon demand for all out-of-pocket expenses (including fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities and the other transactions contemplated hereby. 9. Termination of Agreement. This Agreement shall be subject to termination in the absolute discretion of the Initial Purchasers, without liability on the part of the Initial Purchasers to the Issuers, by notice to the Issuers, if prior to the 26 -26- Closing Date, (i) trading in securities generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq National Market shall have been suspended or materially limited, (ii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or state authorities, or (iii) there shall have occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions, the effect of which on the financial markets of the United States or the market for the Securities is such as to make it, in the sole judgment of the Initial Purchasers, impracticable or inadvisable to commence or continue the offering of the Securities on the terms set forth on the cover page of the Offering Memorandum or to enforce contracts for the resale of the Securities by the Initial Purchasers. Notice of such termination may be given to the Issuers by telegram, telecopy or telephone and shall be subsequently confirmed by letter. 10. Information Furnished by the Initial Purchasers. The statements set forth in the stabilization legend on the inside front cover, the last paragraph on the cover page and in the third paragraph under the caption "Private Placement" in the Preliminary Offering Memorandum and Offering Memorandum, constitute the only information furnished by or on behalf of the Initial Purchasers as such information is referred to in Sections 5(b) and 6 hereof. 11. Miscellaneous. Except as otherwise provided in Sections 4 and 9 hereof, notice given pursuant to any provision of this Agreement shall be in writing and shall be delivered (i) if to the Issuers, at the office of the Company at 6242 Garfield Street, Cass City, MI 48726-0096 (with a copy to Howard S. Lanznar, Katten Muchin & Zaivs, 525 W. Monroe Street, Chicago, IL 60661, Attention: L.E. Althaver, Chief Executive Officer, or (ii) if to the Initial Purchasers, to Smith Barney Inc., 1345 Avenue of the Americas, New York, NY 10105, Attention: Manager, Investment Banking Division. This Agreement has been and is made solely for the benefit of the Initial Purchasers and the Issuers, and their respective directors, officers and the controlling persons referred to in Section 6 hereof and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. Neither the term "successor" nor the terms "successors and assigns" as used in this Agreement shall include a purchaser from the Initial Purchasers of any of the Securities in his status as such purchaser. 12. Applicable Law; Counterparts. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. 27 -27- This Agreement may be signed in various counterparts which together constitute one and the same instrument. If signed in counterparts, this Agreement shall not become effective unless at least one counterpart hereof shall have been executed and delivered on behalf of each party hereto. 28 -28- Please confirm that the foregoing correctly sets forth the agreement between the Issuers and the Initial Purchasers. Very truly yours, WALBRO CORPORATION By:______________________________ Name: Title: WALBRO AUTOMOTIVE CORPORATION By:_________________________________ Name: Title: WALBRO ENGINE MANAGEMENT CORPORATION By:_________________________________ Name: Title: SHARON MANUFACTURING CORPORATION By:_________________________________ Name: Title: 29 -29- WHITEHEAD ENGINEERED PRODUCTS, INC. By:_________________________________ Name: Title: Confirmed as of the date first above mentioned. SMITH BARNEY INC. A.G. EDWARDS & SONS, INC. McDONALD & COMPANY SECURITIES, INC. STIFEL, NICOLAUS AND COMPANY, INCORPORATED By: Smith Barney Inc. By_____________________________________ Name: Title: 30 SCHEDULE I
Principal Amount Initial Purchasers of Senior Notes - ------------------ ---------------- Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . . $ 88,000,000 A.G. Edwards & Sons, Inc. . . . . . . . . . . . . . . . . . . . . $ 8,800,000 McDonald & Company Securities, Inc. . . . . . . . . . . . . . . . $ 8,800,000 Stifel, Nicolaus and Company, Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,400,000 ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $110,000,000 ============
EX-4.4 4 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.4 ________________________________________________________________________________ ________________________________________________________________________________ 9-7/8% SENIOR NOTES DUE 2005 REGISTRATION RIGHTS AGREEMENT Dated July 21, 1995 by and among WALBRO CORPORATION, WALBRO AUTOMOTIVE CORPORATION, WALBRO ENGINE MANAGEMENT CORPORATION, SHARON MANUFACTURING COMPANY, WHITEHEAD ENGINEERED PRODUCTS, INC. and SMITH BARNEY INC., A.G. EDWARDS & SONS, INC., McDONALD & COMPANY SECURITIES, INC. and STIFEL, NICOLAUS & COMPANY, INCORPORATED ________________________________________________________________________________ ________________________________________________________________________________ 2 This Registration Rights Agreement is made and entered into this 21st day of July, 1995, by and among Walbro Corporation, a Delaware corporation (the "Company"), Walbro Automotive Corporation, a Delaware corporation, Walbro Engine Management Corporation, a Delaware corporation, Sharon Manufacturing Company, a Michigan corporation, Whitehead Engineered Products, Inc., a Delaware corporation (the "Guarantors" and, together with the Company, the "Issuers"), Smith Barney Inc. ("Smith Barney"), A.G. Edwards & Sons, Inc. ("A.G. Edwards"), McDonald & Company Securities, Inc. ("McDonald") and Stifel, Nicolaus & Company, Incorporated ("Stifel" and, together with Smith Barney, A.G. Edwards, and McDonald, the "Initial Purchasers"). This Agreement is made pursuant to the Purchase Agreement, dated July 21, 1995, among the Company, the Guarantors and Initial Purchasers (the "Purchase Agreement"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Issuers have agreed to provide the registration rights provided for in this Agreement to the Initial Purchasers and their respective direct and indirect transferees. The execution and delivery of this Agreement is a condition to the closing of the transactions contemplated by the Purchase Agreement. The parties hereby agree as follows: 1. Definitions As used in this Agreement, the following terms shall have the following meanings: Additional Interest: As defined in Section 4(a) hereof. Advice: As defined in the last paragraph of Section 5 hereof. Affiliate: With respect to any specified person, "Affiliate" shall mean any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control," when used with respect to any person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. Agreement: This Registration Rights Agreement, as the same may be amended, supplemented or modified from time to 3 -2- time in accordance with the terms hereof. Business Day: Any day except a Saturday, a Sunday or a day on which banking institutions in New York, New York generally are required or authorized by law or other government action to be closed. Company: As defined in the preamble hereof. Consummate or consummate: When used to qualify the term "Exchange Offer" shall mean validly and lawfully to issue and deliver the Exchange Notes pursuant to the Exchange Offer for all Notes validly tendered and not validly withdrawn pursuant thereto in accordance with the terms of this Agreement. Consummation Date: The date that is 20 Business Days immediately following the date that the Exchange Registration Statement shall have been declared effective by the SEC. Effectiveness Period: As defined in Section 3(a) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC pursuant thereto. Exchange Date: As defined in Section 2(d) hereof. Exchange Notes: The 9-7/8% Senior Notes due 2005, Series B, of the Company, guaranteed on a senior unsecured basis by each of the Guarantors, that are identical to the Notes in all material respects, except that the provisions regarding restrictions on transfer shall be modified, as appropriate, and the issuance thereof pursuant to the Exchange Offer shall have been registered pursuant to an effective Registration Statement in compliance with the Securities Act. Exchange Offer: An offer to issue, in exchange for any and all of the Notes, a like aggregate principal amount of Exchange Notes, which offer shall be made by the Company pursuant to Section 2 hereof. Exchange Registration Statement: As defined in Section 2(a) hereof. Guarantors: As defined in the preamble hereof. Indemnified Person: As defined in Section 7(a) hereof. 4 -3- Indenture: The Indenture, dated as of July 27, 1995, among the Issuers and Bankers Trust Company, as trustee thereunder, pursuant to which the Notes are issued, as amended or supplemented from time to time in accordance with the terms thereof. Initial Purchasers: As defined in the preamble hereof. Issue Date: As defined in Section 2(a). Issuers: As defined in the preamble hereof. Notes: The 9-7/8% Senior Notes due 2005, Series A, of the Company, guaranteed on a senior unsecured basis by each of the Guarantors, issued pursuant to the Indenture. Participating Broker-Dealer: As defined in Section 2(e) hereof. Private Exchange: As defined in Section 2(c) hereof. Private Exchange Notes: As defined in Section 2(c) hereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Notes, Exchange Notes or Private Exchange Notes covered by such Registration Statement, and all other amendments and supplements to any such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such prospectus. Registration Default: As defined in Section 4(a) hereof. Registration Statement: Any registration statement of the Company and the Guarantors that covers any of the Notes, Exchange Notes or Private Exchange Notes pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such 5 -4- registration statement. Rule 144: Rule 144 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. Rule 144A: Rule 144A promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. Rule 158: Rule 158 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. Rule 174: Rule 174 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. Rule 415: Rule 415 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. Rule 424: Rule 424 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. Shelf Registration: As defined in Section 3 hereof. Shelf Registration Statement: As defined in Section 3 hereof. Special Counsel: Cahill Gordon & Reindel, special 6 -5- counsel to the holders of Transfer Restricted Securities, or such other counsel as shall be agreed upon by the Issuers and holders of a majority in aggregate principal amount of Transfer Restricted Securities, the expenses of which holders of Transfer Restricted Securities will be reimbursed by the Issuers pursuant to Section 6. TIA: The Trust Indenture Act of 1939, as amended. Transfer Restricted Securities: The Notes, upon original issuance thereof, and at all times subsequent thereto, each Exchange Note as to which Section 3(a)(iii) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until in the case of any such Note, Exchange Note or Private Exchange Note, as the case may be, the earliest to occur of (i) the date on which any such Note has been exchanged by a person other than a Participating Broker-Dealer for an Exchange Note (other than with respect to an Exchange Note as to which Section 3(a)(iii) hereof applies) pursuant to the Exchange Offer, (ii) with respect to Exchange Notes received by Participating Broker-Dealers in the Exchange Offer, the earlier of (x) the date on which such Exchange Note has been sold by such Participating Broker-Dealer by means of the Prospectus contained in the Exchange Registration Statement and (y) the date on which the Exchange Registration Statement has been effective under the Securities Act for a period of 6 months after the Consummation Date, (iii) a Shelf Registration Statement covering such Note, Exchange Note or Private Exchange Note has been declared effective by the SEC and such Note, Exchange Note or Private Exchange Note, as the case may be, has been disposed of in accordance with such effective Shelf Registration Statement, (iv) the date on which such Note, Exchange Note or Private Exchange Note, as the case may be, is distributed to the public pursuant to Rule 144 (or any similar provisions then in effect) or is saleable pursuant to Rule 144(k) promulgated by the SEC pursuant to the Securities Act or (v) the date on which such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture or any other indenture under which such Exchange Note or Private Exchange Note was issued. Trustee: The trustee under the Indenture. underwritten registration or underwritten offering: A registration in connection with which securities are sold to an underwriter for reoffering to the public pursuant to an effective Registration Statement. 7 -6- 2. Exchange Offer (a) To the extent not prohibited by any applicable law or applicable interpretation of the staff of the SEC, the Issuers shall (A) prepare and, on or prior to 60 days after the date of original issuance of the Notes (the "Issue Date"), file with the SEC a Registration Statement under the Securities Act with respect to an offer by the Company to the holders of the Notes to issue and deliver to such holders, in exchange for Notes, a like principal amount of Exchange Notes, (B) use their best efforts to cause the Registration Statement relating to the Exchange Offer to be declared effective by the SEC under the Securities Act on or prior to 120 days after the Issue Date, and (C) commence the Exchange Offer and use their best efforts to issue, on or prior to the Consummation Date, the Exchange Notes. The offer and sale of the Exchange Notes pursuant to the Exchange Offer shall be registered pursuant to the Securities Act on the appropriate form (the "Exchange Registration Statement") and duly registered or qualified under all applicable state securities or Blue Sky laws and will comply with all applicable tender offer rules and regulations under the Exchange Act and state securities or Blue Sky laws. The Exchange Offer shall not be subject to any condition, other than that the Exchange Offer does not violate any applicable law or interpretation of the staff of the SEC. Upon consummation of the Exchange Offer in accordance with this Section 2, the Issuers shall have no further registration obligations other than with respect to (i) Private Exchange Notes, (ii) Exchange Notes held by Participating Broker-Dealers and (iii) Notes or Exchange Notes as to which Section 3(a)(iii) hereof applies. No securities shall be included in the Exchange Registration Statement other than the Exchange Notes. (b) The Issuers may require each holder of Notes as a condition to its participation in the Exchange Offer to represent to the Issuers and their counsel in writing (which may be contained in the applicable letter of transmittal) that at the time of the consummation of the Exchange Offer (i) any Exchange Notes received by such holder will be acquired in the ordinary course of its business, (ii) such holder will have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes and (iii) such holder is not an Affiliate of an Issuer, or if it is an Affiliate of an Issuer, it will comply with the registration and prospectus delivery requirements of the Securities Act, to the extent applicable. (c) If, prior to consummation of the Exchange Offer, any of the Initial Purchasers hold any Notes acquired by them and having, or which are reasonably likely to be determined to 8 -7- have, the status of an unsold allotment in the initial distribution, or any other holder of Notes is not entitled to participate in the Exchange Offer, the Company upon the request of an Initial Purchaser or any such holder shall, simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to such Initial Purchaser and any such holder, in exchange (the "Private Exchange") for such Notes held by such Initial Purchaser and any such holder, a like principal amount of debt securities of the Company, guaranteed by each of the Guarantors on a senior unsecured basis, that are identical in all material respects to the Exchange Notes (the "Private Exchange Notes") (and which are issued pursuant to the same indenture as the Exchange Notes). The Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes. (d) Unless the Exchange Offer would not be permitted by any applicable law or interpretation of the staff of the SEC, the Company shall mail the Exchange Offer Prospectus and appropriate accompanying documents, including appropriate letters of transmittal, to each holder of Notes providing, in addition to such other disclosures as are required by applicable law: (i) that the Exchange Offer is being made pursuant to this Agreement and that all Notes validly tendered will be accepted for exchange; (ii) the date of acceptance for exchange (the "Exchange Date"), which date shall in no event be later than the Consummation Date (unless otherwise required by applicable law); (iii) that holders of Notes electing to have a Note exchanged pursuant to the Exchange Offer will be required to surrender such Note, together with the enclosed letters of transmittal, to the institution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice prior to the close of business on the Exchange Date; and (iv) that holders of Notes that do not tender all such securities pursuant to the Exchange Offer may no longer have any registration rights hereunder with respect to Notes not tendered. Promptly after the Exchange Date, the Company shall: (i) accept for exchange all Notes or portions thereof validly tendered and not validly withdrawn 9 -8- pursuant to the Exchange Offer or the Private Exchange; and (ii) deliver, or cause to be delivered, to the Trustee for cancellation all Notes or portions thereof so accepted for exchange by the Company, and issue, cause the Trustee under the Indenture (or the indenture pursuant to which the Exchange Notes are issued) to authenticate, and mail to each holder of Notes, Exchange Notes equal in principal amount to the principal amount of the Notes surrendered by such holder. (e) The Issuers and each Initial Purchaser acknowledge that the staff of the SEC has taken the position that any broker-dealer that owns Exchange Notes that were received by such broker-dealer for its own account in the Exchange Offer (a "Participating Broker-Dealer") may be deemed to be an "underwriter" within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes (other than a resale of an unsold allotment resulting from the original offering of the Notes). The Issuers and each Initial Purchaser also acknowledge that it is the SEC staff's position that if the Prospectus contained in the Exchange Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Notes, without naming the Participating Broker-Dealers or specifying the amount of Exchange Notes owned by them, such Prospectus may be delivered by Participating Broker-Dealers to satisfy their prospectus delivery obligations under the Securities Act in connection with resales of Exchange Notes for their own accounts, so long as the Prospectus otherwise meets the requirements of the Securities Act. In light of the foregoing, if requested by a Participating Broker-Dealer, the Issuers agree (x) to use their best efforts to keep the Exchange Registration Statement continuously effective for a period of up to 6 months or such earlier date as each Participating Broker-Dealer shall have notified the Company in writing that such Participating Broker-Dealer has resold all Exchange Notes acquired in the Exchange Offer, (y) to comply with the provisions of Section 5 of this Agreement, as they relate to the Exchange Offer and the Exchange Registration Statement, and (z) to deliver to such Participating Broker-Dealer a "cold comfort" letter of the independent public accountants of the Issuers and a legal opinion as to matters reasonably requested by such 10 -9- Participating Broker-Dealer relating to the Exchange Registration Statement and the related Prospectus and any amendments or supplements thereto. (f) The Initial Purchasers shall have no liability to any Participating Broker-Dealer with respect to any request made pursuant to Section 2(e). (g) Interest on the Exchange Notes and the Private Exchange Notes will accrue from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the date of the original issuance of the Notes. (h) The Exchange Notes and the Private Exchange Notes may be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture, which in either event shall provide that the Exchange Notes shall not be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that neither the Exchange Notes, the Private Exchange Notes nor the Notes will have the right to vote or consent as a separate class on any matter. 3. Shelf Registration (a) If (i) the Company is not permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by any applicable law or applicable interpretation of the staff of the SEC or (ii) the Company has not consummated the Exchange Offer within 180 days of the Issue Date or (iii) any holder of a Note notifies the Company on or prior to the Exchange Date that (A) due to a change in law or policy it is not entitled to participate in the Exchange Offer, (B) due to a change in law or policy it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Registration Statement is not appropriate or available for such resales by such holder or (C) it is a broker-dealer that owns Notes (including any Initial Purchaser that holds Notes as part of an unsold allotment from the original offering of the Notes) acquired directly from an Issuer or an Affiliate of an Issuer or (iv) any holder of Private Exchange Notes so requests within 120 days after the consummation of the Private Exchange (each such event referred to in clauses (i) through (iv), a "Shelf Filing Event"), the Issuers shall cause to be filed with the SEC pursuant to Rule 415 a shelf registration statement (the "Shelf Registration Statement") prior to the 11 -10- later of (x) 60 days after the Issue Date and (y) 30 days after the occurrence of such Shelf Filing Event, relating to all Transfer Restricted Securities (the "Shelf Registration") the holders of which have provided the information required pursuant to Section 3(b) hereof, and shall use their best efforts to have the Shelf Registration Statement declared effective by the SEC on or prior to the later of (i) 150 days after the Issue Date and (ii) 90 days after the occurrence of such Shelf Filing Event. In such circumstances, the Issuers shall use their best efforts to keep the Shelf Registration Statement continuously effective under the Securities Act, until (A) 36 months following the date on which the Shelf Registration Statement was initially declared effective (subject to extension pursuant to the last paragraph of Section 5 hereof) or (B) if sooner, the date immediately following the date that all Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant thereto (the "Effectiveness Period"); provided that the Effectiveness Period shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 and as otherwise provided herein. (b) No holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such holder furnishes to the Company in writing, within 30 days after receipt of a request therefor, such information as the Company may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary prospectus included therein. No holder of Transfer Restricted Securities shall be entitled to Additional Interest pursuant to Section 4 hereof unless and until such holder shall have provided all such reasonably requested information. Each holder of Transfer Restricted Securities as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such holder not materially misleading. 4. Additional Interest (a) The parties hereto agree that the holders of Transfer Restricted Securities will suffer damages if the Issuers fail to fulfill their obligations pursuant to Section 2 or Section 3, as applicable, and that it would not be feasible to ascertain the extent of such damages. Accordingly, in the event that (i) the applicable Registration Statement is not filed with the SEC on or prior to the date specified herein for such filing, (ii) the applicable Registration Statement has not 12 -11- been declared effective by the SEC on or prior to the date specified herein for such effectiveness after such obligation arises, (iii) if the Exchange Offer is required to be Consummated hereunder, the Company has not exchanged Exchange Notes for all Notes validly tendered and not validly withdrawn in accordance with the terms of the Exchange Offer by the Consummation Date or (iv) the applicable Registration Statement is filed and declared effective but shall thereafter cease to be effective without being succeeded immediately by any additional Registration Statement covering the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, which has been filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), then the interest rate on Transfer Restricted Securities will increase ("Additional Interest"), with respect to the first 90-day period immediately following the occurrence of such Registration Default, by 0.50% per annum and will increase by an additional 0.50% per annum with respect to each subsequent 90-day period until such Registration Default has been cured, up to a maximum amount of 2% per annum with respect to all Registration Defaults. Following the cure of a Registration Default, the accrual of Additional Interest with respect to such Registration Default will cease and upon the cure of all Registration Defaults the interest rate will revert to the original rate. (b) The Company shall notify the Trustee and paying agent under the Indenture (or the trustee and paying agent under such other indenture under which the Transfer Restricted Securities are issued) immediately upon the happening of each and every Registration Default. The Company shall pay the Additional Interest due on the Transfer Restricted Securities by depositing with the paying agent (which shall not be the Company for these purposes) for the Transfer Restricted Securities, in trust, for the benefit of the holders thereof, prior to 11:00 A.M. on the next interest payment date specified by the Indenture (or such other indenture), sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each interest payment date specified by the Indenture (or such other indenture) to the record holder entitled to receive the interest payment to be made on such date. Each obligation to pay Additional Interest shall be deemed to accrue from and including the applicable Registration Default. (c) The parties hereto agree that the Additional Interest provided for in this Section 4 constitutes a reasonable estimate of the damages that will be suffered by holders of Transfer Restricted Securities by reason of the happening of any Registration Default. 13 -12- 5. Registration Procedures In connection with the Issuers' registration obligations hereunder, the Issuers shall effect such registrations on the appropriate form available for the sale of the Notes, the Exchange Notes or Private Exchange Notes, as applicable, to (i) in the case of the Exchange Offer, permit the exchange of Exchange Notes for Notes in the Exchange Offer and, if applicable, resales of Exchange Notes by Participating Broker-Dealers and (ii) in the case of a Shelf Registration, permit the sale of the applicable Transfer Restricted Securities in accordance with the method or methods of disposition thereof specified by the holders of such Transfer Restricted Securities, and pursuant thereto the Issuers shall as expeditiously as possible: (a) In the case of a Shelf Registration, a reasonable period of time prior to the initial filing of a Shelf Registration Statement or Prospectus and a reasonable period of time prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), furnish to the holders of the Transfer Restricted Securities included in such Shelf Registration Statement, their Special Counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such holders, their Special Counsel and such underwriters, if any, and cause the officers and directors of the Issuers, counsel to the Issuers and independent certified public accountants to the Issuers to respond to such reasonable inquiries as shall be necessary, in the opinion of respective counsel to such holders and such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act; provided that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by Smith Barney, Inc. and on behalf of any other persons, by one counsel designated by and on behalf of such other persons; provided, however, that the Issuers shall not be deemed to have kept a Shelf Registration Statement effective during the applicable period if any of them voluntarily takes or fails to take any reasonable action that results in holders of the Transfer Restricted Securities covered thereby not being able to sell such Transfer Restricted Securities pursuant 14 -13- to Federal securities laws during that period (and the time period during which such Shelf Registration Statement is required to remain effective hereunder shall be extended by the number of days during which such holders of Transfer Restricted Securities are not able to sell such Transfer Restricted Securities). The Issuers shall not file any such Shelf Registration Statement or related Prospectus or any amendments or supplements thereto which the holders of a majority of the Transfer Restricted Securities included in such Shelf Registration Statement shall reasonably object on a timely basis; (b) Prepare and file with the SEC such amendments, including post-effective amendments, to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable time period required hereunder; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424; and comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; (c) Notify the holders of Transfer Restricted Securities to be sold or, in the case of an Exchange Offer, tendered for, their Special Counsel and the managing underwriters, if any, promptly, and (if requested by any such person), confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment is proposed to be filed, and (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC, any state securities commission, any other governmental agency or any court of any stop order, order or injunction suspending or enjoining the use of a Prospectus or the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by 15 -14- the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Notes, Exchange Notes or Private Exchange Notes for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, and (v) of the happening of any event or information becoming known that makes any statement made in a Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of a Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (d) Use their best efforts to avoid the issuance of or, if issued, obtain the withdrawal of any order enjoining or suspending the use of a Prospectus or the effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Notes, Exchange Notes or Private Exchange Notes for sale in any jurisdiction, at the earliest practicable moment; (e) If a Shelf Registration Statement is filed pursuant to Section 3 hereof and if requested by the managing underwriters, if any, or the holders of a majority in aggregate principal amount of the Transfer Restricted Securities being sold pursuant to such Shelf Registration Statement, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, and such holders reasonably believe should be included therein, and (ii) make all required filings of such Prospectus supplement or such post-effective amendment under the Securities Act as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, however, that the Issuers shall not be required to take any action 16 -15- pursuant to this Section 5(e) that would, in the opinion of counsel for the Issuers, violate applicable law; (f) Upon written request to the Company, furnish to each holder of Notes, Exchange Notes or Private Exchange Notes to be exchanged or sold pursuant to a Registration Statement, their Special Counsel and each managing underwriter, if any, without charge, at least one conformed copy of such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested (including those previously furnished or incorporated by reference) as soon as practicable after the filing of such documents with the SEC; (g) Deliver to each holder of Notes, Exchange Notes or Private Exchange Notes to be exchanged or sold pursuant to a Registration Statement, their Special Counsel, and the underwriters, if any, without charge, as many copies of the Prospectus (including each form of prospectus) and each amendment or supplement thereto as such persons reasonably request; and the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling holders of Transfer Restricted Securities and the underwriters, if any, in connection with the offering and sale of the Transfer Restricted Securities covered by such Prospectus and any amendment or supplement thereto; (h) Prior to any public offering of Notes, Exchange Notes or Private Exchange Notes, use their best efforts to register or qualify or cooperate with the holders of Notes, Exchange Notes or Private Exchange Notes to be sold or tendered for, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Notes, Exchange Notes or Private Exchange Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any such holder or underwriter reasonably requests in writing; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective hereunder and do any and all other acts or things necessary or advisable 17 -16- to enable the disposition in such jurisdictions of the Notes, Exchange Notes or Private Exchange Notes covered by the applicable Registration Statement; provided, however, that the Issuers shall not be required to (i) qualify generally to do business in any jurisdiction where they are not then so qualified or (ii) take any action which would subject them to general service of process or to taxation in any jurisdiction where they are not so subject; (i) In connection with any sale or transfer of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the holders thereof and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company and to enable such Transfer Restricted Securities to be in such denominations and registered in such names as the managing underwriters, if any, or such holders may request at least two Business Days prior to any sale of Transfer Restricted Securities; (j) Upon the occurrence of any event contemplated by Section 5(c)(v), as promptly as practicable, prepare a supplement or amendment, including, if appropriate, a post-effective amendment, to each Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (k) Prior to the effective date of the Exchange Registration Statement, to provide a CUSIP number for the Exchange Notes (and Private Exchange Notes if applicable); (l) If a Shelf Registration Statement is filed pursuant to Section 3 hereof, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in 18 -17- underwritten offerings) and take all such other reasonable actions in connection therewith (including those reasonably requested by the managing underwriters, if any, or the holders of a majority in aggregate principal amount of the Transfer Restricted Securities being sold) in order to expedite or facilitate the disposition of such Transfer Restricted Securities, and, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the holders of such Transfer Restricted Securities and the underwriters, if any, with respect to the business of the Company and its subsidiaries (including with respect to businesses or assets acquired or to be acquired by any of them), and the Shelf Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Issuers and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and Special Counsel to the holders of the Transfer Restricted Securities being sold), addressed to each selling holder of Transfer Restricted Securities and each of the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Special Counsel and underwriters; (iii) use their best efforts to obtain customary "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data is, or is required to be, included in the Shelf Registration Statement), addressed (where reasonably possible) to each selling holder of Transfer Restricted Securities and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less 19 -18- favorable to the selling holders and the underwriters, if any, than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to holders of a majority in aggregate principal amount of Transfer Restricted Securities covered by such Shelf Registration Statement and the managing underwriters, if any); and (v) deliver such documents and certificates as may be reasonably requested by the holders of a majority in aggregate principal amount of the Transfer Restricted Securities being sold, their Special Counsel and the managing underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Issuers; (m) In the case of a Shelf Registration, make available for inspection by a representative of the holders of Transfer Restricted Securities being sold, any underwriter participating in any such disposition of Transfer Restricted Securities, and any attorney, consultant or accountant retained by such selling holders or underwriter, at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries (including with respect to businesses and assets acquired or to be acquired to the extent that such information is available to the Company), and cause the officers, directors, agents and employees of the Company and its subsidiaries (including with respect to businesses and assets acquired or to be acquired to the extent that such information is available to the Company) to supply all information in each case reasonably requested by any such representative, underwriter, attorney, consultant or accountant in connection with such Shelf Registration; provided, however, that such persons shall first agree in writing with the Company that any information that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to Federal 20 -19- securities laws in connection with the filing of the Shelf Registration Statement or the use of any Prospectus), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard such information by such person or (iv) such information becomes available to such person from a source other than the Company and its subsidiaries and such source is not bound by a confidentiality agreement; and provided, further, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by Smith Barney, Inc. and on behalf of any other persons, by one counsel designated by and on behalf of such other persons; (n) Provide an indenture trustee for the Notes and/or the Exchange Notes and Private Exchange Notes, as the case may be, and cause an indenture to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Notes and/or the Exchange Notes and Private Exchange Notes, as the case may be; and if such indenture shall be the Indenture, in connection therewith, cooperate with the Trustee and the holders of the Notes and/or the Exchange Notes and Private Exchange Notes, to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its reasonable efforts to cause the Trustee to execute, all customary documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; (o) Comply with all applicable rules and regulations of the SEC and make generally available to their securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158, no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to underwriters in a firm commitment or reasonable efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter after the effective date of a Registration Statement, which statement shall cover 21 -20- said period, consistent with the requirements of Rule 158; and (p) Cooperate with each seller of Transfer Restricted Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Transfer Restricted Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (q) Use their best efforts to cause the Exchange Notes, if issued, to be listed on the New York Stock Exchange on or prior to the consummation of the Exchange Offer. The Issuers may require a holder of Transfer Restricted Securities to be included in a Registration Statement to furnish to the Issuers such information regarding the distribution of such Transfer Restricted Securities as is required by law to be disclosed in such Registration Statement and the Issuers may exclude from such Registration Statement the Transfer Restricted Securities of any holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. If any such Registration Statement refers to any holder by name or otherwise as the holder of any securities of an Issuer, then such holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such holder, to the effect that the holding by such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the Issuers' securities covered thereby and that such holding does not imply that such holder will assist in meeting any future financial requirements of the Issuers, or (ii) in the event that such reference to such holder by name or otherwise is not required by the Securities Act, the deletion of the reference to such holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. In the case of a Shelf Registration pursuant to Section 3 hereof, each holder of Transfer Restricted Securities agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv) or 5(c)(v) hereof, such holder will forthwith discontinue disposition of such Transfer Restricted Securities covered by such Registration Statement or 22 -21- Prospectus until such holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. If the Company shall give any such notice, the Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each holder of Transfer Restricted Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof or (y) the Advice, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. 6. Registration Expenses All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers shall be borne by the Issuers whether or not any Registration Statement is filed or becomes effective and whether or not any Notes, Exchange Notes or Private Exchange Notes are issued or sold pursuant to any Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (B) in compliance with securities or Blue Sky laws), (ii) printing expenses (including, without limitation, expenses of printing certificates for Notes, Exchange Notes and Private Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing Prospectuses), (iii) reasonable fees and disbursements of counsel for the Issuers and the Special Counsel, (iv) fees and disbursements of all independent certified public accountants referred to in Section 2(e) and Section 5(l)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (v) if required, the reasonable fees and expenses of any "qualified independent underwriter" and its counsel, and (vi) fees and expenses of all other persons retained by the Issuers. In addition, the Issuers shall pay their internal expenses (including, without limitation, all salaries and expenses of their respective officers and employees performing legal or accounting duties), the expense of any annual audit, and the fees and expenses incurred in connection with the listing of the Notes, Exchange Notes or 23 -22- Private Exchange Notes to be registered on any securities exchange. Notwithstanding the foregoing or anything in this Agreement to the contrary, each holder of Transfer Restricted Securities shall pay all underwriting discounts and commissions of any underwriters with respect to any Notes, Exchange Notes or Private Exchange Notes sold by it. 7. Indemnification (a) The Issuers agree, jointly and severally, to indemnify and hold harmless (i) each of the Initial Purchasers, each holder of Notes, Exchange Notes and Private Exchange Notes and each Participating Broker-Dealer, (ii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any of the foregoing (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person"), and (iii) the respective officers, directors, partners, employees, representatives and agents of the Initial Purchasers, each holder of Notes, Exchange Notes and Private Exchange Notes, each Participating Broker-Dealer and any controlling person (any person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an "Indemnified Person"), from and against any and all losses, claims, damages, liabilities and judgments arising out of or relating to any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary prospectus or in any amendment or supplement thereto, or arising out of or relating to any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or preliminary prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Indemnified Person furnished in writing to the Issuers by or on behalf of such Indemnified Person expressly for use therein; provided that the foregoing indemnity with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Person from whom the person asserting such losses, claims, damages, liabilities and judgments purchased securities if such untrue statement or omission or alleged untrue statement or omission made in such preliminary prospectus is eliminated or remedied in the Prospectus and a copy of the Prospectus shall not have been furnished to such person in a timely manner due to the wrongful action or wrongful inaction of such Indemnified Person. 24 -23- (b) In case any action shall be brought against any Indemnified Person, based upon any Registration Statement or any such Prospectus or preliminary prospectus or any amendment or supplement thereto and with respect to which indemnity may be sought against the Issuers hereunder, such Indemnified Person shall promptly notify the Issuers in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person and payment of all fees and expenses. Any Indemnified Person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person, unless (i) the employment of such counsel shall have been specifically authorized in writing by the Issuers, (ii) the Company shall have failed to assume the defense and employ counsel or pay all such fees and expenses or (iii) the named parties to any such action (including any impleaded parties) include both such Indemnified Person and an Issuer and such Indemnified Person shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to any such Issuer (in which case the Company shall not have the right to assume the defense of such action on behalf of such Indemnified Person, it being understood, however, that the Issuers shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all such Indemnified Persons, which firm shall be designated in writing by such Indemnified Persons, and that all such reasonable fees and expenses shall be reimbursed as they are incurred). The Issuers shall not be liable for any settlement of any such action effected without their written consent but if settled with the written consent of the Issuers, the Issuers agree, jointly and severally, to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement. No Issuer shall, without the prior written consent of each Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. (c) In connection with any Registration Statement pursuant to which a holder of Transfer Restricted Securities offers or sells Transfer Restricted Securities, such holder 25 -24- agrees, severally and not jointly, to indemnify and hold harmless the Issuers, their respective directors and officers and any person controlling an Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Issuers to each Indemnified Person but only with respect to information relating to such holder furnished in writing by or on behalf of such holder expressly for use in such Registration Statement. In any such case in which any action shall be brought against an Issuer, any director or officer of an Issuer or any person controlling an Issuer based on such Registration Statement and in respect of which indemnity may be sought against a holder of Transfer Restricted Securities, such holder shall have the rights and duties given to the Issuers (except that if an Issuer shall have assumed the defense thereof, such holder shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such holder), and the Issuers, their respective directors and officers and any person controlling an Issuer shall have the rights and duties given to the Indemnified Persons by Section 7(b) hereof. (d) If the indemnification provided for in this Section 7 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to herein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by each indemnifying party on the one hand and the indemnified party on the other hand from the offering of the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be (it being expressly understood and agreed that the relative benefits received by the Issuers from the offering of the Notes, Exchange Notes or Private Exchange Notes, as the case may be, shall be the amount of the net proceeds received by the Company from the sale of the Notes to the Initial Purchasers), or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of each indemnifying party on the one hand and the indemnified party on the other hand in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the each indemnifying party on the one hand the indemnified party on the other hand shall be determined by reference to, among 26 -25- other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by an indemnifying party or such indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Issuers and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation (even if the Indemnified Person were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, no Indemnified Person shall be required to contribute any amount in excess of the amount by which the net profits received by it in connection with the sale of the Notes, Exchange Notes or Private Exchange Notes contemplated by this Agreement exceeds the amount of any damages which such Indemnified Person has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Indemnified Person's obligations to contribute pursuant to this Section 7(d) are several in proportion to the respective amount of Notes, Exchange Notes or Private Exchange Notes included in any such Registration Statement by each Indemnified Person and not joint. 8. Rules 144 and 144A Each of Issuers shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any holder of Transfer Restricted Securities, make available other information as required by, and so long as necessary to permit, sales of its Transfer Restricted Securities pursuant to Rule 144A. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require an Issuer to register any 27 -26- of its securities pursuant to the Exchange Act. 9. Underwritten Registrations If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering, subject to the consent of the Company (which will not be unreasonably withheld or delayed). No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous (a) Remedies. In the event of a breach by an Issuer or by a holder of Notes, Exchange Notes or Private Exchange Notes of any of its obligations under this Agreement, each holder of Notes, Exchange Notes or Private Exchange Notes and each Issuer, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Subject to Section 4 hereof, the Issuers and each holder of Notes, Exchange Notes and Private Exchange Notes agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach of any of the provisions of this Agreement and each hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Issuers will not enter into any agreement with respect to their securities that is inconsistent with the rights granted to the holders of Notes, Exchange Notes and Private Exchange Notes and Indemnified Persons in this Agreement or otherwise conflicts with the provisions hereof. Without the written consent of the holders of a majority in aggregate principal amount of the outstanding Transfer Restricted Securities, the Issuers shall not grant to any person any rights which conflict with or are 28 -27- inconsistent with the provisions of this Agreement. (c) No Piggyback on Registrations. The Issuers shall not grant to any of their securityholders (other than the holders of Transfer Restricted Securities in such capacity) the right to include any of their securities in any Registration Statement other than Transfer Restricted Securities. (d) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of the holders of not less than a majority of the then outstanding aggregate principal amount of Transfer Restricted Securities; provided, however, that, for the purposes of this Agreement, Transfer Restricted Securities that are owned, directly or indirectly, by the Issuers or any of their Affiliates are not deemed outstanding. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of holders of Transfer Restricted Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other holders of Transfer Restricted Securities may be given by holders of a majority in aggregate principal amount of the Transfer Restricted Securities being sold by such holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Notwithstanding the foregoing, no amendment, modification, supplement, waiver or consent with respect to Section 7 shall be made or given otherwise than with the prior written consent of each Indemnified Person affected thereby. (e) Notices. All notices and other communications provided for herein shall be made in writing by hand-delivery, next-day air courier, certified first-class mail, return receipt requested, telex or telecopier: (i) if to the Issuers, as provided in the Purchase Agreement, (ii) if to the Initial Purchasers, as provided in the Purchase Agreement, or (iii) if to any other person who is then the registered holder of Notes, Exchange Notes or Private Exchange Notes, to the address of such holder as it 29 -28- appears in the register therefor of the Company. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being timely delivered to a next-day air courier; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; and when receipt is acknowledged by the recipient's telecopier machine, if telecopied. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each holder of Notes, Exchange Notes and Private Exchange Notes. The Issuers may not assign any of their rights or obligations hereunder without the prior written consent of each holder of Transfer Restricted Securities and each Indemnified Person. Notwithstanding the foregoing, no successor or assignee of an Issuer shall have any of the rights granted under this Agreement until such person shall acknowledge its rights and obligations hereunder by a signed written statement of such person's acceptance of such rights and obligations. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. (h) Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE ISSUERS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND EACH IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. (i) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein 30 -29- shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. All references made in this Agreement to "Section" and "paragraph" refer to such Section or paragraph of this Agreement, unless expressly stated otherwise. 31 -30- IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of the date first written above. WALBRO CORPORATION By: ___________________________ Name: Title: WALBRO AUTOMOTIVE CORPORATION By: ___________________________ Name: Title: WALBRO ENGINE MANAGEMENT CORPORATION By: ___________________________ Name: Title: SHARON MANUFACTURING COMPANY By: ___________________________ Name: Title: WHITEHEAD ENGINEERED PRODUCTS, INC. By: ___________________________ Name: Title: 32 -31- SMITH BARNEY INC. A.G. EDWARD & SONS, INC. McDONALD & COMPANY SECURITIES, INC. STIFEL, NICOLAUS AND COMPANY, INCORPORATED By: SMITH BARNEY INC. By: ____________________________ Name: Title: EX-12.1 5 RATIO OF EARNINGS 1 EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS, EXCEPT FOR RATIOS)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------ ---------------------------- 1994 1995 PRO FORMA 1994 1993 1992 1991 1990 PRO FORMA 1995 1994 --------- ---- ---- ---- ---- ---- --------- ---- ---- FIXED CHARGES: Interest on debt $ 18,437 $ 3,862 $ 2,594 $ 3,704 $ 6,724 $ 7,309 $ 10,162 $ 2,666 $ 1,540 Interest element of rentals (1) 2,183 1,108 885 936 875 475 1,064 620 582 Preferred stock dividends (2) -- -- -- -- -- 280 -- -- -- --------- -------- -------- -------- -------- -------- -------- -------- -------- $ 20,620 $ 4,970 $ 3,479 $ 4,640 $ 7,599 $ 8,064 $ 11,226 $ 3,286 $ 2,122 ========= ======== ======== ======== ======== ======== ======== ======== ======== EARNINGS: Net income $ 6,009 $ 14,595 $ 9,667 $ 12,526 $ 4,838 $ 1,097 $ 8,044 $ 8,923 $ 8,960 Provision for national income taxes 4,979 5,824 4,574 4,664 2,056 1,618 3,465 3,751 4,953 Cumulative effect of accounting change -- -- 4,394 -- -- -- -- -- -- Fixed charges 20,620 4,970 3,479 4,640 7,599 8,064 11,226 3,286 2,122 Minority interest in income 92 92 -- -- -- -- -- -- -- Equity in (income) losses of joint ventures (2,609) (2,609) 89 (179) 465 2,128 (2,074) (2,074) (592) --------- -------- -------- -------- -------- -------- -------- -------- -------- $ 29,091 $ 22,872 $ 22,203 $ 21,651 $ 14,958 $ 12,907 $ 20,661 $ 13,886 $ 15,443 ========= ======== ======== ======== ======== ======== ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES 1.4x 4.6x 6.4x 4.7x 2.0x 1.6x 1.8x 4.2x 7.3x FIXED CHARGES IN EXCESS OF EARNINGS $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
(1) Deemed to be approximately one-third of rental expenses. (2) Represents actual preferred stock dividends of $120 in 1990 grossed-up to a pre-income-tax basis at the 1990 effective income tax rate of 57.1% EX-23.1 6 AALLP CONSENT 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated February 14, 1995 (except with respect to the matters discussed in Notes 20 and 21, as to which the date is June 30, 1995), with respect to the consolidated balance sheets of Walbro Corporation and Subsidiaries as of December 31, 1994, 1993 and 1992 and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended, included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Detroit, Michigan, September 22, 1995 EX-23.2 7 AA GMBH CONSENT 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated May 12, 1995, with respect to the combined balance sheet of the Fuel Tank Division of Dyno Industrier A.S as of December 31, 1994 and the related combined statements of income, stockholders' and divisional equity, and cash flows for the year then ended, included in or made a part of this registration statement. ARTHUR ANDERSEN & Co. G.m.b.H. Stuttgart, Germany, September 22, 1995 EX-23.3 8 DELOITTE & TOUCHE CONSENT 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation of our report dated May 12, 1995 of the combined balance sheet of the Fuel Tank System Division of Dyno Industrier A.S as of December 31, 1993 and the related combined statements of income and cash flows for the year then ended, and our report dated May 30, 1995 of the combined statement of revenues and direct costs and expenses of the Fuel Tank System Division of Dyno Industrier A.S for the year ended December 31, 1992, which reports are included in this Registration Statement on form S-4 of Walbro Corporation. DELOITTE & TOUCHE Oslo, Norway September 25, 1995 EX-25 9 T-1 1 EXHIBIT 25 ___________________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 _________________________________ STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) _________________________________________ _________________________________ BANKERS TRUST COMPANY (Exact name of trustee as specified in its charter) NEW YORK 13-4941247 (Jurisdiction of Incorporation or (I.R.S. Employer organization if not a U.S. national Identification no.) bank) FOUR ALBANY STREET NEW YORK, NEW YORK 10006 (Address of principal (Zip Code) executive offices) BANKERS TRUST COMPANY LEGAL DEPARTMENT 130 LIBERTY STREET, 31ST FLOOR NEW YORK, NEW YORK 10006 (212) 250-2201 (Name, address and telephone number of agent for service) _________________________________ WALBRO CORPORATION (Exact name of obligor as specified in its charter) DELAWARE 38-1358966 (State or other jurisdiction of (I.R.S. employer Incorporation or organization) Identification no.) 6242 GARFIELD STREET CASS CITY, MICHIGAN 48726 (Address of principal executive offices) (Zip Code) SEE TABLE OF ADDITIONAL SUBSIDIARY OBLIGORS ______________________________ $110,000,000 9 7/8% SENIOR NOTES DUE 2005, SERIES B (Title of the indenture securities) ______________________________________________________________________________ 2 -2- ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee. (a) Name and address of each examining or supervising authority to which it is subject. NAME ADDRESS Federal Reserve Bank (2nd District) New York, NY Federal Deposit Insurance Corporation Washington, D.C. New York State Banking Department Albany, NY (b) Whether it is authorized to exercise corporate trust powers. Yes. ITEM 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the Trustee, describe each such affiliation. None. ITEM 3.-15. NOT APPLICABLE ITEM 16. LIST OF EXHIBITS. EXHIBIT 1 - Restated Organization Certificate of Bankers Trust Company dated August 7, 1990 and Certificate of Amendment of the Organization Certificate of Bankers Trust Company dated March 28, 1994 - Incorporated herein by reference to Exhibit 1 filed with Form T-1 Statement, Registration No. 33-79862. EXHIBIT 2 - Certificate of Authority to commence business - Incorporated herein by reference to Exhibit 2 filed with Form T-1 Statement, Registration No. 33-21047. EXHIBIT 3 - Authorization of the Trustee to exercise corporate trust powers - Incorporated herein by reference to Exhibit 2 filed with Form T-1 Statement, Registration No. 33-21047. EXHIBIT 4 - Existing By-Laws of Bankers Trust Company, dated as amended on September 21, 1993. - Incorporated herein by reference to Exhibit 4 filed with Form T-1 Statement, Registration No. 33-52359. 3 -3- EXHIBIT 5 - Not applicable. EXHIBIT 6 - Consent of Bankers Trust Company required by Section 321(b) of the Act. - Incorporated herein by reference to Exhibit 4 filed with Form T-1 Statement, Registration No. 22-18864. EXHIBIT 7 - A copy of the latest report of condition of Bankers Trust Company dated as of March 31, 1995. EXHIBIT 8 - Not Applicable EXHIBIT 9 - Not Applicable 4 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the trustee, Bankers Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 22 day of September, 1995. BANKERS TRUST COMPANY By: Terence Rawlins --------------- Terence Rawlins Assistant Treasurer 5 Legal Title of Bank: Bankers Trust Company Call Date: 3/31/95 ST- BK: 36-4840 FFIEC 031 Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1 City, State ZIP: New York, NY 10006 11 FDIC Certificate No.: 0 0 6 2 3 CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS MARCH 31, 1995 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, reported the amount outstanding as of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET _______________ ________________________ C400
Dollar Amounts in Thousands RCFD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------ ASSETS / / / / / / / / / / / / / / / / / / 1. Cash and balances due from depository institutions (from Schedule RC-A): / / / / / / / / / / / / / / / / / / a. Noninterest-bearing balances and currency and coin(1) ............................... 0081 1,690,000 1.a. b. Interest-bearing balances(2) .......................................................................... 0071 2,805,000 1.b. 2. Securities: / / / / / / / / / / / / / / / / / / a. Held-to-maturity securities (from Schedule RC-B, column A) ....................... 1754 0 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)...................... 1773 3,255,000 2.b. 3 Federal funds sold and securities purchased under agreements to resell in domestic offices / / / / / / / / / / / / / / / / / / of the bank and of its Edge and Agreement subsidiaries, and in IBFs: / / / / / / / / / / / / / / / / / / a. Federal funds sold ........................................................................................ 0276 4,331,000 3.a. b. Securities purchased under agreements to resell ............................................. 0277 911,000 3.b. 4. Loans and lease financing receivables: / / / / / / / / / / / / / / / / / / a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 21,354,000 / / / / / / / / / / / / / / / / / / 4.a. b. LESS: Allowance for loan and lease losses......................................RCFD 3123 1,196,000 / / / / / / / / / / / / / / / / / / 4.b. c. LESS: Allocated transfer risk reserve ..............................................RCFD 3128 0 / / / / / / / / / / / / / / / / / / 4.c. d. Loans and leases, net of unearned income, / / / / / / / / / / / / / / / / / / allowance, and reserve (item 4.a minus 4.b and 4.c) ............................................ 2125 20,158,000 4.d. 5. Assets held in trading accounts ................................................................................ 3545 39,393,000 5. 6. Premises and fixed assets (including capitalized leases) ............................................ 2145 890,000 6. 7. Other real estate owned (from Schedule RC-M) ....................................................... 2150 258,000 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 2130 233,000 8. 9. Customers' liability to this bank on acceptances outstanding .................................. 2155 387,000 9. 10. Intangible assets (from Schedule RC-M) ................................................................. 2143 11,000 10.
6 11. Other assets (from Schedule RC-F) .......................................................................... 2160 7,797,000 11. 12. Total assets (sum of items 1 through 11) ................................................................. 2170 82,119,000 12. ------------------------------------------------
__________________________ (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held in trading accounts. 7 Legal Title of Bank: Bankers Trust Company Call Date: 3/31/95 ST-BK: 36-4840 FFIEC 031 Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2 City, State Zip: New York, NY 10006 12 FDIC Certificate No.: 0 0 6 2 3 SCHEDULE RC--CONTINUED ___________________________________
- ----------------------------------------------------------------------------------------------------------------------------------- Dollar Amounts in Thousands / / / / / / / / / / Bil Mil Thou LIABILITIES / / / / / / / / / / / / / / / / / / / / / / / / 3. Deposits: / / / / / / / / / / / / / / / / / / / / / / / a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) RCON 2200 7,086,000 13.a. (1) Noninterest-bearing(1) ............................RCON 6631 2,504,000........... / / / / / / / / / / / / / / / / / / / / / / / 13.a.(1) (2) Interest-bearing .................................. .....RCON 6636 4,582,000........... / / / / / / / / / / / / / / / / / / / / / / / 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E / / / / / / / / / / / / / / / / / / / / / / / part II) RCFN 2200 20,209,000 13.b. (1) Noninterest-bearing ..................................RCFN 6631 641,000 / / / / / / / / / / / / / / / / / / / / / / / 13.b.(1) (2) Interest-bearing .......................................RCFN 6636 19,568,000 / / / / / / / / / / / / / / / / / / / / / / / 13.b.(2) 14. Federal funds purchased and securities sold under agreements to repurchase in / / / / / / / / / / / / / / / / / / / / / / / domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: / / / / / / / / / / / / / / / / / / / / / / / a. Federal funds purchased ........................................................................................ RCFD 0278 3,334,000 14.a. b. Securities sold under agreements to repurchase .................................................... RCFD 0279 418,000 14.b. 15. a. Demand notes issued to the U.S. Treasury ............................................................ RCON 2840 0 15.a. b. Trading liabilities ................................................................................................. RCFD 3548 25,202,000 15.b. 16. Other borrowed money: / / / / / / / / / / / / / / / / / / / / / / / a. With original maturity of one year or less ............................................................ RCFD 2332 9,875,000 16.a. b. With original maturity of more than one year ...................................................... RCFD 2333 2,307,000 16.b. 17. Mortgage indebtedness and obligations under capitalized leases ................................ RCFD 2910 36,000 17. 18. Bank's liability on acceptances executed and outstanding ............................................ RCFD 2920 387,000 18. 19. Subordinated notes and debentures .............................................................................. RCFD 3200 1,225,000 19. 20. Other liabilities (from Schedule RC-G) ....................................................................... RCFD 2930 8,122,000 20. 21. Total liabilities (sum of items 13 through 20) ............................................................. RCFD 2948 78,201,000 21. / / / / / / / / / / / / / / / / / / / / / / / 22. Limited-life preferred stock and related surplus ........................................................... RCFD 3282 0 22. EQUITY CAPITAL / / / / / / / / / / / / / / / / / / / / / / / 23. Perpetual preferred stock and related surplus .............................................................. RCFD 3838 250,000 23. 24. Common stock .............................................................................................................. RCFD 3230 852,000 24.
8 25. Surplus (exclude all surplus related to preferred stock) ................................................ RCFD 3839 498,000 25. 26. a. Undivided profits and capital reserves ..................................................................... RCFD 3632 2,681,000 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities .................... RCFD 8434 ( 3,000) 26.b. 27. Cumulative foreign currency translation adjustments ................................................ RCFD 3284 ( 360,000) 27. 28. Total equity capital (sum of items 23 through 27) ..................................................... RCFD 3210 3,918,000 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, / / / / / / / / / / / / / / / / / / / / / / / and 28) ...................................................................................................................... RCFD 3300 82,119,000 29. - ----------------------------------
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external Number ______ auditors as of any date during 1994 ......................................................... RCFD 2 M.1 1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other with generally accepted auditing standards by a certified external auditors (may be required by state chartering public accounting firm which submits a report on the bank authority) 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external submits a report on the consolidated holding company auditors (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in 8 = No external audit work accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) - ---------------------- (1) Including total demand deposits and noninterest-bearing time and savings deposits.
EX-99.1 10 LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 [WALBRO LOGO] LETTER OF TRANSMITTAL FOR TENDER OF 9 7/8% SENIOR NOTES DUE 2005, SERIES A IN EXCHANGE FOR 9 7/8% SENIOR NOTES DUE 2005, SERIES B WALBRO CORPORATION THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER 31, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. Deliver To The Exchange Agent: Bankers Trust Company By Hand/Overnight Courier: By Mail: Bankers Trust Company Bankers Trust Company Corporate Trust & Agency Group Corporate Trust & Agency Group Receipt & Delivery Window Reorganization Department 123 Washington St., 1st Floor P.O. Box 1458 New York, NY 10006 Church Street Station New York, NY 10008-1458 By Facsimile: (212) 250-3290 and (212) 250-6275 Confirm by Telephone: (212) 250-6270 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS lETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. 2 The undersigned hereby acknowledges receipt and review of the Prospectus dated , 1995 (the "Prospectus") of Walbro Corporation (the "Company") and this Letter of Transmittal (the "Letter of Transmittal"), which together describe the Company's offer (the "Exchange Offer") to exchange its 9-7/8% Senior Notes due July 15, 2005, Series B (the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which the Prospectus is a part, for a like principal amount of its issued and outstanding 9 7/8% Senior Notes due July 15, 2005, Series A (the "Old Notes"). Capitalized terms used but not defined herein have the respective meaning given to them in the Prospectus. The Company reserves the right, at any time or from time to time, to extend the Exchange Offer at its discretion, in which event the term "Expiration Date" shall mean the latest time and date in which the Exchange Offer is extended. The Company shall notify the holders of the Old Notes of any extension by oral or written notice prior to 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. This Letter of Transmittal is to be used by a Holder of Old Notes either if original Old Notes are to be forwarded herewith or if delivery of Old Notes, if available, is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer-Book-Entry Transfer." Holders of Old Notes whose Old Notes are not immediately available, or who are unable to deliver their Old Notes and all other documents required by this Letter of Transmittal to the Exchange Agent on or prior to the Expiration Date, or who are unable to complete the procedure for book-entry transfer on a timely basis, must tender their Old Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer-Guaranteed Delivery Procedures." See Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. The term "Holder" with respect to the Exchange Offer means any person in whose name Old Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered Holder. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. Holders who wish to tender their Old Notes must complete this Letter of Transmittal in its entirety. The undersigned has checked the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT. List below the Old Notes to which this Letter of Transmittal relates. If the space below is inadequate, list the registered numbers and principal amounts on a separate signed schedule and affix the list to this Letter of Transmittal. -2- 3
DESCRIPTION OF OLD NOTES TENDERED --------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF AGGREGATE REGISTERED HOLDER(S), PRINCIPAL EXACTLY AS NAMES(S) APPEAR(S) AMOUNT PRINCIPAL ON OLD NOTES REGISTERED REPRESENTED AMOUNT (PLEASE FILL IN, IF BLANK) NUMBER(S)* BY NOTE(S) TENDERED** ------------------------- ---------- ------------ ----------- TOTAL
* Need not be completed by book-entry Holders. ** Unless otherwise indicated, any tendering Holder of Old Notes will be deemed to have tendered the entire aggregate principal amount represented by such Old Notes. All tenders must be in integral multiples of $1,000. [ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH. [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY): Name of Tendering Institution:____________________________________________ Account Number:___________________________________________________________ Transaction Code Number:__________________________________________________ [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY): Name(s) of Registered Holder(s) of Old Notes:______________________________ Date of Execution of Notice of Guaranteed Delivery:________________________ Window Ticket Number (if available):_______________________________________ Name of Eligible Institution that Guaranteed Delivery:_____________________ Account Number (if delivered by book-entry transfer):______________________ [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name:______________________________________________________________________ Address:___________________________________________________________________ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes, it acknowledges that the Old Notes were acquired as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. -3- 4 SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to the Company for exchange the principal amount of Old Notes indicated above. Subject to and effective upon the acceptance for exchange of the principal amount of Old Notes tendered in accordance with this Letter of Transmittal, the undersigned hereby exchanges, assigns and transfers to the Company all right, title and interest in and to the Old Notes tendered for exchange hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent, the agent and attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent also acts as the agent of the Company in connection with the Exchange Offer) with respect to the tendered Old Notes with full power of substitution to (i) deliver such Old Notes, or transfer ownership of such Old Notes on the account books maintained by the Book-Entry Transfer Facility, to the Company and deliver all accompanying evidences of transfer and authenticity, and (ii) present such Old Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Old Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed to be irrevocable and coupled with an interest. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign and transfer the Old Notes tendered hereby and to acquire the New Notes issuable upon the exchange of such tendered Old Notes, and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim, when the same are accepted for exchange by the Company. The undersigned acknowledge(s) that this Exchange Offer is being made in reliance upon interpretations contained in no-action letters issued to third parties by the staff of the Securities and Exchange Commission (the "Commission") that the New Notes issued in exchange for the Old Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by Holders thereof (other than any such Holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such Holders' business and such Holders are not engaging in and do not intend to engage in a distribution of the New Notes and have no arrangement or understanding with any person to participate in a distribution of such New Notes. The undersigned hereby further represent(s) to the Company that (i) any New Notes acquired in exchange for Old Notes tendered hereby are being acquired in the ordinary course of business of the person receiving such New Notes, whether or not the undersigned, (ii) neither the undersigned not any such other person is engaging in or intends to engage in a distribution of the New Notes, (iii) neither the undersigned not any such other person has an arrangement or understanding with any person to participate in the distribution of such New Notes, and (iv) neither the Holder not any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company or, if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the undersigned or the person receiving the New Notes is a broker-dealer that is receiving New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, the undersigned acknowledges that it or such other person will deliver a prospectus in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that the undersigned or such other person is an "underwriter" within the meaning of the Securities Act. The undersigned acknowledges that if the undersigned is participating in the Exchange Offer for the purpose of distributing the New Notes (i) the undersigned cannot rely on the position of the staff of the Commission in certain no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the New Notes, in which case the registration statement must contain the selling -4- 5 security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission, and (ii) failure to comply with such requirements in such instance could result in the undersigned incurring liability under the Securities Act for which the undersigned is not indemnified by the Company. If the undersigned or the person receiving the New Notes is an "affiliate" (as defined in Rule 405 under the Securities Act), the undersigned represents to the Company that the undersigned understands and acknowledges that the New Notes may not be offered for resale, resold or otherwise transferred by the undersigned or such other person without registration under the Securities Act or an exemption therefrom. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the Old Notes tendered hereby, including the transfer of such Old Notes on the account books maintained by the Book-Entry Transfer Facility. For purposes of the Exchange Offer, the Company shall be deemed to have accepted for exchange validly tendered Old Notes when, as and if the Company gives oral or written notice thereof to the Exchange Agent. Any tendered Old Notes that are not accepted for exchange pursuant to the Exchange Offer for any reason will be returned, without expense, to the undersigned at the address shown below or at a different address as may be indicated herein under "Special Delivery Instructions" as promptly as practicable after the Expiration Date. All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned, and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, personal representatives, successors and assigns. The undersigned acknowledges that the Company's acceptance of properly tendered Old Notes pursuant to the procedures described under the caption "The Exchange Offer -- Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. Unless otherwise indicated under "Special Issuance Instructions," please issue the New Notes issued in exchange for the Old Notes accepted for exchange and return any Old Notes not tendered or not exchanged, in the name(s) of the undersigned. Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail or deliver the New Notes issued in exchange for the Old Notes accepted for exchange and any Old Notes not tendered or not exchanges (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Issuance Instructions" and "Special Delivery Instructions" are completed, please issue the New Notes issued in exchange for the Old Notes accepted for exchange in the name(s) of, and return any Old Notes not tendered or not exchanged to, the person(s) so indicated. The undersigned recognizes that the Company has no obligation pursuant to the "Special Issuance Instructions" and "Special Delivery Instructions" to transfer any Old Notes from the name of the registered holer(s) thereof if the Company does not accept for exchange any of the Old Notes so tendered for exchange. -5- 6 PLEASE SIGN HERE WHETHER OR NOT OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE) X _______________________________________________________ ________________ Date X _______________________________________________________ ________________ Date Area Code and Telephone Number: ________________________________ The above lines must be signed by the registered Holder(s) of Old Notes as name(s) appear(s) on the Old Notes or on a security position listing, or by person(s) authorized to become registered Holder(s) by a properly completed bond power from the registered Holder(s), a copy of which must be transmitted with this Letter of Transmittal. If Old Notes to which this Letter of Transmittal relate are held of record by two or more joint Holders, then all such Holders must sign this Letter of Transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then such person must (i) set forth his or her full title below and (ii) unless waived by the Company, submit evidence satisfactory to the Company of such person's authority so to act. See Instruction 5 regarding the completion of this Letter of Transmittal, printed below. Name(s) _________________________________________________________________ _________________________________________________________________ (Please Type or Print) _________________________________________________________________ (Please Type or Print) Capacity: _______________________________________________________________ Address: _______________________________________________________________ _______________________________________________________________ (Include Zip Code) MEDALLION SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 5) Certain signatures must be Guaranteed by an Eligible Institution. Signature(s) Guaranteed by an Eligible Institution:_________________________ (Authorized Signature) _______________________________________________________________________ (Title) _______________________________________________________________________ (Name of Firm) _______________________________________________________________________ (Address, Include Zip Code) _______________________________________________________________________ (Area Code and Telephone Number) Dated:___________________________________________________________, 1995 -6- 7 SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 5 AND 6) To be completed ONLY (i) if Old Notes in a principal amount not tendered, or New Notes issued in exchange for Old Notes accepted for exchange, are to be issued in the name of someone other than the undersigned, or (ii) if Old Notes tendered by book-entry transfer which are not exchanged are to be returned by credit to an account maintained by at the Book-Entry Transfer Facility. Issue New Notes and/or Old Notes to: Name(s): ______________________________________ (Please Type or Print) _______________________________________________ (Please Type or Print) Address:_______________________________________ _______________________________________________ (Include Zip Code) _______________________________________________ (Tax Identification or Social Security No.) (Complete Substitute Form W-9) [ ] Credit unexchanged Old Notes delivered by book-entry transfer to the Book-Entry Transfer Facility set forth below: _______________________________________________ (Book-Entry Transfer Facility Account Number, if applicable) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5 AND 6) To be completed ONLY if Old Notes in a principal amount not tendered, or New Notes issued in exchange for Old Notes accepted for exchange, are to be mailed or delivered to someone other than the undersigned, or to the undersigned at an address other than that shown below the undersigned's signature. Mail or deliver New Notes and/or Old Notes to: Name:____________________________________________ (Please Type or Print) Address:_________________________________________ _________________________________________________ (Include Zip Code) _________________________________________________ (Tax Identification or Social Security No.) -7- 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES OR BOOK-ENTRY CONFIRMATIONS. All physically delivered Old Notes or any confirmation of a book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer Facility of Old Notes tendered by book-entry transfer (a "Book-Entry Confirmation"), as well as a properly completed and duly executed copy of this Letter of Transmittal or facsimile hereof, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. The method of delivery of the tendered Old Notes, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the Holder and, except as otherwise provided below, the delivery will be deemed made only when actually received or confirmed by the Exchange Agent. Instead of delivery by mail, it is recommended that the Holder use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the Exchange Agent before the Expiration Date. No Letter of Transmittal or Old Notes should be sent to the Company. 2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Old Notes and (a) whose Old Notes are not immediately available, or (b) who cannot deliver their Old Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date or (iii) who are unable to complete the procedure for book-entry transfer on a timely basis, must tender their Old Notes according to the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers Inc. or a commercial bank or a trust company having an office or correspondent in the United States (an "Eligible Institution"); (ii) prior to the Expiration Date, the Exchange Agent must have received from the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the Holder of the Old Notes, the registration number(s) of such Old Notes and the principal amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within [THREE (3)] New York Stock Exchange, Inc. ("NYSE") trading days after the Expiration Date, this Letter of Transmittal (or facsimile hereof) together with the Old Notes (or a Book-Entry Confirmation) in proper form for transfer, must be received by the Exchange Agent within [THREE (3)] NYSE trading days after the Expiration Date; and (iii) the certificates for all physically tendered shares of Old Notes, in proper form for transfer, or Book-Entry Confirmation, as the case may be, and all other documents required by this Letter are received by the Exchange Agent within [THREE (3)] NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. Any Holder of Old Notes who wishes to tender Old Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration Date. Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. See "The Exchange Offer -- Guaranteed Delivery Procedures" section of the Prospectus. 3. TENDER BY HOLDER. Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer. Any beneficial Holder of Old Notes who is not the registered Holder and who wishes to tender should arrange with the registered Holder to execute and deliver this Letter of Transmittal on his behalf or must, prior to completing and executing this Letter of Transmittal and delivering his Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such Holder's name or obtain a properly completed bond power from the registered Holder. -8- 9 4. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in integral multiples of $1,000. If less than the entire principal amount of any Old Notes is tendered, the tendering Holder should fill in the principal amount tendered in the third column of the box entitled "Description of Old Notes" above. The entire principal amount of Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Old Notes is not tendered, then Old Notes for the principal amount of Old Notes not tendered and New Notes issued in exchange for any Old Notes accepted will be sent to the Holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal, promptly after the Old Notes are accepted for exchange. 5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; MEDALLION GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is signed by the record Holder(s) of the Old Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the Old Notes without alteration, enlargement or any change whatsoever. If this Letter of Transmittal is signed by a participant in the Book-Entry Transfer Facility, the signature must correspond with the name as it appears on the security position listing as the Holder of the Old Notes. If this Letter of Transmittal (or facsimile hereof) is signed by the registered Holder or Holders of Old Notes listed and tendered hereby and the New Notes issued in exchange therefor is to be issued (or any untendered principal amount of Old Notes is to be reissued) to the registered Holder, the said Holder need not and should not endorse any tendered Old Notes, nor provide a separate bond power. In any other case, such Holder must either properly endorse the Old Notes tendered or transmit a properly completed separate bond power with this Letter of Transmittal, with the signatures on the endorsement or bond power guaranteed by an Eligible Institution. If this Letter of Transmittal (or facsimile hereof) is signed by a person other than the registered Holder or Holders of any Old Notes listed, such Old Notes must be endorsed or accompanied by appropriate bond powers, in each case signed as the name of the registered Holder or Holders appears on the Old Notes. If this Letter of Transmittal (or facsimile hereof) or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, or officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, evidence satisfactory to the Company of their authority so to act must be submitted with this Letter of Transmittal. Endorsements on Old Notes or signatures on bond powers required by this Instruction 5 must be guaranteed by an Eligible Institution. No signature guarantee is required if (i) this Letter of Transmittal is signed by the registered holder(s) of the Old Notes tendered herewith (or by a participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of the tendered Old Notes) and the issuance of New Notes (and any Old Notes not tendered or not accepted) are to be issued directly to such registered holder(s) (or, if signed by a participant in the Book-Entry Transfer Facility, any New Notes or Old Notes not tendered or not accepted are to be deposited to such participant's account at such Book-Entry Transfer Facility) and neither the box entitled "Special Delivery Instructions" nor the box entitled "Special Registration Instructions" has been completed, or (ii) such Old Notes are tendered for the account of an Eligible Institution. In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. 6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the applicable box or boxes, the name and address (or account at the Book-Entry Transfer Facility) to which New Notes or substitute Old Notes for principal amounts not tendered or not accepted for exchange are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of -9- 10 issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. 7. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, New Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered Holder of the Old Notes tendered hereby, or if tendered Old Notes are registered in the name of any person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered Holder or any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF TRANSMITTAL. 8. TAX IDENTIFICATION NUMBER. Federal income tax law required that a holder of any Old Notes which are accepted for exchange must provide the Company (as payor) with its correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual in his or her social security number. If the Company is not provided with the correct TIN, the Holder may be subject to a $50 penalty imposed by Internal Revenue Service. (If withholding results in an over-payment of taxes, a refund may be obtained.) Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. To prevent backup withholding, each tendering holder must provide such holder's correct TIN by completing the Substitute Form W-9 set forth herein, certifying that the TIN provided is correct (or that such holder is awaiting a TIN), and that (i) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the Old Notes are registered in more than one name or are not in the name of the actual owner, see the enclosed "Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9" for information on which TIN to report. The Company reserves the right in its sole discretion to take whatever steps are necessary to comply with the Company's obligation regarding backup withholding. 9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility (including time of receipt), and acceptance of tendered Old Notes will be determined by the Company, in its sole discretion, which determination will be final and binding. The Company reserves the right to reject any and all Old Notes not validly tendered or any Old Notes, the Company's acceptance of which would, in the opinion of the Company or its counsel, be unlawful. The Company also reserves the right to waive any conditions of the Exchange Offer or defects or irregularities in tenders of Old Notes as to any ineligibility of any holder who seeks to tender Old Notes in the Exchange Offer. The interpretation of the terms and conditions of the Exchange Offer (includes this Letter of Transmittal and the instructions hereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. The Company will use reasonable efforts to give notification of defects or irregularities with respect to tenders of Old Notes, but shall not incur any liability for failure to give such notification. -10- 11 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive, in whole or part, any of the conditions to the Exchange Offer set forth in the Prospectus. 11. NO CONDITIONAL TENDER. No alternative, conditional, irregular or contingent tender of Old Notes on transmittal of this Letter of Transmittal will be accepted. 12. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any Holder whose Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. 13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance or for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address or telephone number set forth on the cover page of this Letter of Transmittal. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. 14. ACCEPTANCE OF TENDERED OLD NOTES AND ISSUANCE OF NEW NOTES; RETURN OF OLD NOTES. Subject to the terms and conditions of the Exchange Offer, the Company will accept for exchange all validly tendered Old Notes as soon as practicable after the Exchange Date and will issue New Notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Company shall be deemed to have accepted tendered Old Notes when, as and if the Company has given written and oral notice thereof to the Exchange Agent. If any tendered Old Notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Old Notes will be returned, without expense, to the undersigned at the address shown above (or credited to the undersigned's account at the Book-Entry Transfer Facility designated above) or at a different address as may be indicated under the box entitled "Special Delivery Instructions." 15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited withdrawal rights set forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal of Tenders." IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF (TOGETHER WITH THE OLD NOTES) WHICH MUST BE DELIVERED BY BOOK-ENTRY TRANSFER OR IN ORIGINAL HARD COPY FROM) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION TIME. -11- 12 (TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5)) PAYOR'S NAME: WALBRO CORPORATION SUBSTITUTE Part I-Taxpayer Identification No.-For All Accounts Part II- For Payees Exempt from FORM W-9 Backup Withholding (see enclosed Guidelines) Enter your taxpayer identification number in the appropriate box. For most individuals and sole pro- DEPARTMENT OF THE TREASURY prietors, this is your INTERNAL REVENUE SERVICE social security number. Social Security number For other entities, it is your Employer Identification Number. If you do not have a number, see OR How to Obtain a TIN in the enclosed Guidelines. PAYER'S REQUEST FOR Note: If the account is TAXPAYER IDENTIFICATION NO. in more than one name, see Employer identification number the chart on page 2 of the enclosed Guidelines to determine what number to enter.
Certification--Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number; (2) I am not subject to backup withholding either because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding; and (3) Any other information provided on this form is true, correct and complete. SIGNATURE . . . . . . . . . . . . . . . . . . . . DATE . . . . . . 1995 NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU WITH RESPECT TO THE NEW NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OFTAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. -12- EX-99.2 11 NOTICE OF GUARANTEE DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY for Tender of 9 7/8% Senior Notes due 2005, Series A in Exchange for 9 7/8% Senior Notes due 2005, Series B WALBRO CORPORATION This form or one substantially equivalent hereto must be used by a holder to accept the Exchange Offer of Walbro Corporation, a Delaware corporation (the "Company"), who wishes to tender 9 7/8% Senior Notes due 2005, Series A (the "Old Notes") to the Exchange Agent pursuant to the guaranteed delivery procedures described in "The Exchange Offer -- Guaranteed Delivery Procedures" of the Company's Prospectus, dated , 1995 (the "Prospectus") and in Instruction 2 to the related Letter of Transmittal. Any holder who wishes to tender Old Notes pursuant to such guaranteed delivery procedures must ensure that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the Expiration Date (as defined below) of the Exchange Offer. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus or the Letter of Transmittal. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. The Exchange Agent for the Exchange Offer is: Bankers Trust Company
By Hand/Overnight Courier: By Mail: Bankers Trust Company Bankers Trust Company Corporate Trust & Agency Group Corporate Trust & Agency Group Receipt & Delivery Window Reorganization Department 123 Washington St., 1st Floor P.O. Box 1458 New York, NY 10006 Church Street Station New York, NY 10008-1458
By Facsimile: (212) 250-3290 and (212) 250-6275 Confirm by Telephone: (212) 250-6270 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OFINSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED BOX ON THE LETTER OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES. 2 Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal. The undersigned hereby tenders the Old Notes listed below:
Certificate Number(s) (if known) of Old Notes or Aggregate Principal Aggregate Principal Account Number at the Book-Entry Facility Amount Represented Amount Tendered
PLEASE SIGN AND COMPLETE Signatures of Registered Holder(s) or Date: ____________________________________________ Authorized Signatory: ___________________ ___________________________________________________ Address: _________________________________________ ___________________________________________________ ___________________________________________________ Name(s) of Registered Holder(s): _________________ Area Code and Telephone No. _____________
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly as their name(s) appear on certificates for Old Notes or on a security position listing as the owner of Old Notes, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information. Please print name(s) and address(es) Names(s): ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Capacity: ________________________________________________________________________________ Address(es): ________________________________________________________________________________ ________________________________________________________________________________ -2- 3 GUARANTEE (Not to be used for signature guarantee) The undersigned, a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or is a commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, guarantees deposit with the Exchange Agent of the Letter of Transmittal (or facsimile thereof), together with the Old Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility described in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures" and in the Letter of Transmittal and any other required documents, all by 5:00 p.m., New York City time, within five New York Stock Exchange trading day following the Expiration Date. Name of Firm: ________________________________________ ____________________________________________________ Authorized Signature Address: ______________________________________________ Name: _____________________________________________ ________________________________________________________ (Include Zip Code) Title:____________________________________________ (Please type or print) Area Code and Telephone Number: ____________________________________________________ Date: ___________________________________, 1995
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS. -3- 4 INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1.Delivery of this Notice of Guaranteed Delivery. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and sole risk of the holder, and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. As an alternative to delivery by mail, the holders may wish to consider using an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedures, see Instruction 2 of the Letter of Transmittal. 2.Signatures on this Notice of Guaranteed Delivery. If this Notice of Guaranteed Delivery is signed by the registered holder(s) of the Old Notes referred to herein, the signature must correspond with the name(s) written on the face of the Old Notes without alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of the Old Notes, the signature must correspond with the name shown on the security position listing as the owner of the Old Notes. If this Notice of Guaranteed Delivery is signed by a person other than the registered holder(s) of any Old Notes listed or a participant of the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by appropriate bond powers, signed as the name of the registered holder(s) appears on the Old Notes or signed as the name of the participant shown on the Book-Entry Transfer Facility's security position listing. If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and submit with the Letter of Transmittal evidence satisfactory to the Company of such person's authority to so act. 3.Requests for Assistance or Additional Copies. Questions and requests for assistance and requests for additional copies of the Prospectus may be directed to the Exchange Agent at the address specified in the Prospectus. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. -4- EX-99.3 12 LETTER TO BROKERS 1 EXHIBIT 99.3 [WALBRO LOGO] FOR TENDER OF 9 7/8% SENIOR NOTES DUE 2005, SERIES A IN EXCHANGE FOR 9 7/8% SENIOR NOTES DUE 2005, SERIES B WALBRO CORPORATION THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. To Registered Holders and Depository Trust Company Participants: We are enclosing herewith the material listed below relating to the offer by Walbro Corporation (the "Company"), a Delaware corporation, to exchange its 9 7/8% Senior Notes Due 2005, Series B (the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its issued and outstanding 9 7/8 Senior Notes Due 2005, Series A (the "Old Notes") upon the terms and subject to the conditions set forth in the Company's Prospectus, dated , 1995, and the related Letter of Transmittal (which together constitute the "Exchange Offer"). Enclosed herewith are copies of the following documents: 1. Prospectus dated , 1995; 2. Letter of Transmittal (together with accompanying Substitute Form W-9 Guidelines); 3. Notice of Guaranteed Delivery; and 4. Letter which may be sent to your clients for whose account you hold Old Notes in your name or in the name of your nominee, with space provided for obtaining such client's instruction with regard to the Exchange Offer. We urge you to contact your clients promptly. Please note that the Exchange Offer will expire on the Expiration Date unless extended. The Exchange Offer is not conditioned upon any minimum number of Old Notes being tendered. 2 Pursuant to the Letter of Transmittal, each holder of Old Notes will represent to the Company that (i) the New Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the undersigned, (ii) neither the undersigned nor any such other person has an arrangement or understanding with any person to participate in the distribution within the meaning of the Securities Act of such New Notes, (iii) if the undersigned is not a broker-dealer, or is a broker-dealer but will not receive New Notes for its own account in exchange for Old Notes, neither the undersigned nor any such other person is engaged in or intends to participate in the distribution of such New Notes and (iv) neither the undersigned nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or, if the undersigned is an "affiliate," that the undersigned will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the undersigned is a broker-dealer (whether or not it is also an "affiliate") that will receive New Notes for its own account in exchange for Old Notes, it represents that such Old Notes were acquired as a result of market-making activities or other trading activities, and it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes, the undersigned is not deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The enclosed Letter to Clients contains an authorization by the beneficial owners of the Old Notes for you to make the foregoing representations. The Company will not pay any fee or commission to any broker or dealer or to any other persons (other than the Exchange Agent) in connection with the solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Company will pay or cause to be paid any transfer taxes payable on the transfer of Old Notes to it, except as otherwise provided in Instruction 7 of the enclosed Letter of Transmittal. Additional copies of the enclosed material may be obtained from the undersigned. Very truly yours, BANKERS TRUST COMPANY -2- EX-99.4 13 LETTER TO CLIENTS 1 EXHIBIT 99.4 [WALBRO LOGO] FOR TENDER OF 9-7/8% SENIOR NOTES DUE 2005, SERIES A IN EXCHANGE FOR 9-7/8% SENIOR NOTES DUE 2005, SERIES B WALBRO CORPORATION THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. To Our Clients: We are enclosing herewith a Prospectus, dated , 1995, of Walbro Corporation (the "Company"), a Delaware corporation, and a related Letter of Transmittal (which together constitute the "Exchange Offer") relating to the offer by the Company, to exchange its 9-7/8% Senior Notes Due 2005, Series B (the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act") for a like principal amount of its issued and outstanding 9-7/8% Senior Notes Due 2005, Series A (the "Old Notes"), upon the terms and subject to the conditions set forth in the Exchange Offer. The Exchange Offer is not conditioned upon any minimum number of Old Notes being tendered. We are the holder of record of Old Notes held by us for your own account. A tender of such Old Notes can be made only by us as the record holder and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Old Notes held by us for your account. We request instructions as to whether you wish to tender any or all of the Old Notes held by us for your account pursuant to the terms and conditions of the Exchange Offer. We also request that you confirm that we may on your behalf make the representations contained in the Letter of Transmittal. Pursuant to the Letter of Transmittal, each holder of Old Notes will represent to the Company that (i) the New Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the undersigned, (ii) neither the undersigned nor any such other person has an arrangement or understanding with any person to participate in the distribution within the meaning of the Securities 2 Act of such New Notes, (iii) if the undersigned is not a broker-dealer, or is a broker-dealer but will not receive New Notes for its own account in exchange for Old Notes, neither the undersigned nor any such other person is engaged in or intends to participate in the distribution of such New Notes and (iv) neither the undersigned nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or, if the undersigned is an "affiliate," that the undersigned will comply with the registration nd prospectus delivery requirements of the Securities Act to the extent applicable. If the undersigned is a broker-dealer (whether or not it is also an "affiliate) that will receive New Notes for its own account in exchange for Old Notes, it represents that such Old Notes were acquired as a result of market-making activities or other trading activities, and it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes, the undersigned is not deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Very truly yours, -2- EX-99.5 14 INSTRUCTION 1 EXHIBIT 99.5 [WALBRO LOGO] INSTRUCTION TO REGISTERED HOLDER AND/OR BOOK ENTRY TRANSFER PARTICIPANT FROM BENEFICIAL OWNER FOR TENDER OF 9-7/8% SENIOR NOTES DUE 2005, SERIES A IN EXCHANGE FOR 9-7/8% SENIOR NOTES DUE 2005, SERIES B WALBRO CORPORATION THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. To Registered Holder and/or Participant of the Book-Entry Transfer Facility: The undersigned hereby acknowledges receipt of the Prospectus dated , 1995 (the "Prospectus") of Walbro Corporation, a Delaware corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer") to exchange its 9-7/8% Senior Notes Due 2005, Series B (the "New Notes") for all of its outstanding 9-7/8% Senior Notes Due 2005, Series A (the "Old Notes"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder and/or book-entry transfer facility participant, as to the action to be taken by you relating to the Exchange Offer with respect to the Old Notes held by you for the account of the undersigned. The aggregate face amount of the Old Notes held by you for the account of the undersigned is (FILL IN AMOUNT): $__________ of the 9-7/8% Senior Notes Due 2005, Series A. 2 With respect to the Exchange Offer, the undersigned hereby instructs you (CHECK APPROPRIATE BOX): [ ] To TENDER the following Old Notes held by you for the account of the undersigned (INSERT PRINCIPAL AMOUNT OF OLD NOTES TO BE TENDERED (IF ANY): $_______________ [ ] NOT to TENDER any Old Notes held by you for the account of the undersigned. -2- 3 If the undersigned instructs you to tender the Old Notes held by you for the account of the undersigned, it is understood that you are authorized to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representation and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations, that (i) the New Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the undersigned, (ii) neither the undersigned nor any such other person has an arrangement or understanding with any person to participate in the distribution within the meaning of the Securities Act of 1933, as amended (the "Securities Act") of such New Notes, (iii) if the undersigned is not a broker-dealer, or is a broker-dealer but will not receive New Notes for its own account in exchange for Old Notes, neither the undersigned nor any such other person is engaged in or intends to participate in the distribution of such New Notes and (iv) neither the undersigned nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or, if the undersigned is an "affiliate," that the undersigned will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the undersigned is a broker-dealer (whether or not it is also an "affiliate") that will receive New Notes for its own account in exchange for Old Notes, it represents that such Old Notes were acquired as a result of market-making activities or other trading activities, and it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes, the undersigned is not deemed to admit that it is an "underwriter" within the meaning of the Securities Act. -3- 4 SIGN HERE Name of beneficial owner(s): _________________________________________________ Signature(s): ________________________________________________________________ Name(s) (please print): ______________________________________________________ Address: _____________________________________________________________________ ______________________________________________________________________________ Telephone Number: ____________________________________________________________ Taxpayer Identification or Social Security Number: ___________________________ Date: ________________________________________________________________________ -4- EX-99.6 15 FORM W-9 1 EXHIBIT 99.6 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. - ------------------------------------------------------------
GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ------------------------------------------------------- 1. An individual's The individual account 2. Two or more The actual owner of the individuals account or, if combined (joint account) funds, any one of the individuals1 3. Husband and wife The actual owner of the (joint account) account or, if joint funds, either person1 4. Custodian account of a The minor2 minor (Uniform Gift to Minors Act) 5. Adult and minor The adult or, if the minor (joint account) is the only contributor, the minor1 6. Account in the name of The ward, minor, or guardian or committee incompetent person3 for a designated ward, minor or incompetent person 7. a. The usual revocable The grantor-trustee1 savings trust account (grantor is also trustee) b. So-called trust The actual owner1 account that is not a legal or valid trust under state law 8. Sole proprietorship The owner4 account
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GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ------------------------------------------------------- 9. A valid trust, The legal entity (Do not estate, or pension furnish the identification trust number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)5 10. Corporate account The corporation 11. Religious, The organization charitable, or educational organization account 12. Partnership account The partnership 13. Association, club or The organization other tax-exempt organization 14. A broker or The broker or nominee registered nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- ------------------------------------------------------------ - ------------------------------------------------------------ 1 List first and circle the name of the person whose number you furnish. 2 Circle the minor's name and furnish the minor's social security number. 3 Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. 4 Show the name of the owner. 5 List first and circle the name of the legal trust, estate or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - - A corporation. - - A financial institution. - - An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan. - - The United States or any agency or instrumentality thereof. - - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - - An international organization or any agency or instrumentality thereof. - - A registered dealer in securities or commodities registered in the United States or a possession of the United States. - - A real estate investment trust. - - A common trust fund operated by a bank under section 584(a) of the Code. - - An exempt charitable remainder trust, or a nonexempt trust described in section 4947(a)(1) of the Code. - - An entity registered at all times under the Investment Company Act of 1940. - - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - - Payments to nonresident aliens subject to withholding under section 1441 of the Code. - - Payments to partnerships not engaged in a trade or business in the United States and which have at least one nonresident partner. - - Payments of patronage dividends where the amount received is not paid in money. - - Payments made by certain foreign organizations. - - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - - Payments of tax-exempt interest (including exempt-interest dividends under section 852 of the Code). - - Payments described in section 6049(b)(5) of the Code to non-resident aliens. - - Payments on tax-free covenant bonds under section 1451 of the Code. - - Payments made by certain foreign organizations. - - Payments made to a nominee. EXEMPT PAYEES DESCRIBED ABOVE MUST STILL COMPLETE THE SUBSTITUTE FORM W-9 ENCLOSED HEREWITH TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE SUBSTITUTE FORM W-9 WITH THE PAYER, REMEMBERING TO CERTIFY YOUR TAXPAYER IDENTIFICATION NUMBER ON PART III OF THE FORM, WRITE "EXEMPT" ON THE FACE OF THE FORM AND SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A, and 6050N of the Code and their regulations. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividends, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. Payers must be given the numbers whether or not recipients are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. 3 - --------------------------------------------------------------------------------------------------- PAYER'S NAME: BANKERS TRUST COMPANY - --------------------------------------------------------------------------------------------------- SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN PART III--Social Security FORM W-9 IN THE BOX AT RIGHT AND CERTIFY Number OR DEPARTMENT OF THE TREASURY BY SIGNING AND DATING BELOW. Employer Identification Number INTERNAL REVENUE SERVICE (If awaiting TIN write "Applied For") -------------------------------------------------------------------------------- PART II--For Payees Exempt From Backup Withholding, see the Payer's Request for Taxpayer enclosed Guidelines for Certification of Taxpayer Identification Identification Number (TIN) Number on Substitute Form W-9 and complete as instructed therein. - --------------------------------------------------------------------------------------------------- CERTIFICATION--Under penalties of perjury, I certify that: (1) The Number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me); and (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you were no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed Guidelines.) - -------------------------------------------------------------------------------- NAME____________________________________________________ (Please Print) SIGNATURE_______________________________________________ DATE ________________ - -------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER TO PURCHASE. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TIN. - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, 31% of all payments of the Offer Price made to me thereafter will be withheld until I provide a number. SIGNATURE_________________________________________ DATE_______________________ - --------------------------------------------------------------------------------
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